Bull trap is a false signal, referring to a declining trend in a stock, index, or other security that reverses after a convincing rally and breaks a prior support level.
It is a situation that occurs when a steadily declining asset appears to reverse and go upward but soon resumes its downward trend. In a bull trap, the price of an asset surpasses its previous support levels, enticing traders and long-term investors to purchase more of the asset.
Bull traps are notorious for being deceptive indicators of an asset, especially for inexperienced traders in the crypto world. In fact, they are one of the reasons why traders should be cautious of any sharp reversal of an asset’s price as soon as it finishes a breakout, which is a price movement below a support level.
Bull traps can be avoided by being extra careful, such as looking for additional confirmation signals of a prolonged price rise after the initial breakout above the resistance level. Breakouts coupled with low trading volume are often a sign of an upcoming bull trap.