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important point
- A bull trap occurs when an asset’s price falls and its value temporarily rises
- Bullish traders may fall prey to this short-term price rally and suffer losses if the downtrend continues further.
- Low trading volumes and high RSI are the two main signs of a potential bull trap
prologue
The crypto space often becomes a playground for trickery to manipulate the market. One such example is the bull trap. A “bull trap” is a specific pattern in which traders are manipulated into buying when the market is in a downtrend, which can ultimately have serious consequences for trading.
This article explains what a “bull trap” is and how to avoid it.
What does it mean in cryptography?
A bull trap is a false market signal that traders may witness when a strong period of falling assets suddenly seem to rebound. But the reality is that assets are about to fall further in the long run. In a bullish trap, traders notice a downtrend in anticipation that the cryptocurrency may make a bullish reversal and buy the cryptocurrency at a good price. This type of situation occurs during times of market volatility or when certain disinformation about cryptocurrencies is being circulated.
The term “trap” is associated with this phrase to convey a false sense of security that cryptocurrencies are on the rise. This is unrealistic and can lead to great losses. The price of a cryptocurrency in a bull trap usually rises above the asset’s previous support level, leading the trader to believe that the price of the cryptocurrency is skyrocketing and open new long his positions or invest more in that particular asset. You will be able to
Also known as a “dead cat bounce” in the cryptocurrency field, it is always necessary to pay attention to a sharp reversal in asset values immediately after a breakout. This kind of bull trend is actually short-lived and ideal for temporary moves rather than long positions.
How to identify it?
There are many factors that can lead to bullish traps in the cryptocurrency trading space, but one of the most common is buying dips prematurely in hopes of market lows. A bull trap occurs when a trader assumes the market’s downtrend is over.
However, the market lacks large buyers, making false breakouts less likely to sustain along with early entrants. This leads to sellers continuing to overwhelm scarce buyers, which in turn causes prices to adjust to lower levels. It escalates further as it keeps readjusting to lower levels.
Given this challenge, traders tend to rely on technical analysis and chart reading to identify if a price pattern is a potential bull trap development.
You can spot potential bull traps by looking for a high RSI. The RSI (Relative Strength Index) determines whether a cryptocurrency is overbought, underbought, or neither. It’s a technical indicator. A high RSI and an overbought situation suggest that selling pressure is building if a bull trap is likely. Losing and most traders may exit the trade at any time.
Naturally, markets tend to move in cycles. In other words, when the cycle peaks, it enters a period of consolidation where bulls and bears vie for dominance. When you notice that the cryptocurrency is experiencing a sharp decline but has a mild rebound. This could be an early sign of a bull trap.A lack of momentum is an early sign that the market is about to reverse.
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no volume up
Lack of volume growth. This means that there are not many traders buying securities. This is also a major indicator of potential bull traps. This means that despite short-term price increases, they may not be sustainable in the long run. I have.
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No range extension
There are many explanations for “range” in trading. But the most common is the size of each candle. In a bull trap, the widening range indicates strong momentum once the initial downtrend occurs. When bullish, when there is no range expansion. This points to a weak rally, making the price vulnerable to further corrections.
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break below past lows
If you notice the price of your cryptocurrency breaking below its previous lows, it could indicate a bull trap. A series of highs and lows follows when a breakdown below the previous low occurs. This leads to bull trap persistence. After that, the price will tend to descend correctly.
The last word
A “bull trap” is a common scenario in the cryptocurrency industry that can result in significant losses for traders. However, Bull He can easily avoid these scenarios by waiting for a technical he indicator that signals the arrival of a trap. The key here is patience and due diligence, and this will help you experience a positive trading journey.
FAQ
Do bull traps have bearish or bullish sentiments?
The bull trap is bullish in the short term but bearish in the long term.
How to avoid bull traps?
To avoid bull traps, you can look for confirmation after a breakout has occurred. Confirmation can include, for example, looking for higher than average volumes in combination with bullish candlesticks to cause price to rise after the breakout. including deciding whether to
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