Dodge Bull & Bear Hunters’ Deadly Traps Using These 3 Tricks

Before entering the main discussion, let’s explain bull and bear markets.

A bull market is a situation in which you can see asset price growth for a considerable time, encouraging buying; in a bear market, on the other hand, the price declines for a while, encouraging selling.

Let’s return to our discussion.

After a minimal rise, the bull trap forms when analysts and traders expect the price to move upward, so traders open their long positions hoping for the price to go up. Those traders are caught off guard when the price then goes down, trapping them.

In this case, traders without correct stop losses suffer heavy losses. They are the so-called “bull trap fallen”. You must beware of these traps in any market direction, whether it is going upward, downward, or sideways (range market).

ّOccasionally, for the bull trap to create a reversal pattern, the price ranges below a resistance zone.

In some charts, you can see that the bull trap changes the upward trend to the downward trend after creating classic reversal patterns such as double top pattern, head & shoulders pattern, diamond pattern, etc.

Now that we know the story behind these traps, it is time to deal with them. In the following part, we will learn to avoid getting trapped and make dollars with the hunters instead.

Dealing with Bull Traps

It is a common practice for traders to enter a long position when the price breaks a well-tested resistance zone. That’s exactly how so many novice traders fall into such traps – fake breakouts. This begs the question, how can we make sure that the resistance zone breakout is valid?

This is a tricky question, and few actually know the answer.

To identify the bull traps before getting trapped in them, you first must know how to separate valid breakouts from traps. Failure to do so might end in you getting trapped and losing a ton of money.

To ensure a breakout is valid, you have to look for the following three key confirmations:

1. Trading volume increase
2. Bullish candlestick patterns
3. Market trend in higher time frames

To be a successful trader, you must know about all of these in detail. Let’s not waste time and jump to the first item: trading volume.

Trading Volume Increase:

For the breakout to be valid, the breakout candle volume must be significantly higher than before. It doesn’t end there, though; the trading volume after the breakout candle must remain at least above average for the breakout to be valid.

In a bull trap, the fake breakout candle volume either doesn’t increase at all or increases slightly before it dies off with the following candles.

Market momentum is key in breakouts. When you see the market is losing momentum after the breakout candle, or you can tell there isn’t much momentum to begin with, it is a dangerous sign that hunters might be setting a trap for newbie traders.

Although you must consider trading volume, considering candlesticks and their patterns are equally as important since they clearly show market momentum.

Seeing bullish candlestick patterns in an upward breakout can be a sign that the breakout is not fake.

Bullish candlestick patterns:

Only two scenarios exist when it comes to valid breakouts. Either the breakout candle is a gigantic momentum candle pushing the price much higher than the resistance, or several smaller candles upward appear on the chart.

In the first case, a Marubozu candle is an ideal candle to see – a long green body and no wick (or a really small one compared to the body) supported by a large trading volume signals the buyers’ huge interest.

You can also see the same interest when another pattern forms on the chart: the three white soldiers pattern. This pattern forms when three green candles, supported by three higher-than-average trading volumes appear on the chart.

The three white soldiers pattern is a reversal candlestick pattern but sometimes it acts as a continuation pattern, meaning that the price probably continues to go up and you are unlikely to get trapped in a bull trap.

The Marubozu candle and three white soldiers patterns both have high market momentum. Don’t forget that market momentum is key in valid breakouts. When you see momentum candles on an upward chart, it’s highly unlikely that you’ll see a bull trap.

On the other hand, the Doji candles kill the upward market momentum. If the initial breakout candle is followed by a Doji candle and lower volumes, beware the hunters because they probably have a trap in mind.

I always have the market trend in mind when trading, and so should you. Let’s talk more about the market trend subject.

Market trend in Higher time frames:

Market trend plays a huge role. If the price is in a consolidation phase with lower volumes after an apparent upward trend with higher volumes, the price is likely to go up afterward.

Likewise, when you see a strong upward trend in higher time frames, you are unlikely to get trapped in a bull trap in lower time frames – not that it is impossible to get trapped, but the chances of you falling prey drop significantly.

However, that’s not guaranteed. Reversal patterns (such as head and shoulders, bump-and-run reversal, double top, etc.) forming below or about the resistance zone can be signaling to price direction reversing and potentially creating a bull trap.

Albert Schweitzer said: “A good example has twice the value of good advice.”

Let’s continue our lesson with an example.

Trading with Bull Traps

As you can see in the picture, our example starts with an upward trend. A clear resistance zone can be seen on top, that’s where the trap will be set. The upward trend continues until it reaches a resistance zone.

The resistance zone might reject the price several times before the eventual breakout. When the fake breakout comes, it is supported by an initial pump in volume, but the momentum then dies soon after, creating a bull trap.

When you notice the trap, wait for the prey to fall for it: traders who expect an upward trend open long positions and set their stop losses.

When hunters notice the loss of momentum in the market, they set their massive sell orders, causing the red candles to show up one after the other. The trap is set and the price heads down, hitting amateur traders’ stop losses one after the other.

