Crypto Trading 101: Detecting Bull Trap

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Have you ever entered a transaction expecting the market price to rise, only for it to unexpectedly drop? When the price breaks through the resistance or the trendline, the chart displays a bullish candlestick. The price is rising, and the signs are also pointing upward. Our expectations were raised as a result of these signals. It convinces us that we have made the right decision to start trading cryptocurrency. To try a reliable, yet easy-to-use and regulated platform that offers a variety of cryptocurrencies, visit Bitcoin Superstar

It is not always the case, though. We sometimes believe that the trend will continue to rise, but the price will soon return to where you started. Most traders believe that it is only a momentary pause before the market resumes its upward trajectory. However, this is only a perception. The surge may not occur, and you may get stopped out, resulting in the loss of the trade. What causes this to happen? Traders who do not know how to spot a bull trap find themselves in this scenario. By reading this post, we will learn how to recognise the bull trap chart pattern.

The bull trap chart pattern is what we may consider a bearish signal, happening in the uptrend market. It usually exists at the major resistance level. So as a trader, we must identify where the major resistance level is before entering a trend. According to The Balance, the price is more likely to move in the opposite direction if major resistance levels remain.

During the bull trap, what happens? First, let us discuss with a brief explanation why the bull trap arises. In a bullish market, this happens frequently. That is why traders' hopes are high; they believe it will soar to new heights! It will usually break through the resistance level and then go upward. When breakout traders detect this, they are more likely to enter a trade. This move by many traders adds to the bulls' ability to push the market upward.

What is most likely to happen? Traders with sell limits or short positions will be alerted. And they'll be shut down soon. The bulls' might will eventually wane, and the price will return to the price of the resistance level from whence it emerged. Traders will enter a short position if this occurs. The same may be said for break out traders who went in hoping to make a profit but ended up losing. They'll go back to the short position. As a result, it's known as the bull trap. Traders become entrapped. Those who have been stopped out of their short positions cannot enter the market. Those who hold long holdings cannot go out of the market, meaning they are waiting for the price to rise.

Bull trap patterns are common in charts. Most often than not, it follows a pattern like this. On the highest section of the chart, there is a waiting resistance level. The first candlestick breaks the resistance level when the price reaches it. It is, however, followed by a bearish candlestick, which indicates a reversal. The trend is predicted to reverse in that case. You may see an example chart of a bull trap by clicking here.

It can also happen with just a single candlestick. When it reaches the resistance level, the price gets momentarily broken. But it quickly retraces, forming a bearish candlestick that resembles a shooting star or a pin bar. This pattern is one of the indicators of weak bullish momentum, which could indicate a trend reversal.

We can deduce from this that we should not enter a trade when the price reaches a strong resistance level. We must wait for a reversal pattern and determine whether the bull side's momentum is still strong or weakening. That is why you must know how to read price activity.

Learning to trade using several indicators is a difficult task. After learning a certain strategy in reading the crypto market, one should conduct follow-up studies on it. Most importantly, testing it out before utilising it to make actual trades is a good idea. For individuals who have never actively traded before, it's crucial to understand that setting up a crypto trading account is a prerequisite for accessing the crypto market.

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