Four Best ways to avoid a bull trap
In stock market trading, a bull trap is an inaccurate signal that shows a decreasing trend in a stock or any trading instrument has reversed and is now heading upwards when in fact, the security will continue to decline. It is seen as a trap because the bullish investor purchases the stock, thinking it will increase in value, but is trapped with a poor performing stock whose value is still falling.
Picture example of a bull trap
Ways to Avoid a bull trap
Give enough room for stop hunts
When you execute a trade put a large stop loss than can hold longer stop hunts, in case a bull trap happens. Its risky because the market sometimes will change direction completely and there is room to lose big. Some stop hunts are Broker orchestrated but they cant sustain them for long its a good story.
Don’t go against the trend
If there is a breakout and its not in line with the direction of the larger trend, do not trade it its risk to trade it, there is higher probability of for a bull trap. So nonmatter what happens always go with the larger trend.
Pay closer attention to 2 candles after the breakout
When you buy on the breakout on a resistance level and a price spikes up, The breakout candlestick is huge long green or blue very bullish candle and you make some profits then relax no need to if the next two candles shows signs of decreasing bullish momentum then its time to run away.
If you anticipate price to break resistance level and head up, and you don’t want to get caught in a bull trap then do not trade the breakout, wait for it if the price breaks the resistance level then that will be your confirmation. For your entry wait for a pull back and then enter a buy order.