A bull trap is a situation when traders stay on long position when the price of a currency pairis increasing, only for the price to reverse and move lower.
A bull trap is also known as a sucker’s rally.
Some traders are fooled by bull trap into thinking a market is done falling and that it’s a great time to buy.
But look, this is not a good time, because the price changes quickly, trapping buyers in a losing trap.
Bullish traders think the recent price action signals that a downtrend has ended when it actually has NOT.
The price stays flat or the downward trend starts again instead of rising further.
When the price is in a downward trend, the wrong trend is reversed as a result of the bull trap.
The bull trap is the opposite of a "bear trap" that can fool traders into selling their bulls in the middle of the market too soon.
How a Bull Trap Works
The bull traps can occur when the downturn is exhausted.
There are folks who waits for a bargain after the decrease in the prices, and want to take first to back or pick up bottom simply.
Other traders want to take benefit of this behavior or want to exploit.
These traders, usually institutional traders, who “set” the bull trap do so by buying a currency pair until it makes a fool of other traders to think that the downward trend has stopped.
Large traders will buy large amounts in order to artificially drive the price upward to create a false bull market.
Other lovely names are a “bull market mirage” or bull…sh*t market.
Bell Traps encourages traders to enter long positions based on the expectation that prices will continue to rise, which never happens.
This increase in initial purchases could push prices above certain chart levels, and these "breakouts" could trigger further purchases.
Bullies and / or amateur traders who fall into the trap of bulls are often tall, thinking the price will go up further.
They think they’ll be rich soon and start shopping for a Hermès Himalaya Birkin Bag.
On that stage, the institutional traders who are ready to trap will release the trap and sell higher prices.
Due to this step a trap occurs and causes a quick decline in the price.
Infact, the breakouts are fakeouts, the price will go on a downward path.
Finally, the suckers are forced to exit out of their long positions.
Selling is required to escape from the long positions. Resultantly, the selling pressure will further cause a decline in price.
The bulls are caught in a trap. They got tricked.
On the release of a bull trap, the price usually starts going to its downtrend.
A
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