False breakouts can lure traders into losing positions. Learn how to identify and avoid these traps.
A bull trap occurs when price breaks above resistance only to reverse lower, catching eager buyers off guard. Bear traps are the opposite: a breakdown through support that quickly springs higher.
These moves often arise near well-watched chart levels where stop orders cluster. Once triggered, those stops fuel a brief surge before price snaps back in the original direction.
Waiting for confirmation such as a close beyond the breakout level or a surge in volume can help filter out potential traps. Divergences in momentum oscillators may also warn that a breakout lacks conviction.
Recognizing traps protects capital and prevents traders from chasing moves that fail to follow through. Patience often pays off when markets are sending mixed signals.