Spotting Bull Traps in Crypto
A bull trap occurs when the price of a cryptocurrency breaks above a resistance level, luring traders to buy, only to reverse and drop shortly after. These traps often occur due to low volume, overbought conditions, or market manipulation.
How to Spot Bull Traps:
1. Low Volume: A real breakout has strong trading volume.
2. Overbought Indicators: Check RSI; if above 70, the asset may be overvalued.
3. Quick Reversals: If the price falls back below resistance quickly, it’s likely a trap.
Tip: Always wait for confirmation, such as a retest of the breakout level, and use stop-losses to manage risks. Stay disciplined and avoid FOMO to protect your investments!