Bull Trap
A bull trap is a false signal in the stock market that suggests a security or index is about to move higher when in fact the opposite is true. It is a situation in which an investor buys a stock believing that the price will continue to rise, only to find out that the price has reversed and is now falling. Bull traps are created when a stock or index breaks out of a trading range and then quickly reverses direction, trapping investors who bought the stock in the belief that the breakout was the start of a new uptrend.
History of the Term
The term “bull trap” was first used in the late 19th century by stock market traders to describe a situation in which a stock or index appears to be breaking out of a trading range, only to quickly reverse direction and trap investors who bought the stock in the belief that the breakout was the start of a new uptrend. The term has since been adopted by investors and traders to describe any situation in which a stock or index appears to be breaking out of a trading range, only to quickly reverse direction and trap investors who bought the stock in the belief that the breakout was the start of a new uptrend.
Comparison Table
| Term | Definition |
|---|---|
| Bull Trap | A false signal in the stock market that suggests a security or index is about to move higher when in fact the opposite is true. |
| Bear Trap | A false signal in the stock market that suggests a security or index is about to move lower when in fact the opposite is true. |
| Breakout | A situation in which a stock or index breaks out of a trading range. |
| Reversal | A situation in which a stock or index quickly reverses direction. |
Summary
A bull trap is a false signal in the stock market that suggests a security or index is about to move higher when in fact the opposite is true. It is created when a stock or index breaks out of a trading range and then quickly reverses direction, trapping investors who bought the stock in the belief that the breakout was the start of a new uptrend. For more information about bull traps, investors can visit websites such as Investopedia, The Balance, and MarketWatch.
See Also
- Bear Trap
- Breakout
- Reversal
- Technical Analysis
- Support and Resistance
- Trendlines
- Moving Averages
- Volume
- Momentum
- Relative Strength Index (RSI)