This, combined with the rest of the market selling, turns the price trend downward. With the valid breaking of the last support, the price reaches our entry point.

The standard stop-loss approach states that you should place your stop loss above the trap’s peak. You can also choose the second approach with a higher risk-to-reward ratio, which is to set your stop loss above the support zone breakout candle.

As for the take profit price, measure the price difference between the trap’s peak and the support zone floor, subtract it from your short entry, and voila – that’s where you should take your profit.

As a side note, after the support zone breakout, the price might head back up and test the support zone, which now has turned into a resistance zone. If this happens, it only adds to our strategy’s validity.

Now would be the right time to share my memorable experience with a bull trap.

The Trade Story

Everything started with me noticing the bull trap on the gold chart (XAU/USD) in a 1-hour time frame.

The price was on a solid upward trend. It went up until a pivot downward, then headed down until another pivot upward; I found the support zone.

Those hours hit the resistance zone multiple times, respected and validated the resistance further. A green Marubozu candle broke the resistance zone, but I didn’t see much momentum behind it.

As I expected, the price dropped after an initial momentum candle followed by a Doji, and since unlike novice traders, I predicted the trap, the hunters couldn’t catch me. I decided to wait for the price to break the support zone so I could open my short position confidently.

Another momentum candle marked the support zone breakout, this time a red momentum candle downward. With the volume in check, I entered my short position below the closing of the breakout candle at $1836.

I set my stop loss above the last support zone (a resistance zone at that moment) at $1852 just to make sure that if the price retested the zone, my stop loss would not prevent me from profiting from the trade.

I’m a simple man with a simple take-profit formula. The trap peak price to the floor of the support zone is equal to your entry to the take-profit price. Thus, I placed my take-profit at $1810.

In the same boat as the hunters, I saw the price plummet and hit my take profit point. The result was the precious 8000 dollars that I added to my portfolio.

So far, we learned that in an upward trend, big bears might try to trap bulls and feed off of their losses. However, sometimes everything is the other way around, and bears get trapped while bulls feast on them. Let’s discuss those next.

Bear traps have many similarities with their bull counterparts. Despite their similarities, the devil is in the details, so a deeper explanation is essential to winning this hunting game.

In an apparent downward trend, the price might head down until it hits a support zone. Once it does, it bounces off and goes up until it hits a resistance zone, which it can not pass, so the price pivots back down.

These two zones keep rejecting the price until a strong downward move breaks the support zone, creating a perfect opportunity for the hunters to set a trap.

You must use the same confirmations as the bull trap here. A market volume continuous rise signals high market momentum combined with continuation/momentum candles and a look at the chart in higher time frames.

As soon as the price breaks the support zone, hunters prepare to set traps. Consider the following if you don’t want to fall prey.

When the market is in a solid downtrend in higher time frames, falling prey to bear traps in lower time frames is unlikely.

If the momentum candle downward is not backed up by a steady rise in volume, it is a dangerous signal hinting at a trap.

Momentum candles in this example are either a red Marubozu candle or the three black crows candlestick pattern (which normally is a reversal pattern, but sometimes acts as a continuation pattern).

The bottom reversal patterns, such as the bump-and-run reversal bottom pattern, the rounding bottom pattern, and other classic reversal patterns can alert us to a reversal despite the seeming breakout of the support zone. Beware the traps.

Eventually, the support will be broken, and with the market volume and momentum being low, the trap will be set. Large corporate buy orders shoot the price high, and with the bears trapped, buyers join up, pushing the price even higher.

That is how amateur traders who open short positions with the breakout get trapped and lose money.

To prevent getting trapped, make sure the breakout is valid by checking the exact same clues as I explained in the bull trap, trading volume, momentum or continuation candlestick patterns, and finally, the overall direction of the market.

To open a long position with the whales, I stick to a conservative plan: safety first. Wait for the price to go up and break the resistance zone. After a valid breakout, this last resistance zone (now support) can be retested. It only validates the pattern further.

I will teach you how to trade with bear traps that appear on charts.

Let’s profit with the hunters.

Trading with Bear Traps

To trade with the bear trap, you must first wait for the price to go up and pass the last resistance zone. You need to make sure the resistance breakout is valid using my mentioned techniques. Then you are free to open your long position.

If you’re erring on the side of caution, you can wait for a retest of the last resistance zone (now support) and then open your long position.

You can choose between these two approaches for your stop loss.

The first is to set it way down on the bear trap’s lowest price, and the second, with a higher risk-to-reward ratio, is to set it below the resistance zone breakout candle.

Finding the take-profit price isn’t that hard; you just have to calculate the price difference between the bear trap lowest and the resistance zone, then add it to your entry, and you’ll get your take-profit price.

Let me share an experience of mine in which I made a couple thousand on a bear trap.

The Trade Story

The bitcoin (BTC/USDT) chart in the 15-minute timeframe was on my radar when I noticed a bear trap forming.

First, the price was on a downtrend. It went down until it hit the support, headed up, and then reversed, heading down again. After the breakout of the first support at $15900, I marked it as the new resistance.

