A bull trap in the crypto market is a deceptive upward price movement that lures investors into believing that a cryptocurrency is beginning a sustained bullish trend. However, shortly after these investors enter the market, the price reverses and falls sharply, trapping them with potential losses. Here’s how a bull trap typically unfolds:
1. **Initial Downtrend**: The price is on a downtrend, but it suddenly reverses and shows signs of recovery, creating optimism that the bearish trend is ending.
2. **False Breakout**: The price rises enough to make traders believe that a new bull market is starting, and many investors buy in, hoping to catch the upward momentum.
3. **Reversal and Decline**: Shortly after these new buyers enter, the price reverses direction sharply, resuming the downtrend and trapping them in losses.
Bull traps are common during bear markets when temporary upward movements can mislead investors. To avoid bull traps, traders often look for confirmation signals, like high trading volume and strong support levels, before fully committing to a bullish position.
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