With the crypto industry evolving with each passing day, more and more people are flocking towards it in the hopes of gaining profit. Trump’s victory and BTC hitting the $100K mark have significantly contributed to this growth. As these numbers keep on increasing, so do the potential traps associated with it. The crypto bull trap is one such trap. If you don’t know how to spot them properly, it could result in a significant loss of assets on your part. That’s why we are bringing you this article. Here, we will discuss what the crypto bull trap is, the various reasons investors often fall for them, and how you can easily spot and avoid them in the market.
Crypto Bull Trap: A Brief Overview
A crypto bull trap is a phenomenon that occurs when a particular asset’s market value rises above a resistance level to lure potential investors. After these investors buy the assets in the hope of a breakthrough, the price of the asset suddenly crashes resulting in major losses for them. The bull traps are most commonly found in a bearish market. One of the main reasons behind its danger is that these traps can also be set by someone aiming to rip off other investors and traders.
The perpetrators buy an asset when its price starts to break out to inflate its value artificially and then sell it when it reaches a desired limit. However, if they don’t sell at the correct time, it could result in a loss on their part. These types of activities can’t be reported to authorities as the perpetrators behind them are only buying and selling crypto just like any other investors. The only difference is in the quantity they buy.
The potential buyers will see the rise of a coin as the beginning of a new uptrend for it, especially when the price soars above the resistance level. At this point, they will start buying these tokens but soon after this occurs, they will be overwhelmed by sellers as the trend doubles down. However, if the coin maintains a particular level even after the mass buying, it could tumble back trapping the investor orchestrating the trap.
Reasons Why People Fall for Crypto Bull Traps
Various reasons can be attributed to why people fell for the bull traps in the crypto market. Here, we will look into the most important ones so that you can make a logical decision and avoid the mistakes made by your predecessors.
- News: One of the main factors that can suddenly result in the drop of a coin’s price is the news surrounding the token. As the crypto market operates 24/7, we can’t expect when negative news will pop up. However, the investors who see these types of start selling their tokens immediately resulting in a loss for the rest. These pieces of news can also be fake sometimes done to manipulate the market trends.
- Rug Pulls: Rug pulls are unfortunate scenarios that are designed to scam potential investors. Once a particular project’s token reaches a certain market value, the creator of the project sells off his stack resulting in a sudden drop in the market. The project is essentially dead from there.
- Emotional Investment: This is one of the main reasons investors fall into these bull traps in the market. When an asset’s price starts to rise, people forget logic due to the fear of being left out and start emotional investing, which leads to capital loss on their part.
How to Identify Crypto Bull Traps in the Market?
Potential investors and traders can use various methods to spot and avoid these bull traps successfully. Here, we will look into a few of them, so you can stay clear of these potential traps in the market.
- Repeated Sell-offs: Constant sell-offs are key indicators for a bull trap in the market. If you encounter a situation where there are a lot of sell-offs being done to balance the buy-ins, it would be better to stay clear of the asset.
- Failing To Break The Resistance Level: If the price of a coin you want to buy keeps on rising only to fall short of the resistance level, there is a high probability that you’re walking into a bull trap. If you encounter this in the market, consider it a warning sign and avoid buying the asset.
- Unmatched Trading Volume: If you see a positive uptrend for a coin, but the number of trades that are conducted associated with it are few, then it is most likely a trap set by someone to rip you off your money.
- Rapid Price Surge: An instant price surge can be common in the crypto world. However, if you can’t find any news or event behind the coin’s sudden surge, then there is a good chance that you’re playing into the hands of a crypto whale.
Final Remarks
Crypto bull trap is one of the easiest ways to lose your money. However, you can identify and stay clear of them by adopting the above-mentioned strategies into your day-to-day trading routine and by avoiding making emotional decisions. Setting up stop-loss and automatic trading bots can also help you go a long way. If by chance you fall into a bull trap, avoid panicking, carefully assess your losses, and use this as a learning opportunity to improve your risk-mitigating strategies. For further information regarding crypto scams and traps, and how you can easily spot them, stay tuned.
