Bull & Bear Trap

An opening gap type of daytrade in which the trader seeks to exploit the psychological shock that longer term traders feel when faced with a opening print that is strongly opposite the prior day’s price action. A bull or bear trap is created when the prior day’s price action is overly biased in one direction, and the next day opens in an area that negates the entire prior day’s move, thereby causing everyone who held the stock the day before in the expectation of greater gains to experience shock and head for the exit. For example, say XYZ has a very bullish day on Monday, opening at 74.20, making an intraday low of $74.10 and closing at $79.55, with an intraday high of $79.75. As you can see the stock opened close to the low of the day and closed close to the high, creating a “big bodyReferring to the body of a candlestick or the area that is between its open and close, disregarding its swing highs and lows which are represented by the shadows or wicks.” candle on its daily chart. On Tuesday morning a catalyst occurs which causes the stock to open at $73.50. This negates the entire previous day’s price action and causes every investor who is still holding the stock long overnight from Monday to be “wrong”. The prior day’s bulls are now “trapped”, hence the name, Bull Trap. Reverse the whole scenario for a bear trap.