Wolves missed three great first-half chances through Patrick Cutrone and Raul Jimenez twice, while Rui Patricio denied Raheem Sterling at the other end.
City dominated possession in the second half, but struggled for clear-cut opportunities.
A David Silva free-kick hit the crossbar, while Bernardo Silva had a shot blocked by Conor Coady.
Wolves took the lead in the 80th minute on the counter-attack, Jimenez playing in Traore, who beat Ederson.
Traore's second in stoppage time was almost a carbon-copy. Again Jimenez broke and passed to the winger, who slotted past Ederson's left hand.
Wolves climb to 11th, with 10 points. A second defeat of the season leaves City second on 16 points, eight behind Liverpool.
Man City: 19 Oct v Crystal Palace (A)
Wolves: 19 Oct v Southampton (H)