Any chart pattern trader should be familiar with bull trap chart patterns as they are quite common in markets such as Forex, Futures, and the Stock market.
Another term for a bull trap is an “upthrust” and that term was coined by Richard Wyckoff. This is a chart pattern that I use quite regularly along with its cousin the bear trap when looking for trapped traders and to profit from their actions.
When we are in a bull market, you want to be on alert for this chart pattern at major resistance levels. I like to see a rush of momentum into the highs to have a higher probability of seeing a bull trap pattern take place.
Let’s me show you what to look for and the 3 bull trap chart patterns to look for.
Bull Trap Technical Analysis
A bull trap chart is a bearish signal that forms in an uptrend. The most common place for bull trap to happen is in a major resistance level/zone.
It does not have to be an all time high and we are looking for a bull trap in a bullish market, not a bear market.
If the setup fits your criteria, you’d be looking to sell which would be a counter trend position during a bull market.
It is possible that you will catch a turn in trend but you should look at that as a gift.
What happens during a bull trap:
- Price is in an uptrend and hits the resistance level, breaks it and continue to move up.
- Breakout traders jump in with their buy orders and price shoots up
- Traders will sell limit short are triggered in but price continues to move up and hits their stops
- Once the liquidity dries up at these levels, price falls back inside the resistance zone
- Traders get positioned short, the breakout traders jump in to make back their loss, short rejoin after getting stopped out
You can see where the term “trapped traders” comes from:
- Short traders get taken out and are trapped out of the market
- Longs are in the market and price pulls back against them trapping them and hoping for a bounce