This volatile Crypto market is full of traps that gets lots of us rekt. Let’s take a look at Bear Traps vs Bull Traps since this recent pump is being called a giant bull trap by some.
First, the Bear Trap.
When the market appears to be declining, some traders might assume it’s time to short. However, a bear trap occurs when this temporary drop in price reverses, leading to potential losses for those who acted too quickly.
A Bear Trap is a false signal that suggests a continuing downtrend when, in reality, the market is about to reverse and move upward. Traders who enter short positions may end up losing money when the price unexpectedly rises. If you believe in market makers, then these market makers are essentially trapping the shorts.
Next, the Bull Trap.
In this scenario, traders see the market trending upward and assume it’s time to buy. The bull trap happens when a temporary price surge is followed by a sharp decline, causing losses for those who bought in too soon.
A Bull Trap is a false signal indicating a continuing uptrend when the market is actually about to reverse and move downward. Traders who buy in at the peak may suffer losses when the price falls shortly afterward.
To avoid falling into these traps, you can use some of these tips
- First, look at volume. A low trading volume on the move means there’s a higher risk of a trap.
- Second, watch resistance/support levels. If the price fails to break through these levels with strength or retraces quickly, it could be a trap.
- Next, watch for divergence between RSI or MACD and price. If the indicators move in a different direction from the price, this could be a trap.
- Finally, watch out for doji candles (candles with a small body and long wicks) and engulfing patterns. Put simply, an engulfing pattern is when two candles with contrasting colors show the second candle with a larger body that completely engulfs the body of the first candle.
This pattern is more reliable when they appear near key support or resistance levels.
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