What's a Bull Trap?
A bull trap is a false signal in financial markets. It occurs when a declining trend in a security or other asset appears to reverse and head upward but then resumes its downward trend. This temporary reversal misleads traders into thinking the asset is on the path to recovery, prompting them to buy, only for the price to fall again, trapping investors in unfavorable positions.
Several factors that cause a bull trap may include a dead cat bounce or technical rebound, market sentiment, herd behavior, and resistance levels.
