A bull trap occurs after a long down trend in a stock happens and you may get a signal that it is going to start trending back up. This normally catches many of the market participant’s right before it starts going down again.

There are 3 things that you can do to help avoid being devastated by a bull trap.

1. Look at the Fundamentals

Looking at the fundamentals of a company helps to avoid getting into a stock that will go to $0. Strong companies often have strong stocks that do not fall as fast as unhealthy companies. Checking a company’s fundamentals can definitely be worthwhile.

2. Looking at the chart

A company’s fundamental is not the only thing to look at. Combining a great fundamentally strong company with technical analysis helps to put the odds in your favor. Before even considering buying a stock I believe it is very important to make sure it is trending up. Or at least not trending down.

The trend and fundamentals will not completely save someone from making bad trades, but they do help to put the odds in your favor. So I like to pay attention to both of these indicators.

3. Cutting Losses

The most important thing to remember is to always keep your losses small. No one can prevent taking the wrong side of a good trade. But that does not mean it has to destroy your account. Professional traders quickly learn that the most important part to trading is not being right 100% of the time, but cutting your losses short when you are wrong.

For more on bull traps visit http://www.stocks-simplified.com/Bull_Trap.html

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Author's Bio: 

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site to help others learn stock trading.