Any chart pattern trader should be familiar with bull trap chart patterns as they are quite common in markets such as Forex, Futures, and the Stock market.
Another term for a bull trap is an “upthrust” and that term was coined by Richard Wyckoff. This is a chart pattern that I use quite regularly along with its cousin the bear trap when looking for trapped traders and to profit from their actions.
When we are in a bull market, you want to be on alert for this chart pattern at major resistance levels. I like to see a rush of momentum into the highs to have a higher probability of seeing a bull trap pattern take place.
Let’s me show you what to look for and the 3 bull trap chart patterns to look for.
Bull Trap Technical Analysis
A bull trap chart is a bearish signal that forms in an uptrend. The most common place for bull trap to happen is in a major resistance level/zone.
It does not have to be an all time high and we are looking for a bull trap in a bullish market, not a bear market.
If the setup fits your criteria, you’d be looking to sell which would be a counter trend position during a bull market.
It is possible that you will catch a turn in trend but you should look at that as a gift.
What happens during a bull trap:
- Price is in an uptrend and hits the resistance level, breaks it and continue to move up.
- Breakout traders jump in with their buy orders and price shoots up
- Traders will sell limit short are triggered in but price continues to move up and hits their stops
- Once the liquidity dries up at these levels, price falls back inside the resistance zone
- Traders get positioned short, the breakout traders jump in to make back their loss, short rejoin after getting stopped out
You can see where the term “trapped traders” comes from:
- Short traders get taken out and are trapped out of the market
- Longs are in the market and price pulls back against them trapping them and hoping for a bounce
What’s A Bull Trap Candlestick
A bull trap can come in different forms but at the core of it, we are looking for a candlestick that is extremely bullish, break the resistance zone, and then turns bearish.
Bull Trap Chart Pattern #1
A Bull Trap Candlestick Breaks And Closes Above A Resistance Level But The Next 1st or 2nd Candlesticks After That Are Bearish
- You can see an obvious resistance level.
- Bull trap candlestick breaks the resistance level and closes above it.
- The 2 nd candlestick after the breakout is bearish.
- Note the next (2nd) candlestick is also bearish, almost a shooting star or bearish pin bar type of candlestick.
Bull Trap Chart Pattern #2:
A Bull Trap Candlestick Breaks The Resistance Level and Goes Up But Eventually Closes Below The Resistance Level Forming A Bearish Candlestick.
This is when the bull trap candlestick shoots up and then heads back down and forms a bearish candlestick or it can be a bullish candlestick with a “bearish momentum.”
It is a one pattern candlestick. You are only looking for one candlestick that does this.
This chart below shows you are very good example:
- Price breaks through the resistance level as if a real upward breakout causing buyers to jump in.
- Changes direction and head down and closes below the resistance level.
- Breakout of the low of this bull trap candlestick see price heading down.
- Bull trap candlesticks to look for in this situation are shooting stars or pin bar candlesticks.
- Ideally, look for bearish candlesticks in this situation or extremely bearish looking bullish candlesticks.
Bull Trap Chart Pattern #3
A Bullish Bull Trap Candlestick Breaks the Resistance Level, Goes Up But Closes Below The Resistance Level. The Next 1 or 2 Candlesticks are Bearish
Read the above carefully. The bull trap candlestick must be bullish…it will be green candlestick in other words.
The only thing is that it must close below the resistance level.
The fact that it is a bullish candlestick that closes below the resistance level will cause many bulls (buyers) to think that the price will continue to go up…
Then here comes the next clue: watch the 1st or 2nd candlestick after that. If they are bearish candlesticks, then there’s a great chance that it is a bull trap.
Summary Of Bull Trap Chart Patterns
- A bull trap chart pattern is a bearish signal when you see one forming.
- Ideally, we will see strong momentum breaking resistance
- Look to short the break of the bearish candlestick
- Failure of bull trap will be break of high so that’s a good stop location
- You may get stopped out and another bear candlestick appears. The bull trap is still valid as this may be coming from a higher time frame
- Keep price action in mind as you look to take your profits. We are still in an uptrend until proven otherwise.
It is also important for you to be knowledgeable about reversal candlestick patterns and understanding candlestick momentum so that you can be able to see the sell signals they generate when you see a potential for bull trap forming on the resistance levels.