A bull is a market participant who invests in a security expecting the price will rise.
A bull trap occurs when these bulls get trapped due to a false reversal signal in a strong downtrend.
In a strong downtrend, price keeps falling due to selling pressure. When the underlying security suddenly shows a reversal signal, many bulls get attracted to go long. Shortly after this increase in value, bears come in to overpower bulls, the security now loses value again by dropping even further than before. This decline in price forces the bulls to cover their position by selling the security, which takes the stock or market to a new low. This reversal in price due to trapped bulls is referred to as the bull trap.
In other words, a bull trap is a reversal of a false upward movement in a downtrend market that forces many bullish market participants to abandon their position in the force of rising losses.
Many professional traders and investors recommend setting a stop-loss in order to avoid big losses if caught out by a bull trap.
Bull trap is the opposite of a bear trap.