The price went down until the new support formed at $15600. It was ranging between a ceiling of $15900 and a floor of $15600. The price broke the $15600 support momentarily, but without market downward momentum, it died off as soon as it started, creating a bear trap.

I waited for the price to close above the resistance zone, because only with a valid breakout of the resistance zone would I be allowed to enter my long position. With the valid breakout upward, I opened my long position at $16070.

You can see in the picture that the green breakout candle is a momentum candle. I set my stop loss just below it. That way, I would be sure that the price would not hit my stop loss when retesting this previous resistance zone (support afterward).

As for my take profit price, I measured the price difference between the bear trap trough and the resistance zone above, added that to my entry, and placed my take profit price at $16480.

The result was a $6000 smile on my face, knowing that I outsmarted many novice traders.

You learned about the bull trap on an upward trend and the bear trap on a downward trend, but the majority of the time, the price ranges between two parallel lines to the horizon.

You must be aware of bull/bear traps on the range market; they are always risky, but also profitable if you know what you’re doing.

Since 70 to 80% of the time the chart is in a range market; you have to learn the sideways market in detail.

As mentioned before, the range market moves between two lines, a support below and a resistance above. When the price goes up, closing in the resistance zone, more sales usually push the price down.

The reversed version of this happens around the support zone. Lower prices attract buyers, so they buy and pump the price.

Occasionally, the extreme sell pressure outweighs the buyers, causing the price to break the support zone and close below it. Without enough market momentum, large institutional buy orders come and set a bear trap.

Traders who open short positions after the breakout candle might sometimes get caught in these traps and lose money. However, before entering, professionals like us consider market volume and momentum, candlestick patterns, buy/sell orders, and market trends in higher time frames.

Market trend in a higher time frame is key. When the range market forms in lower time frames, if in higher time frames the price is in an upward trend, bear traps are much more likely to form than bull traps. It is vice versa for a downward trend.

You also must look for clues confirming the validity of the breakout. Massive buy orders against the market’s apparent downward trend can be a huge clue to a bear trap. Make sure that market volume and momentum in your favorable direction are high before entering a position.

The bear traps are not the only danger; sometimes, bulls get caught and suffer heavy losses. A bull trap forms when the resistance zone breaks by a momentum candle, but shortly after, the loss of market volume and large corporate sell orders reverses the price direction downward.

It’s a sad story for novice traders who open longs as soon as they see the resistance zone breakout form.

Since price fluctuations are minor in range markets, it is much harder to trade in a range market than it is in a trending market. Because of this I’m suggesting you dedicate more time to practicing and customizing your own trading strategy. That way, you can fall into fewer traps or avoid them altogether.

Remember that using indicators like Bollinger bands can help you identify the range markets.

What is a bull trap?

The bull trap forms when a fake breakout with low market momentum and volume happens upward, and novice traders open their long positions hoping for a rise in the price.

Meanwhile, big institutional traders’ massive sell orders reverse the price direction, trapping the bulls and causing the price to dump instead of the expected pump.

What is a bear trap?

The bear trap forms when a fake breakout with low market momentum and volume happens downward, and novice traders open their short position hoping for a drop in the price.

Meanwhile, big institutional traders’ massive buy orders reverse the price direction, trapping the bears and causing the price to pump instead of the expected dump.

How to avoid the bull/bear traps?

To avoid getting trapped in a bull/bear trap, you must first look for momentum candles breaking the resistance (bull trap) or support (bear trap) zone. You also must consider the post-breakout market volume and momentum; it has to be above average.

Additionally, pay attention to massive opposing orders and also the market trend in higher time frames.

How to profit from the bull/bear traps?

To profit from the bull/bear trap, you must side with the hunter and feast on the prey. Look for confirmations signaling the formation of a trap. With the trap in work, wait for the valid breakout of the support (bear trap) or the resistance (bull trap) zone.

Open either your long or short position respectively, and enjoy profiting with the whales.

When can the bull/bear traps be seen?

The bull/bear traps form in all markets regardless of market direction. You can find a bear or a bull trap, respectively, when the support or resistance zone is broken with low trading volume.

Conclusion

Every field of work can be profitable, though risky, and financial markets are no exception. Bull and bear traps are two examples of such risks. If you turn a blind eye to them, you may suffer losses.

This article taught you that bull traps could ambush you in a resistance zone bullish trap. The same sad old story about the support zone bear traps, which trap the bears and feed the bulls.

Although bulls and bears are in a constant battle, there’s no clear winner of the war. One day bulls are trapped, and the other bears. One day bears feed off bulls, and the day after, bulls feed off bears.

We can never guarantee what the future holds for the market, but we can use various tools and indicators to avoid danger and find safe spots to trade and profit.

You will never be a master trader unless you get your hands dirty and get to work, practice day after day, and gain as much experience as you possibly can. Only then can you trade like a pro, profit like a pro, and set traps like a hunter.

I appreciate you sticking with me to the end of the article, and I hope I’ve helped you learn to identify traps and make money with them.