A bull trap is a false technical signal where the price briefly breaks above a resistance level, enticing buyers to enter long positions, before quickly reversing and falling back below the level. It traps traders who bought the breakout, often resulting in losses as price continues lower. Bull traps commonly occur during bear markets or extended downtrends when temporary rallies mislead traders into believing a reversal is underway. Experienced traders look for volume confirmation and sustained closes above resistance to avoid bull traps.
Example
“The stock broke above $100 resistance but immediately reversed back to $95, creating a textbook bull trap that caught breakout buyers off guard.”