POINT AND FIGURE LIBRARY

The Chart Formations
The Bull Trap and Bear Trap

Michael Burke attributes this formation to the huge popularity of triple tops. Effectively, the chartist is paying the penalty for his buying point being known well in advance. The share price breaches a triple top by one box but there is no follow-through buying. The share price advances no further. Indeed, sellers, who may have been waiting on the sidelines for the chart-based buying to come in, start driving down prices. It is a bull trap. The share then executes a 3 box reversal. The assumed disequilbrium was an illusion.

It is important to note that Michael Burke regards it as a sell signal once the 3 box reversal is executed because there will be a number of bulls trapped who will be forced to liquidate. So it is not simply a failed triple top, but actually a sell signal as well. Fig 1 shows the bull trap. Fig 2 shows the bear trap.

I confess I don’t like trading this formation. It is difficult to distinguish from the catapult.

Next: TheCatapult

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