How to Spot and Profit from a Bull Trap: A Trader's Guide

We’ve all been there—a trade looks textbook perfect until you’re in it, and suddenly the market turns against you. These are “trap trades,” and the bull trap is arguably the most infamous of them all. It lures traders in with the appearance of a breakout, only to reverse sharply and leave them holding losses. The good news? Once you understand what’s happening, bull traps can become profitable setups rather than painful lessons.

Understanding the Bull Trap Mechanics

A bull trap occurs when an asset’s price breaks above a key resistance level—exactly what traders expect—but then reverses sharply downward. The trap lies in the false confirmation. Buyers see the breakout and rush in, believing the uptrend will continue. But moments later, aggressive selling pressure drives the price back down, triggering stop losses and leaving new buyers trapped in a losing position.

Here’s what’s actually happening behind the scenes: After a prolonged uptrend, buyers are running low on capital and conviction. When price reaches a resistance zone, it naturally slows. Longer-term traders take profits. The market pauses. Then, a fresh wave of buyers tries to push through—creating what looks like a breakout. But resistance zones exist for a reason. The sellers who’ve been waiting here have the upper hand. They see low buying volume and flood the market with sell orders. The momentum shifts instantly. Buyers scramble to exit. Stop losses trigger. And the trend reverses with force.

The cruelest part? The buyers who bought the “breakout” are now significantly underwater with no good exit.

Recognizing the Warning Signs

Multiple Tests of Resistance

The first clue that a bull trap may be forming is when price repeatedly tests a resistance level after an extended uptrend but keeps pulling back. You’ll see the price climb, slow down at resistance, retreat slightly, then climb again—and repeat. Each test is slightly weaker than the last. This isn’t strength; it’s exhaustion. The buyers are running out of ammunition.

The Massive Bullish Candle

Just before the trap springs, a notably large bullish candlestick usually forms—one that dwarfs the candles before it. This candle closes above the resistance level, giving the illusion of a confirmed breakout. But be warned: this candle might not represent genuine buying strength. It could be fresh buyers excited about the breakout, large players intentionally pushing price higher to activate sell limit orders, or even market makers temporarily allowing buyers to dominate so that trapped stops can be taken.

Range-Bound Price Action

Another telltale sign is when price forms a range-like pattern at the resistance zone—bouncing between support and resistance without decisively breaking higher. Then suddenly, that huge bullish candle breaks out of the range, triggering a cascade of buy orders. This is the trap setting. The reversal typically follows within the next few candles.

Common Bull Trap Patterns in the Wild

Pattern One: The Rejected Double-Top

This pattern shows two peaks near the same level, with the second peak showing severe rejection on the upside. You’ll see long wicks on the upper side of the candle as sellers aggressively defend the level. The second candle closes lower than the first despite reaching similar heights—clear evidence that buyers couldn’t hold the line.

Pattern Two: The Bearish Engulfing

After price breaks above resistance, a bearish engulfing pattern forms: a large red candle that completely encompasses and closes below the previous bullish candle. This is sellers announcing their dominance. The engulfing candle often follows a period of indecision (like a Doji), showing the battle between buyers and sellers—which sellers then decisively win.

Pattern Three: The Failed Retest

Price breaks above resistance, comes back down to “test” the zone as support (a normal confirmation of the breakout), but then fails to hold above it. Instead of bouncing up, price begins to range and then accelerate lower. Impatient traders interpret the initial breakout as legitimate and go long on the retest. Experienced traders wait for the retest to fail—and they’re rewarded when selling pressure takes over.

How to Avoid Getting Trapped

Skip Late-Stage Uptrends

The longer an uptrend runs, the higher the probability of a bull trap. After weeks or months of buying, longs are exhausted. Their stop losses are tight. The risk-reward is skewed. Simple solution: avoid entering long trades in mature uptrends. Let the early-stage traders capture the bulk of the move. By the time you’re tempted to chase, the setup is already dangerous.

Refuse to Buy at Resistance

This is basic trading discipline: buy at support, sell at resistance. Yet traders constantly violate this, buying at resistance levels hoping for a breakout. Even if breakouts occasionally work, the odds favor resistance holding. The risk is too high relative to reward. If you must trade at resistance, do it only after confirmation of a legitimate breakout and a successful retest.

Demand Confirmation Through Retests

A true breakout gets tested and holds. After price breaks above resistance, wait for it to fall back down and hold above that level as new support. Only then is the breakout credible. Buying at the retest means a better entry price than buying at the top of the breakout candle. If the trade fails, your loss is smaller. If it succeeds, you’re still well-positioned.

Read Price Action Like a Book

Price action—the raw behavior of candles and volume—never lies. As price approaches resistance:

• Watch for shrinking candle sizes. Small candles mean neither bulls nor bears are confident.
• Spot long upper wicks. These show bears slapping price back down each time it tries to climb.
• Notice the ratio of bullish to bearish candles. Balanced or bearish-leaning candles near resistance suggest weakness, not strength.
• Look for volume confirmation. Breakouts on low volume are frequently traps.

When you see these warning signs, step aside. There’s always another trade.

Trading the Bull Trap for Profit

Method One: Buy the Legitimate Retest

If you’re disciplined enough to wait for confirmation, buying the retest can be profitable:

• Wait for price to break above resistance, but don’t buy the breakout candle.
• Allow price to fall back and retest the resistance zone (now acting as support).
• When the retest candle closes above support, enter a long position.
• Place your stop loss just below the support level.
• Set your take profit at the next resistance level or at a predefined risk-reward ratio.

This approach filters out most false breakouts. You’re only buying after the market has proven it can hold the breakout level twice.

Method Two: Short the Reversal

The more profitable approach for many traders is shorting the reversal itself:

• Watch for the setup: an extended uptrend, multiple tests of resistance, then a breakout.
• Observe the price action after the breakout. If rejections begin and price starts moving back toward resistance, this is your signal.
• When price retests the resistance level and fails to hold above it, a short setup forms.
• Enter a short position with a stop loss above resistance.
• Set your take profit at the next support level below.
• This trade often moves decisively and quickly, as trapped longs are forced to exit simultaneously.

The key to both methods: patience. The traders who profit from bull traps are the ones who wait for confirmation, refuse to chase, and trade with discipline rather than emotion.

The Bigger Picture

Bull traps aren’t random market cruelty—they’re a natural consequence of how markets work. Trends exhaust. Resistance zones exist for psychological reasons. Traders who learned at resistance the hard way trade it cautiously. Those who didn’t learn yet become the next batch of trapped buyers.

The market is brutally efficient at identifying those who don’t know what they’re doing. It rewards those who study patterns, respect price action, and wait for confirmation. Understanding how bull traps form transforms them from your enemy into your teacher—and eventually, into your profit center.

Start by observing these patterns in your trading instrument of choice. Don’t trade them until you’ve spotted at least a dozen. Then trade small. The profits come to those who master the lesson, not to those who rush to apply it.