Why does the price drop as soon as you buy and rise as soon as you sell?

Bull market traps and bear market traps are two of the most deceptive forms of financial market manipulation. They mislead traders into establishing positions based on false signals—only to have prices quickly reverse.

Identifying these traps is crucial for traders in sectors such as stocks, forex, cryptocurrencies, commodities, and indices.

If correctly understood and identified, these traps can not only help traders protect their capital but can even provide strategic short-term trading opportunities.

This article will delve into the nature, causes, identification methods, and practical strategies to avoid bull market traps and bear market traps. What is a bull market trap? A bull market trap is a false signal that suggests a downtrend has reversed into an uptrend, but prices quickly resume their downward trend. In other words, the price action briefly breaks through a key resistance level, tempting traders to believe that an upward trend has begun, but then fails to maintain momentum and turns downward. In this situation, traders who bought at the breakout in anticipation of further price increases will find themselves "trapped" in losing long positions when the price turns downward.

Bull Market Trap

（Image source: Trade Nation, translated by: Running Finance）

Reasons for the Formation of Bull Market Traps

The emergence of bull market traps often stems from the following key factors:

Lack of substantial support for breakouts

Example of a Bear Market Trap

(Image source: Strike, translated by: Running Finance)

Causes of Bear Market Traps

Common factors include:

Market volatility and short-term noise