What is 'Bull trap' in Finance?

January 19, 2018 12:15 am | Updated 12:15 am IST

This refers to a form of price action wherein the price of a stock or any other financial security shows signs of moving up after an extended downtrend only to fall back again to continue its downward journey. It results from the absence of sufficient buyer interest to decisively reverse the downtrend. Traders who buy the stock on seeing it move up for a while get trapped at a higher price point once the price reverses to continue its downtrend. Some traders use an appropriate stop-loss order instructing their brokers to sell the stock once it falls below its previous minor low in order to avoid further losses.

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