Watch Out: Traps to Avoid When Trading Cryptocurrency

In a bid to enter the crypto space, investors and traders often forget to watch out for traps and end up going bust. Unfortunately, the crypto market is risky, with huge ups and downs that can lead to serious losses.

Concepts like “bear trap” and “bull trap” flooded the market, but what they are is still unclear to many. “Going on a bear hunt” is an attempt to catch a considerable price decrease, while bull traps indicate the opposite.

You will see that this stock movement is often deceitful, and profits are not always possible. Nonetheless, pitfalls such as bogus reversal indicators can be avoided.

You will be less likely to lose if you are serious about your crypto research and consider some factors before jumping to trade. It is inevitable not to be exposed to risks in crypto, but how you assume and manage these risks is the most important.

Start your research with more insights into the various crypto traps and ways to get rid of them in this article.

Bear traps

A bear trap is nothing more than a technical pattern that happens when the cost of a cryptocurrency asset is pushed up very quickly. This means an upward trend becomes a downward one.

The false price drops lure many amateur traders into taking a short position. Experienced traders are often behind this trap, as they forecast the market will reverse again and head upward, unlike novice traders who believe they will make the most of the allegedly bearish move.

Are you surprised? This is the Wild West, i.e., each man for himself. If you are a newbie to crypto trading, it would be advisable not to rush to adopt a short-sell position, as you might be the victim of a bear.

Instead, carefully weigh your options and document the crypto that has grabbed your interest. You are unlikely to lose if you check information like the asset’s price history, market cap, liquidity, volatility, and utility.

For example, if you have just made up your mind to trade Bitcoin, ensure you check Bitcoin price regularly and look for significant drops and rises in price lately.

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Even if Bitcoin is one of the most volatile and liquid cryptocurrencies, you cannot trade without understanding how it works. Binance provides real-time data about price history, market cap, and much more, so ensure you have a look at these before purchasing Bitcoin or altcoins.

Bull traps

A bull trap is the opposite of the previous one, indicating a sudden increase in the market price. This movement is often called “bullish,” and the result is an upward reversal.

Many traders would be tempted to buy during this rise, but they do not understand that it is a trap, and prices will continue to go down before they can make considerable gains.

This bogus reversal is short-lived, so if you are enticed to buy, reconsider your choice. We know an upward reversal is usually good news, but it is not the case when it comes to a bullish action.

Therefore, instead of trading when the prices abruptly go up, wait until you are hundred percent sure a continued drop does not follow the rebound.

Ways to Avoid Bears and Bulls

Now that you have learned what these traps mean, let us put down some practical ways to prevent them or leastways manage them.

Look for Confirmations

The most valuable quality of a proficient trader is patience. People who jump into trades at each market move will likely go bust.

Thus, ensure you wait for confirmatory signals when a sudden drop or price increase occurs. Is that bullish or bearish impetus truly building up?

You may find helpful indicators such as the Average True, Relative Strength Index, and Moving Averages. Remember that a market, particularly the crypto market, will not always react the predicted way.

Check the Trading Volume

Looking at the trading volume is a general crypto rule that every trader must follow no matter what asset they are interested in. This is even more paramount when it comes to bear and bull traps.

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For example, if you sign a reversal, ensure there is also a considerable rise in volume. Otherwise, the price movement is less likely to last, meaning that you may fall into a bear or bull pitfall. 

Opt for Stop-Loss Orders

There is an unwritten rule in crypto – you cannot trade more than you can pay for. Using stop-loss orders each time you trade can save you from considerable losses, as these automatically shut a losing trade in case the value reaches a predetermined point.

Wait for a Retest

Many traders opt for the retest method when unsure about the sudden market movements. This implies letting the abrupt bullish move gain little upper momentum and break the support before executing purchase orders. It is essential to do that before entering a trade to ensure it is safe to buy a particular asset or not.

Other Crypto Traps to Watch Out for

Unfortunately, it is not only about bears and bulls. No matter how unpleasant it sounds, the crypto space has a lot of traps you must be wary of.

Exit Scams

Exit scams represent fraudulent practices that occur mainly among small exchanges. Malicious actors promote a false crypto scheme or outfit, luring investors and traders to buy crypto and disappear once they have gained enough profit.

These individuals can also sell the coins elsewhere and make people believe they are still using them. It sounds unbelievable, but these practices are quite common in the crypto sphere, so it is highly advisable to always opt for reputable, trustworthy exchanges that promise safety.

Ponzi Scheme

A Ponzi scheme implies an investment fraud that lures potential customers to invest with vast annual returns or profits. The truth is that, after investing the desired amount, these malicious individuals run with the funds. The main purpose of the Ponzi scheme is to catch investors into the trap of losing money they use afterward for their benefit.

Trading cryptocurrency is not all fine and dandy, as there are various traps users can fall into. But these can be managed and even prevented with the right practices. 

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