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Yes, Give it to me

The Bull Trap Trading Strategy Guide 

Last Updated: June 30, 2020

By Rayner

Let me ask you…

Have you ever buy 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 at EUR/USD Daily:

bull trap

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…

Nearest floor on BTC/USD Daily:

bull trap

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 at GBP/CHF Daily:

bull trap

But why wait for build-up?

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 WTI Daily:

Bull trap set up on AUD/CHF Daily:

Bull trap set up on EUR/USD Daily:

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 GBP/JPY 4-Hour:

Bull trap set up on SGD/CHF Daily:

Bull trap set up on US 10Y T-Note Daily:

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 WTI Daily:

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.

  • How would you know when to buy the bullish breakout with confidence that it is not set up as a trap (ie wont reverse)… continuation. is there an indicator that you use?

  • Rana, my problem in trading is not entering or exiting but consistency in WINNING!!! Is there an EA I can use to get winning always??? I am tired of blowing up my account always!!!

  • I have no words to say how good you are at your work. I am amazed!
    Following you since couple of months and almost watched every single video you made and I swear I have polished my skills in a way that I never thought. I learned alot from your teachings and my prayers are with you. Love from Pakistan.
    I need to ask one thing brother. I am facing some issues in my trading that I am not able to determine the TP level. I have practiced alot for the SL and its good now but sometimes for the TP, I mark the very next support/resistance as my TP but what happens is that my trade won’t even gets 1R. I want you to make a detailed video on how to determine what TP level will be good for a particular trade. OR, If you can simply reply to my quetion here that would also be very appreciable. Thank you soooooo much for your efforts to teach us man. May GOD bless you with every thing you want!

  • Thanks Rayner… good and very practical strat…. I have now a different look and approach whenever there’s a break-out,… I already know where to put my entries…..

  • Hey Rayner i was trading s&p 500 futures this week and i got caught by the “Bull Trap”,just as i was about analyze what went wrong i saw this article on my email. For the first time in 1 year i am becoming consistently profitable.Thanks a Lot

  • Hi Rayner, you is the best teacher I ever seen, Previously I used to trade Cryptocurrency with no any basic, I appreciate on your articles especially in your website through Academy , Now I know many things in Forex trading and after one month I will start to trade after finishing to study what you have provided in the site. Receive many Congratulations on this
    From Dar es Salaam Tanzania

  • Its been am amazing learning process going through your youtube videos, blogs and books. I am able to choose and trade on my own more confidently these day unlike the days when I was more dependent on tips providers. Thank you

  • Thanks for the time and effort you put into this, Rayner. You have helped me a lot.
    I love a strong trend thanks to your books, this specific email will help a lot.

  • Thanks a lot for sharing your valuable knowledge… Many people are cheating innocent people by charging hefty fees for useless courses.
    Your course contents cannot be compared with any of those people who are offering paid course which is of no use.

    We are very thankful to you for helping people like us because of we are able to learn and earn in the market.

  • Great stuff only no fluff you are my superhero in trading RAYNER TEO always saving my ass thanks for the effort you put to save retail traders from self-destruction thanks thanks…Yu are the best

  • can we use bollinger bands along with support and resistance to understand whether a stock is consolidating or not before breakout

  • hi dear Rayner. Your lessons are precious gems. I’m so glad learn from you, a big man with a big heart. At the moment I’M not currently profitable because I have to fight against my brain, with metodology, wellness. I have a demo account of 1000 euros. My brain is not too fast, I need to watch and revieuw a lot of time. You gime me a interior power for a better life. I’m a dreamer, ever since I was a child, now I’ve almost reached one of it.I’m a dreamer, ever since I was a child, now I’ve almost reached it. At the moment I live with the pennies of money, they are hard times in the mountains…

  • Hello Rayner,
    I‘m an Austrian (Vienna) trader and english translation is sometimes difficult. What are „parabolic“ moves. Google translate is not helpfull. Can you please describe this term for my Vetter understanding? Trank you so much…
    BTW:
    Hermann

    • Hey Herman,

      Parabolic moves are strong impulsive moves. Where you have a series of strong green or red candles breaking out.

      Cheers!

  • very nice explained, but some times there are sudden moves that hits the SL and sometimes it goes very fast from uptrend to downtrend that is not stoppable, anyway good point I you mentioned

  • Sometimes , after giving breakout over resistance in bullish market, stock comes back below resistance and then consolidate for sometime, then how to predict in which direction it will move now.

  • Hi Rayner,
    You explain as simple as it is understandable to layman, and its very very effective in implementation.
    Thanks and keep it up.
    My friend.

  • Great lesson Rayner, i have to practice this on my demo, does this strategy also work on currencies and indices( vix75, boom and Crash).

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