Bull Trap

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A bull trap occurs when an asset quickly rises in price before falling again. Bull traps mislead traders into believing that an asset will continue performing well. Traders and investors who buy during the breakout are trapped in the trade. Traders and investors can search for certain indicators that the price will continue to move higher in an effort to avoid a bull trap.

Bull traps occur when buyers and traders fail to support a rally above a breakout level, and sellers typically move on the opportunity to sell, which drops prices below resistance levels and sometimes triggers stop-loss orders.