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bitcoin bear claw bull trap

Bitcoin Bull Trap: Bears Begin To Dig Claws Into Crypto Trend

Tony Spilotro by Tony Spilotro
2 years ago
in BTC
Reading Time: 3 mins read
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Bitcoin price is on the rebound, but after such a sharp fall and more than 50% retracement, any reversal must be considered a potential bull trap until much higher prices are reclaimed.

Further adding credence to the theory of a potential bull trap, a trend strength indicator very clearly shows that bears are in charge, and are ready to bring out the claws if needed to swat crypto prices back into hibernation mode.

Only Up Season Is Over: Bears Now Control Bitcoin Trend

After such a strong year for bulls in 2020 and a even more powerful start to 2021, expecting “only up” in crypto isn’t uncommon. That’s exactly why the selloff in May was so severe – few saw it coming.

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Technicals warned that something violent was coming, but because sentiment was so bullish the bearish signals were ignored. But technicals are rarely wrong so long as a certain set of rules are followed.

Related Reading | Bitcoin Bulls And Bears Alike Beware Of Potential Pump And Dump Fractal

For example, the Average Directional Index is a trend strength measuring tool that commonly reads alongside a Directional Movement Index. Simply put, the ADX measures the trend and the DMI says who is in favor: bulls or bears.

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bitcoin ADX 3d

Trend changes are extremely clear on the three-day chart | Source: BTCUSD on TradingView.com

In the chart above, there’s no denying the bears are still fully in control of Bitcoin, despite the short-timeframe showing from bulls. Dating back to the start of the bear market, the ADX and DMI have provided reliable signals about which side of the trade is most dominant.

How To Read The ADX And DMI To Gauge Crypto Trend Strength

The chart above also shows the DMI- falling below the ADX, which is an indication that the trend is growing in strength.  Falling below a reading of 20 tends to reset a trend and signal its end.

All signs suggest that bears only now have control over the top cryptocurrency by market cap for the first time since April 2020 and aren’t likely to let go so easily.

bitcoin ADX 3d

Could there be several bullish divergences before a reversal? | Source: BTCUSD on TradingView.com

On shorter timeframes, the ADX reached a reading of 70 showing just how powerful bears have been. The trend strength matches the initial power that pushed Bitcoin to above $14,000.

Related Reading | Why Bitcoin Could Slingshot Back To Lows Before Gaining Momentum

From there and above, with each successive local high, the daily bull trend weakened until bears finally made their attack. Each divergence in the chart above shows the trend weakening in action. It also could suggest that bears might have several weakening peaks with deeper lowers before any sort of real reversal is on the table.

For now, the recent rally in Bitcoin to back above $40,000 might be little more than a bull trap set by playful bears just out of hibernation.

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

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a global remote work leader with a decade of award-winning content experience and excellence. 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 at @tonyspilotroBTC and feel free to drop me a line if you would like to work together.

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