When you buy Bitcoin after a short upward price movement, you feel like everything will soon be going to the “moon”. Only… reality is a little different. After you buy, you realize you fell for a trap and you are now losing money. So, what is a bull trap and how does it affect cryptocurrency traders?
What is a bull trap?
A bull trap refers to the mistaken belief that a short-term upward price movement will continue for a longer time frame.
In other words, when a person “falls” in a bull trap, he buys a cryptocurrency based on a short term upward price swing, hoping to see a further increase in value, only to be hit with a decrease in the coin’s value shortly after. A bull trap can often result in financial losses for non-experienced or impatient traders.
What are some good practices to avoid being caught in a bull trap?
We recommend that you start this process by reading resources on effective trading, such as our cryptocurrency trading guide and our article on “buying the dip”. After doing so, you will have a better understanding of the volatility in the market and, as a result, you will know how to predict potential bull traps.