ᐅ Bull Trap in Crypto Trading ⚡ How to Avoid Losses

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Bull Trap - What Is It in Cryptocurrency Trading?

Bull Trap - What Is It in Cryptocurrency Trading?

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A bull trap is a false signal for a cryptocurrency trader when a rally is abruptly interrupted by a reversal and breakthrough of the previous support level.

At first glance, trading seems to be an unpredictable activity - chaotic movement of charts and rapidly changing numbers. However, an experienced trader finds some systematicity in the chaos. This phenomenon is called technical analysis. Traders encounter various traps on their way, which need to be avoided to prevent losses. A bull trap is precisely such an event that leads traders to asset losses.

What Does a Bull Trap Mean?

A bull trap is a false signal for a cryptocurrency trader when a rally is abruptly interrupted by a reversal and breakthrough of the previous support level. Such a change "traps" traders who mistakenly took the trap for a trading signal. Thus, open long positions can lead to serious losses.

Reasons for Such Traps

The main reasons are as follows:

bulls are unable to maintain the trend, the number of purchases decreases, or planned profit-taking occurs;
prolonged sideways movement leads to a breakthrough of the upper level and spontaneous reversal;
high volatility and news background contribute to sharp changes in the exchange rate.

Thus, realizing the trap leads to panic selling of the coin, which exacerbates traders' losses.

How to Avoid the Trap

The following set of recommendations will help avoid the trap:

enter the trade late if there is no specific and reliable signal. Usually, beginners make trades hastily; such restraint is inherent only to professional traders;
use the SMA trend indicator - it allows for the most accurate identification of such traps. The indicator will help avoid significant risk and preserve trading assets;
decreasing trading volume or the appearance of doji candles may indicate an approaching trap;
wait for volatility to decrease, this phenomenon is also called a "saw", only experienced market participants can trade on it.