Bitcoin Trading Traps
It’s all about the bulls and bears when it comes to spotting bitcoin trading traps. The bull wants to push forward and thrust his horns into the air, while the bear dips his head and swipes his paws down. This constant battle between buyers and sellers keep the market moving and determines which way the price will go depending on who is the strongest. As you journey down a path buying and trading cryptocurrencies, be cautious and aware of the traps that can prey on the unaware and emotions of traders. The two most common are the bull and bear traps.
A bull trap will give off a false signal that the price is on the rise while the market is in a downtrend. A sudden rise in trading volume can trick you into thinking the price is going up. Resistance is broken and your buy signal is met. Soon after the buy the price sharply drops back down leaving you holding the trade hoping it comes back up or selling at a loss.
A bear trap is basically the opposite of the bull trap. During a rising price trend the stock can incorrectly signal a reversal in price and tempt the trader into taking a short position with the intention of buying the stock back once the price has gone down to the trader’s desired buy price. If the price quickly levels off or starts back on it uptrend the trader will be forced to end the trade at loss.
Avoiding These Traps
If you have been an active trader for any given time you have probably been caught in one or both of these traps. Using technical analysis and keeping a close eye on market trends can help you make the right decisions when these false price actions take place. Having stop losses in place can reduce the loss incurred from this bad trade. However, sometimes the best action is to take no action during times of extreme volatility.