What it looks like
Find the highest high of the last 20 candles. A candle closes above it, which looks like a breakout. Within the next three candles price closes back below that old high. The highest point of the failed breakout is the extreme used for the stop.
What it means
Breakout buyers jump in above a well watched high and sellers' stops are triggered there. If price cannot stay up and drops back below the level within three candles, the breakout buyers are trapped with stops below, and their exits push price lower. It shows the buying above the level was not strong enough to hold.
How to trade it
- 1
Mark the high of the last 20 candles and watch for a close above it.
- 2
Confirmation: within three candles, price closes back below that high.
- 3
Entry: sell once price is back below the level.
- 4
Stop: above the highest point of the failed break. Example on US30: 20 candle high 47,200, a close at 47,240, the move tops at 47,270, then a close at 47,180. Sell at 47,180, stop at 47,290, a 110 point risk.
- 5
Target: the middle or bottom of the recent range, or 2 times the stop (220 points, near 46,960).
A close above the high of the failed break.
Where it works best
In ranging markets and at obvious highs such as the previous day high or a round number, where breakout buyers crowd in.
WickSpeak spots bull traps automatically and labels them on the candles that made them. Each note explains what the failed breakout is, how to trade it and the close above its high that would prove it wrong. In Playbook you can use it as a condition in a play, alone or alongside other patterns and indicators (any of the 146 patterns can be a condition), and backtest it on past candles with your own costs.
Common mistakes
- Selling while price is still above the level.
- Calling every pullback after a breakout a trap, even when price stays above the level.
- Selling against a strong uptrend where breakouts usually hold.
Related patterns
Questions traders ask
What is a bull trap?
A bull trap is a breakout that fails. Price closes above a watched high, buyers pile in, then price falls back below the level within a few candles and traps them.
How can you avoid a bull trap?
Many traders wait for a retest of the broken high before buying a breakout. If price falls back below the level instead, the breakout has failed and the trap trade is the other way.
How long does a bull trap take to form?
In WickSpeak's definition, price must be back below the broken high within three candles. If it stays above for longer, the breakout is treated as holding.
What proves a bull trap wrong?
A close above the highest point of the failed breakout. That means buyers have taken the level back and the breakout may be real after all.