Chartered Market Technician (CMT) Practice Exam

A bull trap refers specifically to a situation where the market gives the impression of a bullish trend, leading traders to believe that prices will continue to rise. This occurs when prices initially breach a resistance level, prompting buy signals which attract more buyers into the market. However, instead of maintaining the upward momentum, the market reverses direction and begins to decline. This false breakout can trap those who acted on the buy signals, hence the term "bull trap." Understanding a bull trap is crucial for traders as it underscores the importance of confirming price movements with additional indicators or volume analysis to avoid making trades based on misleading market signals. In contrast, the other choices relate to different market phenomena such as ongoing trends, support levels, and breaches of support, which do not capture the essence of a bull trap scenario where expectations of a rally are met with a sudden downturn after initial promise.