Concerns About Bull Trap in Bitcoin
Updated
Even though my last idea was about shorting, I am a long term bull in bitcoin and crypto in general.
The move off of the bottom started relatively calm, but has since gained extremely strong momentum. In many people's view the bottom is in. And to be real honest, I certainly think its possible. I really hope the bottom is in.
Bitcoin is its own animal so it can indeed have strong sustain moves. Especially since its still a young market.
However, I get concerned when the market moves up so fast with almost no retrace or consolidation. Why?
1. Generally big money doesn't FOMO in. Maybe a whale bought some at $8500 but this does not look like wall street coming in.
2. If its mostly retail buyers that are panicking back in, these people will be weak and susceptible to any kind of FUD.
3. When there is no consolidation, support is weak, so if we go down and support breaks, it can trigger strong selling
4. Most of the time, bull traps are aggressive like this.
This chart is bitcoin in 2014. History doesn't have to repeat and bitcoin is way different in 2018. However, it still shows you what can happen when a market forms a V bottom, never consolidates and never retests. Everyone rushes back in because they think the bull is back. Then you lose buyers and soon you get selling. People remember the recent sell off, get scared and start selling again.
Sideways consolidations pick up buyers and those buyers tend to protect their buy zones. So you need that to stop heavy selling. We don't have that yet and we need to build it.
I know a lot of people want to us go straight to 15k, but if we could trade between $8500 and $11000 for a few weeks, it would actually strengthen the move.
In Elliott Wave, if this was a wave 3 then we need a nice big wave 4 triangle to help us build support.
If bitcoin goes straight to the trend line, then gets some selling pressure, I worry that we just formed a classic ABC bull trap. $7500 would be the line in the sand. If that got breached, I think panic would set in and the move up works like a coiled spring and it could easily drive bitcoin down to $3000.
Again, this isn't a prediction. It's a concern.
The move off of the bottom started relatively calm, but has since gained extremely strong momentum. In many people's view the bottom is in. And to be real honest, I certainly think its possible. I really hope the bottom is in.
Bitcoin is its own animal so it can indeed have strong sustain moves. Especially since its still a young market.
However, I get concerned when the market moves up so fast with almost no retrace or consolidation. Why?
1. Generally big money doesn't FOMO in. Maybe a whale bought some at $8500 but this does not look like wall street coming in.
2. If its mostly retail buyers that are panicking back in, these people will be weak and susceptible to any kind of FUD.
3. When there is no consolidation, support is weak, so if we go down and support breaks, it can trigger strong selling
4. Most of the time, bull traps are aggressive like this.
This chart is bitcoin in 2014. History doesn't have to repeat and bitcoin is way different in 2018. However, it still shows you what can happen when a market forms a V bottom, never consolidates and never retests. Everyone rushes back in because they think the bull is back. Then you lose buyers and soon you get selling. People remember the recent sell off, get scared and start selling again.
Sideways consolidations pick up buyers and those buyers tend to protect their buy zones. So you need that to stop heavy selling. We don't have that yet and we need to build it.
I know a lot of people want to us go straight to 15k, but if we could trade between $8500 and $11000 for a few weeks, it would actually strengthen the move.
In Elliott Wave, if this was a wave 3 then we need a nice big wave 4 triangle to help us build support.
If bitcoin goes straight to the trend line, then gets some selling pressure, I worry that we just formed a classic ABC bull trap. $7500 would be the line in the sand. If that got breached, I think panic would set in and the move up works like a coiled spring and it could easily drive bitcoin down to $3000.
Again, this isn't a prediction. It's a concern.
Note
If this is going to be bullish, then I would expect to either make a big run to
12K area from this small pullback. Or we go down to .382 of the move up from $8300 and test that bottom bullish trend line before proceeding to 12k. Breaking that trend line is not a big deal but it opens up the door for a bigger correction of the entire wave which could be as low as 8k. Lower than that and the bull trap has a chance to play out.
Note
The ideal bullish scenario is to form a big consolidation area that would serve as a launch pad to propel bitcoin back above 12K for good. This would allow sound price discovery and accumulation by big money. It would build support zone that would be very difficult to fall below. Something like this chart below would be incredibly healthy for the market.
Note
Bitcoin just turned at the .618. so 3 things can happen. 1. Work our way down and finish a correction before heading higher.
2. Retest the small inverse head and shoulders then head to
12K form here.3. The down move gets aggressive selling that quickly takes us below 9k.
My gut tells me that we are probably just going to pull back and head higher. But since my concern is a bull trap, I'm looking for heavy selling and price action to confirm my suspicion.
Again, I think we are just correcting and will head higher, but I want to be ready for a big move down.
Note
Price action confirmed my suspicion that we could get heavy selling. As we can see we formed a HS and so far the selling is impulsive. This 3rd wave could go to $8800 or lower. We are at a support level now so would need to pick up buyers.
When markets move up without consolidating there are not enough buyers that would normally step and keep the market up. If we break $9700 there support is weak for awhile. We are on a TD2 on the daily, TD3 on the 4 hour chart so we could have 20 hours of selling if this is a 3rd wave that starts trending.
As I originally stated, this was a concern. Just because we got heavy selling, doesn't mean we make new lows. We want to be cautious and prepared and let the market let us know when its ready.
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