What is a bull trap, and how to identify it?

What is a beef trap and how to identify it? – Mail Bonus

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Here’s how to spot a beef trap with some clues that it’s on its way:

RSI anomaly

A high RSI could be an indication of a potential bull or bear trap.

The calculation of the relative strength index (RSI) can be used to identify a possible bull or bear trap. RSI is a technical indicator, which can help determine if a stock or cryptocurrency asset is overbought, underbought or neither.

RSI follows this formula:

The calculation generally covers 14 days, although it may also apply to other time frames. The period has no meaning in the calculation as it is removed in the formula.

In the case of a probable beef trap, high RSI and overbought conditions indicate that selling pressure is increasing. Traders are willing to put their profits in their own pockets and will probably close trades at any time. As a result, the first break and the rise could not be an indication of continued price increases.

Lack of increase in volume

When the market is truly breaking out, there should be a noticeable increase in volume as more people buy security as it rises higher.

If there is little or no increase in volume at the time of the breach, it is a sign that there is not much interest in safety at that price and that the increase could not be sustainable.

A price increase without a significant increase could also probably be due to robots and retailers competing for a position.

Lack of momentum

When a strain is suddenly dropped or broken down with huge red candles but then releases very carefully, it is an indication of a beef trap.

The normal tendency of the market is to move in cycles. When it reaches the top of the cycle, it is generally a period of compression in which the bulls and bears fight for control.

This lack of momentum can be seen as an early warning sign that the market will turn around.

Lack of developmental violations

Decreases in prices are indicated by a series of lower and lower floors.

The development of stock prices does not always change when progress is made. The downward trend is still intact as long as the price increase does not exceed the last minimum.

Lack of verification is one of the most common mistakes caught by bull traps. They should already suspect that if the current peak does not exceed the previous peak, then it is declining or intermittent.

This is usually considered a “no man’s land”, one of the worst places to start buying unless you have a good reason to do so.

While some traders may be disappointed with this, most are better placed to wait for confirmation and buy at a higher price than to try to “come in early” and be stuck.

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Resistance level retest

The first indication that a bull trap is approaching is a strong bullish momentum that is maintained for a long time, but responds quickly to a specific resistance zone.

When stocks have established themselves as a strong boom with little lower pressure, it indicates that buyers are flooding all of their resources.

However, when they reach a level of resistance that they are reluctant or afraid to break, the price will usually turn around before going even higher.

Suspiciously large bullish candlestick

In the final stage of the trap, a huge bullish candle usually picks up most of the candlesticks immediately to the left.

This is generally the bulls’ last attempt to gain control of the market before the price reverses. It could also occur for several other reasons:

  • Big players are deliberately pushing the price higher to entice unsuspecting buyers.
  • New investors are confident that a breach has occurred and start buying again.
  • Sellers intentionally let buyers dominate the market for a short period of time, allowing them to accept sales limits above the resistance range.

Division formation

The final characteristic of a beef trap arrangement is that it creates a stage-like pattern at the resistance level.

It is said that the price of an asset jumps back and forth within the levels of support and resistance when it fluctuates within limits.

Because the market could still be creating smaller, higher floors, this range might not be perfect, especially at the upper end. Yet the beginning of the bull trap is visible as the giant candle that has been said before is formed and closed outside this range.

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