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How often did you experience a situation where a trade looked so obvious but then immediately reversed on you and you had to realize that you were, once again, entering at a very wrrong spot?
A bull trap occurs when traders take a long position and then have price reverse and move lower very sharply.
The long-positioned trader is trapped and this pattern often follows a very similar rhythm of luring traders into “obvious” long trades, followed by a sudden move against the traders.
Bull traps often happen around previous highs where it looks as if the price is continuing the rally. Especially amateur traders often tend to enter too early around such key levels (read about FOMO here). It’s especially dangerous if price rallies for a bit in their favor ad the trapped traders feel too comfortable and too attached to their trade.
When price then reverses, they hold on to their loss too long and/or add to their existing position. As price keeps moving against them, the loss becomes l...
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