Identifying a bull trap can be straightforward if you understand what to look for. The following are some techniques indicating that a bull trap is on its way:
Resistance level being tested multiple times
The first indication of a possible bull trap is where a strong and sustained bullish trend is rejected as it attempts to break above resistance.
A sharp upward move with little to no bearish momentum indicates buyers are putting all they have into the market. When they push the price to a specific resistance level, they tend to respect it, and the price pulls back before going much higher.
The chart below shows that the bulls dominated the price movement for most of the trend.
However, whenever the price approached the resistance level, it would slow down and pull back somewhat before resuming its upward trend. As we can see, there were multiple tests of resistance before the bull trap was set up. When this happens, you should patiently wait for the market to break out, flip this resistance into support, and then buy.
Exceptionally large bullish candlestick
In the bull run's final phase, it can happen that massive bullish candle towers above most of the earlier candlesticks to the left.
There are several plausible explanations:
One, fresh buying is seen in anticipation of a breakout.
Two, large institutional players may purposely boost the market to get a more favourable selling price.
Three, the sellers have cleverly allowed the buyers to temporarily take control of the market so that sell limit orders above the resistance zone may be triggered.
Another indication of a bull trap setup is forming a range below a resistance level. A range indicates that prices are consolidating before a breakout or a reversal. So it would be best if you always waited for confirmation to see whether the price breaks out of the range to the upside or reverses from the resistance zone.