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The Bull Trap Trading Strategy Guide

Last Updated: August 10, 2021

By Rayner Teo

Let me ask you…

Have you ever bought a breakout because you think the price will move higher?

After all, the textbook says a breakout is “confirmed” when the price closes above Resistance.

So, you go long.

And the price moves in your favor (a little).

But the next thing you know…

The market does a 180-degree reversal and BOOM, you got stopped out — now you’re sitting in a sea of red.

Here’s what I mean…

Bull trap on Gilead Sciences (GILD) 4-Hour chart:

Now…

What I’ve just described to you is called a Bull Trap (and the opposite is called a Bear Trap).

The buyers are “trapped” as their trade went against them (and they are sitting in the red).

Now you’re probably wondering:

“So how do I avoid the Bull Trap?”

Well, that’s what you’ll discover next…

Read on…

How to Avoid the Bull Trap

Now here are 2 tips you can use to avoid getting caught in a Bull Trap:

      1. Don’t “chase” parabolic breakouts
      2. Trade breakouts with a build-up

Let me explain…

1. Don’t “chase” parabolic breakouts

I know.

You’re tempted “chase” a breakout.

After all, you’re thinking:

“The candles are so bullish. How can it possibly reverse?”

And that’s when shit is about to happen.

Why?

Because when the price has exploded higher, there’s no “floor” (like swing low or Support) to hold these higher prices.

This means the price can easily reverse in the opposite direction (until it finds the nearest “floor”).

Here’s what I mean…

The nearest floor on Beyond Meat (BYND) 1-Hour chart:

And also…

When you “chase” a breakout, there’s no logical place for you to set a stop loss so you’re likely to get stopped out, even on a pullback.

So the bottom line is this:

If you want to avoid a Bull Trap, stop “chasing” breakouts.

2. Trade Breakouts with a build-up

Now you’re probably wondering:

“Then how should I trade breakouts?”

The secret is this…

You want to trade breakouts with a build-up.

So what’s a build-up?

A build-up is a tight consolidation that you see on your charts.

It should be so tight that the candles have “no space” to move.

Here’s an example…

Buildup on Exxon Mobil (XOM) 4-Hour chart:

But why wait for buildup?

Here are 3 reasons why…

#1: Favourable risk to reward

You have a logical place to set your stop loss (below the low of the build-up), and this offers a more favorable risk to reward.

#2: A sign of strength

When the price forms a build-up at Resistance, it’s a sign of strength.

Because it tells you the buyers are willing to buy at higher prices (even in front of Resistance).

#3: Profit from losing traders

Imagine…

If the price is at Resistance, what would most traders do?

They’ll go short and have their stop loss above Resistance, right?

And the longer the price hovers at Resistance, the more traders will short and buy stop orders would cluster above Resistance.

But what happens if the price breaks above Resistance?

This cluster of buy stop orders gets triggered which fuel more buying pressure (and this increases the odds of a successful breakout).

This is powerful stuff, right?

Then let’s move on because I’ve got more to share…

The Bull Trap Pattern: How to profit from “trapped” traders

At this point…

You’ve learned how to avoid a Bull Trap and not get caught on the wrong side of the market.

Now, it’s time to trade the Bull Trap pattern and profit from “trapped” traders.

Here’s how it works in a ranging market…

      1. Identify a strong power move coming into Resistance (the stronger it is, the better)
      2.Let the price breaks above Resistance (to trap the breakout traders)
      3.Look for a strong bearish close below Resistance (entry trigger)

Here are a few examples…

Bull trap set up on Walmart (WMT) 4-Hour chart:

Bull trap set up on JP Morgan (JPM) 4-Hour:

Bull trap set up on General Electric (GE) 4-Hour:

Alternatively…

You can also profit from “trapped” traders hoping to score a huge bullish reversal in an existing downtrend.

Here’s how it works:

      1. Identify a deep retracement to previous Support (in a downtrend)
      2. Let the price break above the Support turned Resistance (to trap the bullish reversal traders)
      3. Look for a strong bearish close below the Support turned Resistance (entry trigger)

Here are a few examples…

Bull trap set up on Royal Caribbean Cruises (RCL) 4-Hour:

Bull trap set up on Johnson & Johnson (JNJ) 4-hour:

Bull trap set up on Snap Inc (SNAP) 4-Hour chart:

Next…

How to set your stop loss

Well, you can set your stop loss 1 ATR above Resistance.

This way, your trade has room to breathe and you avoid getting stopped out on a “sudden spike”.

Here’s what I mean:

If you want more details, go watch this training video below…

Moving on…

How do you exit your winning trades?

If you realized:

The Bull Trap pattern requires you to go short against strong momentum.

Now if you’re correct, the market could quickly reverse lower quickly (and poof, profits).

But if you’re wrong, the market could quickly move higher (and boom, stopped out).

So, how do you exit your winners?

Well, what I’d like to do is trail my stop loss on the previous candle high.

This way, I’ll ride the move lower if the price continues lower.

But if it shows signs of strength by closing above the previous candle high, I exit the trade.

Here’s what I mean…

Trailing stop loss on Johnson & Johnson 4-Hour chart:

Of course, this isn’t the only way to manage your trades.

You can also exit your trades at the nearest swing low, Support area, etc.

If you want to find out more, go watch this training video below…

Conclusion

So in today’s post, you’ve learned:

  • A Bull Trap occurs when you buy a breakout only to have the price reverse lower
  • 2 ways you can avoid a Bull Trap: 1) Stop “chasing” breakouts 2) Trade breakouts with a build-up
  • A Bull Trap trading strategy to profit from “trapped” traders

Now here’s a question for you…

What do you think of the Bull Trap pattern?

Leave a comment below and share your thoughts with me.

  • I have attended multiple no of courses conducted by Forex & ETF-Shares so called trading gurus but still comes out at the end of the day unsure & still dazed (as the training contents-materials so advocate are not specific or details, nor easy to understand , or objectives reasons , instructions are given & explain clearly ,direct to the point of execution ) no confident not competent to analyse a market ( market structure as in your training) to put on a trade . After i attended your Ultimate Price Action training modules & later the Ultimate Systematic Momentum Training Modules , i think for my ultimate search for my Ultimate gurus journeys ends here. ( This for the Off records -Gurus courses i have attended & conducted by Mario Singh , JT Low, Thomas the Coach, Dave Foo , Marcus Low , Ezekiel Chew ( Pin Bar Strategy that doesn’t works-Scammer), Adam Khoo etc.. comes out still undecided & blurr. ( No offence but the Ultimate truth)
    I sincerely like to thank Mr Rayner for the kind efforts that you took the effort to keeps on posting & updates us on the relevant trading materials to us ,former students of yours.
    As of now, i can confidently without discretion , analyse any market structure, execute a buy & sell order through your training methods ,technical strategies that you imparted to us without holding back any secrets throughout the training.
    Maybe , i am not that smart as other students but your training turns me into one.
    Many thanks Rayner & may god bless you always.
    Regards
    YK Foo

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