Can anyone remember how often a trade that seemed so simple and expected was reversed immediately? At trade that was all but certain to go in that direction? Well, when investors take a long or short position and then have price reversal and move towards the lower/upper with tremendous momentum, the so called "bull or bear trap" occurs. This trend also follows a very similar sequence of "obvious" long/short trade to lure investors, followed by a sudden move toward them. Bull and bear traps often occur around previous highs/lows where it looks as if the price is continuing the rally/plummet.

At that point, amateur traders often tend to enter, thinking the ongoing trend will continue for them. They hold on to their positions as price then reverses until their stops are reached or leave the position. This action gives the reversal even more momentum. Market makers or the so-called smart money are most likely to cause this trend. They surround the majority of the herd of retail/amateur traders to eat up their positions. Knowing how to make an action within these traps, anyone can trade with a high probability and a large risk/reward ratio. So before jumping right into the market dip, it's important to take a closer look at how the order-flow and process behind a bull trap and bear trap occurs.

submitted by /u/colenorris
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