Learn / Buy and sell signals
Bull Traps and Bear Traps
Breakouts by a single box that quickly fail.
A trap is a breakout that fails almost immediately. Price clears a well-tested level by a single box, draws in traders who acted on the signal, then reverses hard.
Bull Trap
The rule: a Triple Top (or larger) buy signal that exceeds the resistance level by only one box, followed immediately by a 3-box reversal into a column of O's.
Buyers who bought the breakout are quickly underwater. If price then falls further, their selling can add to the decline.
Bear Trap
The rule: a Triple Bottom (or larger) sell signal that exceeds the support level by only one box, followed immediately by a 3-box reversal into a column of X's.
Sellers who sold the breakdown are caught on the wrong side as price snaps back above support.
Protecting yourself
- Every one-box breakout is a potential trap until price continues. That doesn't mean ignore it; it means know your exit before you act.
- A breakout that extends two or more boxes past the level, or that is followed by a Catapult, is much less likely to be a trap.
- A Bear Trap can be a buying opportunity in its own right: the support level held after all.
For education only. Nothing here is investment advice or a recommendation to buy or sell any security.