Bull Trap Decoded: What Is A Bull Trap And How Traders Get Caught

Ever wonder why your perfectly planned trade suddenly turns against you right after you enter? Welcome to the world of bull traps—one of the most brutal setups in trading that catches unsuspecting traders off guard and decimates their accounts.

What Is A Bull Trap Really Happening?

A bull trap occurs when price breaks above a resistance level with conviction, tricking traders into buying, only to reverse sharply downward. But understanding what is a bull trap requires looking deeper than just the price action itself.

Here’s the mechanism: After a prolonged uptrend, buyers have been controlling the market for an extended period and their buying power gradually weakens. When price reaches a key resistance zone, the momentum slows noticeably—shorter candlesticks begin forming as profit-taking accelerates. Early buyers start closing positions.

Then something deceptive happens. New buyers, seeing what appears to be a breakout confirmation, pour in fresh capital thinking the rally continues. But here’s the catch: the original buyers who dominated the trend have already exhausted their ammunition. Smart sellers recognize this moment and unleash aggressive selling pressure at precisely the right moment. The imbalance of escaping buyers versus incoming sellers flips the market violently lower, stop losses cascade, and trapped traders are left holding losing positions.

Red Flags That Predict What Is A Bull Trap Before It Strikes

Multiple Resistance Level Tests

If you’ve watched price approach a resistance zone repeatedly during a strong uptrend, yet it keeps getting rejected with pullbacks, you’re witnessing the classic warning sign. These aren’t fresh buyers pushing through—these are exhausted buyers losing their grip. Three or more tests of the same resistance without a clean break through is textbook pre-trap behavior.

The Unusually Large Bullish Candle

Right before the reversal, watch for an oversized bullish candle that dwarfs its predecessors. This formation typically represents either new traders chasing what they believe is a confirmed breakout, or sometimes even sophisticated players intentionally ramping price to activate sell orders above the zone and trigger stops. Either way, it’s your final warning bell.

Range Formation at Resistance

When price starts bouncing between a support and resistance level rather than pushing decisively higher, the trap is being set. The range might show slightly higher highs on the way up, but the inability to achieve clean breakouts is the giveaway. The breakout candle will close well outside this range—and that’s when the snare closes.

Three Classic Patterns That Reveal Bull Traps

The Rejected Double-Top: Two peaks form at roughly the same resistance level, but the second peak shows a massive upper wick. This wick signals violent seller rejection—buyers desperately tried pushing higher but sellers fought them off, leaving a trail of liquidated stops.

The Bearish Engulfing Completion: After price appears to break out, a large bearish candle completely engulfs prior bullish candles. This pattern confirms the trend reversal as sellers have seized control. Often preceded by a Doji (indecision candle) showing the final struggle between buyers and sellers before bears win decisively.

The Failed Retest: Perhaps the cruelest pattern. Price breaks above resistance convincingly, luring in late buyers. Then it comes back to retest that former resistance (now perceived support), breaks below it, and crashes. Experienced traders survive because they wait for the retest; inexperienced ones get trapped on the initial break.

How Professional Traders Sidestep Bull Traps

Avoid Chasing Late-Stage Trends

The longer an uptrend has run, the higher the probability of a trap forming. Careless traders add positions during pullbacks in extended rallies, only to get whipsawed when reversal comes. Disciplined traders recognize “too long” and simply step aside.

Never Buy at Resistance—Wait for Retests

This is fundamental: resistance zones are where sellers congregate. Buying there is fighting the path of least resistance. Instead, wait for price to break resistance, pull back to retest it, and only then execute if momentum confirms. Your entry point becomes significantly lower, reducing loss if the trap activates.

Read Price Action Like a Book

What do the candlesticks tell you at resistance? If shorter candles form with minimal volume, there’s no fuel for continuation—don’t buy. If long-wicked candles appear with rejection, bears are capping the move—definitely don’t buy. Bearish candles growing while bullish candles shrink? Sellers are winning the battle.

Converting Bull Traps Into Profitable Trades

The Retest Buy Strategy

Wait for the second touch of resistance after a breakout. As price pulls back to retest that zone-turned-support, look for bullish engulfing or other bullish candlestick patterns forming. This combination suggests the breakout will hold and you can buy with your stop loss positioned below the support level and take profit at the next resistance up.

The Reversal Short Strategy

This is the safer approach: accept that the trap has occurred and trade with the new downtrend. Wait for price to close below the former resistance (breaking the support), then confirm with a retest that generates a bearish pattern like engulfing. Short from here with stops above resistance and targets at lower support levels. This method aligns you with the momentum shift rather than fighting it.

The Bottom Line on Bull Traps

Bull traps are designed to punish careless traders but reward those who understand market structure and patience. By recognizing the warning signs—multiple resistance tests, oversized breakout candles, range patterns—and employing tactical entry strategies like waiting for retests and observing genuine price action, traders transform what’s usually a losing setup into potential opportunities. The key is always reading what price is actually doing, not what you hope it’s doing.