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Trading is just like walking in a dense forest you never know when you might fall into a trap. Therefore, should be very cautious and careful while trading and walking to avoid any loss and your time. In this article, I am going to discuss the two most common types of traps in the field of trading i.e Bull trap and the Bear trap on the Olymp Trade and how you can stay safe from these traps and make a profit out of them.
What is Bull Trap and Bear Trap?
A Bull trap is a market situation that occurs when the price moves up in an upward direction making traders believe that the price is going to stay up in an uptrend but vice versa falls down and traders who opened a long position find themselves losing money.
Talking about the bear trap, It is just the opposite of the bull trap. A bear trap is a market situation that occurs when the price moves down in a downward direction making traders believe that the price is going to stay down in a downtrend but vice versa bounce back up and traders who opened a short position find themselves losing money.
The Bull trap and Bear trap usually occur due to numerous reasons one of the major factors I personally believe is the trap set by big corporates like Elon Musk & more other factors can be false news, technical indicators glitches and more. These traps usually take place near the support and resistance level it is very important that you know the art of spotting these traps and trade accordingly to generate profit.
How to Spot and Trade with Bull Traps and Bear Traps on Olymp Trade?
As indicated above, the closing price of the security has broken the resistance level and you might place a buy trade. but as you can see later the price is falling in a downtrend. and that’s how you fall into a trap and end up losing your money.
Similarly, As you can see above. the closing price of the security has broken the support level and you might place a sell trade. but as you can see later the price is bouncing back up. and that’s how you fall into a trap and end up losing your money.
How to Deal with Bull Trap and Bear Trap on Olymp Trade?
Both bull traps and bear traps can end your trading account balance. To mitigate the risk of falling into these traps, you should have a solid risk management strategy in place.
The best way to manage risk is by using stop-loss orders. Stop-loss orders are orders placed on the Olymp Trade to automatically sell or buy an asset when it reaches a specific price. By using stop-loss orders, traders can limit their losses in case of a bull or bear trap.
Another best way to avoid falling into these traps is by playing the waiting game. You should always wait to recheck the price movement as it reaches near the support or resistance level. when the price breaks the level and following the same direction even after two or three candles that’s the best time to place your trading calls.