Recently, while watching the market, I found that quite a few traders are caught in traps again, and the reason is nothing more than falling into market pitfalls. Speaking of which, this is all too common, and even veterans sometimes stumble into these traps.

The two most common situations that cause people to lose out in the market are: one is thinking the price will go up, but it suddenly drops in the opposite direction; the other is thinking it will fall, but it rebounds instead. These are what I often call bull trap and bear trap.

Let's start with the bull trap. This situation usually occurs when the price breaks through a key resistance level. It looks like a strong rally, with active trading volume, and many people follow to buy in, thinking the market is about to take off. But often not long after, the price turns around and heads downward, falling back below the resistance level. Those who just entered the market are trapped. The reason these traps occur is usually because the market is overbought, or large traders are manipulating the market to create a false appearance of rising prices.

Conversely, there's the bear trap. The price seems to break below a support level, with a fierce downward momentum, prompting traders to sell or short. But what happens? The price quickly rebounds, even rising back above the support level. At this point, those who shorted lose money. Bear traps often happen when the market is oversold, or someone deliberately dumps the price to trigger stop-loss orders, forcing traders to close their positions passively.

How can we distinguish these two traps? Based on my experience, I look at several key points. First, observe the volume. A genuine breakout or decline is usually accompanied by a significant increase in volume, but if the volume is very low, be cautious—it might be a trap. Second, wait for confirmation. Don’t rush to enter; let the price stay at the new level for a while to see if it can hold. Also, consider the overall market background. Bull traps often occur during a downtrend, while bear traps are more common in an uptrend.

Technical indicators are also very useful. Tools like RSI, MACD, and moving averages can help you judge whether the market is overbought or oversold. If the indicators show overbought conditions, question the breakout. Similarly, if the market continues to fall in an oversold state, be cautious.

The most important thing to avoid these traps is patience. Don’t trade impulsively; wait until the trend is truly confirmed before acting. Setting stop-loss orders is also crucial, so even if your judgment is wrong, you won’t lose too much. I usually verify signals with both technical and fundamental analysis, not relying on just one. Also, regularly review your trading records to learn from past mistakes.

Ultimately, bull traps and bear traps are designed to exploit traders’ emotions and impatience. Market experts rely on patience and thorough preparation to avoid these risks. In financial markets, sometimes doing nothing is the best decision.