Bull & Bear Traps

adam_woodsLast week I talked about three ways a market can move (up, down or sideways). This week I want to talk about bull and bear traps. There is a concept on Wall Street known as a bull (or bear) trap. The idea is simple, in a bull market there are big shakeouts (pullbacks/corrections) that occur which are normal and healthy but shake out the weaker hands. Then cooler heads prevail and the market (or stock) hits new highs shortly thereafter. In downtrends (bear markets) the opposite is true.  We tend to see steep downtrends followed by steep counter trend rallies, then we see new lows again.

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