Analysis

Getting Caught In The Bull Trap Because Of A Rush In The Bitcoin Bear Market

Looking back at Bitcoin’s (BTC) bear market history, we’ll notice a lot of bull traps occurring. Traders are susceptible to these bull traps because of their haste.

At the time of writing, Bitcoin has created the largest range of daily candles in the past two months. Sadly it was a red candle. Bitcoin’s rally from less than $18,000 to $25,000, or more than 40%, is remarkable. But if you look at the past, that is very normal in a bear market. And it becomes a trap for investors.

The downtrend in 2014 saw up to 5 times the price recover after a strong dump. And the amplitude of such times is from 25% to more than 80%.

Bitcoin rallied in a downtrend in 2014. Source: Blocktrends

So is the 2018 downtrend. There were at least 4 rallies with an increasing margin of 20% to 66%. And if you’ve been through these rallies, you’ll notice that a lot of traders are trapped by over-expecting the price to rise again.

Bitcoin rallied in a downtrend in 2018. Source: Blocktrends

These traps manifest in the form of various technical expressions, such as Dead Cat Bounce, False Breakout, etc.

The downtrend in 2022 has also appeared at least 5 times, with an increase of 21% to 45%. And we will always see the legitimacy of the news on the price line. But no matter how good the news is, it can’t reverse the trend quickly.

BTC daily chart. Source: CoinCu

The percentage calculation makes many traders mistaken. For example, if the price drops 40%, it will need to recover to 80% before it can return to the previous level. Meanwhile, the psychology of over-expectation that caused the waves to rise only 20%-40% has excited many traders.

Psychologically, the market will fall to the point where bullish predictions become scant and ignored. In early 2019, BTC dropped to nearly $3,000, investors withdrew capital from the market. At the beginning of 2020, BTC dumped strongly below $4,000 because of the news of COVID-19, investors were almost desperate. At such times, most analyzes are very pessimistic. That’s when the bottom is confirmed.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

CoinCu News

Harold

With a passion for untangling the complexities of the financial world, I've spent over four years in financial journalism, covering everything from traditional equities to the cutting edge of venture capital. "The financial markets are a fascinating puzzle," I often say, "and I love helping people make sense of them." That's what drives me to bring clear and insightful financial journalism to the readers of Coincu.