Emotional Intelligence Together With Analysis Would Have Spared You This Bull Trap

You Just Gotta Love Retail

For some reason, retail investors always believe the price is going up. I guess one can liken it to “youthful bliss”. There are some things that can only be learned through time and experience. Unfortunately, new retail traders have to pay their school fees as well. As mentioned previously, learning to trade both long and short helps tremendously when it comes to having an objective view of the market. Retail traders are generally overzealous when it comes to being bullish. This is however exactly what is needed to execute a perfect bull trap.

Obvious Signs

Looking at the bigger picture on the weekly chart reveals that BTC is captured inside a massive falling wedge. The long-term trend is clearly bearish and even a strong move up would eventually require a retest of the bottom of the wedge. This points towards a strong corrective move even if the price were to pump in the short term. I think most analysts were aware of this but perhaps allowed their optimism to overpower sound trading ideas. The problem with going long on this particular move is that the price is generally going to fall off of a cliff at a very unexpected time. This is exactly what happened. The graph below reveals a bull trap within a bull trap.

Image Source – Ftx.com

The price broke out from the yellow triangle pattern to the upside. This was a typical fake-out and reveals what I have just stated, “a very unexpected time”. Many would have interpreted this as the confirmation for the next leg up. However, it was the complete opposite. The graph paints a picture of a cliff face.

Emotional Intelligence

If you chose to avoid the graphs and technicals so as to open a long position based on a tweet of a guy sitting on mars then you deserve to get rekt, sorry to say. Along with this tweet was a recent statement from JP Morgan. The company placed Bitcoin’s fair value at $38K, which is just below the point at which BTC becomes bullish. The technical analysis reveals that the market is clearly trapped in a downward trend. Two significant “voices” then come out with statements that are interpreted as bullish. A bullish move in an overwhelming downtrend can only be a bull trap. Even if BTC managed to reach $38K it would have been shorted very heavily at that point. As mentioned this is the equivalent of catching a falling knife in a downtrend because you do not know exactly where the price will be hit with a cascading collapse.

Contrary To The Herd

I began to slowly build a short position on the day that Bitcoin began to rally. The screenshot below reveals my starting date for this position, which was the 30th of May. I began to add to it as the price continued to climb. I knew it would be an immediate and sudden collapse, which is why I continued to add to my position from an early point.

Image Source – Ftx.com

I decided to close this short a little prematurely and could have actually seen a lot more profit but I was happy with the return. I try to avoid greed as best as I can because a penny in the hand is worth more than two in the bush! A multitude of voices were calling for a strong move up and these voices were perhaps spurred on by JP Morgan and Musk. Knowledge of the “state of the market” combined with the fact that the bullish case was in contradiction to the true state of the market would have triggered a warning to those paying attention. This recent bull-trap is yet another incident of emotions over logic.

Final Thoughts

I have mentioned quite a number of times in recent posts how disappointed I am in the accuracy of well-known analysts. If you have done your homework, don’t be afraid of standing by your conviction. I would rather be wrong based on my analysis than simply follow the opinions of others. One speaks of taking responsibility for your investments, while the other would rather rely on another’s opinion. The initial motivation behind Crypto was independence, I like to hold to that as much as possible. Thanks for reading and see you in the next one!

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