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Home Technical analysis BTC

Bitcoin Bullish Hammer Reversal Forming, But Beware Of Bull Trap Potential

Tony Spilotro by Tony Spilotro
1 month ago
in BTC
Reading Time: 3min read
Bitcoin Bullish Hammer Reversal Forming, But Beware Of Bull Trap Potential

used chisels and hammer on reflective green background

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Bitcoin price dipped as low as $17,700 overnight before bulls drew a line in the sand and began to defend the recent rally. Although the move down was sharp and severe, the strength of bulls has left a long wick behind and a bullish “hammer” is forming. A daily close at or above $18,500 could signal another push higher, but it also could be bait for a massive bull trap.

Bitcoin Bulls Drop The Hammer On Bears Following Overnight Selloff

Bitcoin bulls are unstoppable these days. They are now led by the likes of corporate execs such as Michael Saylor of MicroStrategy and Jack Dorsey of Twitter and Square Inc, and hedge fund managers Paul Tudor Jones, and Stanley Druckenmiller. Billionaires are getting into the cryptocurrency in search of a place to store value, and it is causing the price to rise dramatically.

At the same time, the limited BTC supply is being gobbled up by these folks, and by institutional investors buying shares of Grayscale Bitcoin Trust. Grayscale themselves are absorbing more BTC per day than miners are producing since the halving.

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Related Reading | Why New Bitcoin Investors Shouldn’t Be Deterred By The Scarce BTC Supply

With so little supply versus demand, the bull market is back. But even bull markets correct, and after such a sizable rally, the leading cryptocurrency by market cap saw its first downside and shift in momentum recently.

Weeks ago, a selloff to low $16,000 was defended by bulls, and overnight last night, a higher low might have been put in with a strong defense of $17,700. The rebound has led to a daily candle forming that appears to resemble a bullish reversal signal called a “hammer.”

Bitcoin bulls are forming a hammer candle – a potential reversal signal | Source: BTCUSD on TradingView.com

Stop! Hammer Time:  Why The Reversal Signal Could Be Bait For A Trap

A “hammer” is a bullish reversal signal and is given its name because the long wick below resembles a handle with the candle itself acting as the head. A close with such a structure could be a sign Bitcoin is ready to move higher after a successful display of strength by bulls.

However, further examination and technical analysis outlines the probability of a bull trap like scenario. The bullish hammer could be “bearish retest” of a lost trendline in disguise.

The uptrend line was lost, along with the middle-BB, warning of a bearish retest situation | Source: BTCUSD on TradingView.com

Bitcoin has also lost the mid-BB on the Bollinger Bands for the first time since the rally started. Closing below the middle-BB can be used as a signal to buy or sell effectively in most markets.

Related Reading | Bitcoin “Double Top” Narrative Builds, Factors To Potentially Fear

Crypto analysts have been confused about where Bitcoin goes next, and unfortunately, this latest price action does little to clear things up.

Featured image from Deposit Photos, Charts from TradingView.com
Tags: bitcoinbtcbtcusdBTCUSDTcryptoxbtxbtusd
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellent. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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