OP 24 October, 2023 - 08:24 PM
A bull trap is a trading term describing a situation when the market "tricked" investors by giving a false signal to buy an asset, but reversed in the opposite direction
How does one fall into a bull trap?
This situation occurs when the market shows the first signs of continued growth or a possible change from a downward price movement of an asset to an upward one. The "trick" of the market is that buyers predict the continuation of the trend for price growth, i.e. the dominance of "bulls", while the real strength in the market is represented by sellers ("bears").
For example, a bull trap can be formed on a downtrend when the price of an asset rises above the resistance level after it has been broken upwards. In this case, traders may consider that the market indicates a reversal and demand from buyers. Then the asset starts to be bought with the expectation of further upward price movement, after which the sellers turn out to be "stronger" and the quote price returns to the downward movement
What is a bull trap used for?
A bull trap is a logical way to create favorable price conditions for sellers: the higher the selling price, the more profit can be made by getting rid of the asset.
To create a bull trap when trading bitcoin and other cryptocurrencies, large traders acting as "bears" use a weak trend for price growth. They do not interfere with the formation of conditions for an increase in quotes and can even push the cryptoasset to price levels promising for buyers.
Because of this, an illusion of favorable conditions for the continued growth of the price of the asset and the dominance of buyers over sellers in the market is created. A bull trap is not necessarily a "man-made" process and can appear as a result of a short-term positive market reaction to a news or event
How does one fall into a bull trap?
This situation occurs when the market shows the first signs of continued growth or a possible change from a downward price movement of an asset to an upward one. The "trick" of the market is that buyers predict the continuation of the trend for price growth, i.e. the dominance of "bulls", while the real strength in the market is represented by sellers ("bears").
For example, a bull trap can be formed on a downtrend when the price of an asset rises above the resistance level after it has been broken upwards. In this case, traders may consider that the market indicates a reversal and demand from buyers. Then the asset starts to be bought with the expectation of further upward price movement, after which the sellers turn out to be "stronger" and the quote price returns to the downward movement
What is a bull trap used for?
A bull trap is a logical way to create favorable price conditions for sellers: the higher the selling price, the more profit can be made by getting rid of the asset.
To create a bull trap when trading bitcoin and other cryptocurrencies, large traders acting as "bears" use a weak trend for price growth. They do not interfere with the formation of conditions for an increase in quotes and can even push the cryptoasset to price levels promising for buyers.
Because of this, an illusion of favorable conditions for the continued growth of the price of the asset and the dominance of buyers over sellers in the market is created. A bull trap is not necessarily a "man-made" process and can appear as a result of a short-term positive market reaction to a news or event