Bear Traps and Bull Traps in Bitcoin

The current price action in Bitcoin is very tricky – and it is meant to be that way. But just knowing that there is some trickery going on does not mean that we can easily predict the direction from this level.

The analysis today will be done on a shorter time frame, the 1 hour chart. As you can see, there has been some considerable consolidation ever since the big drop on Sunday, February 24th. This was followed by a small spike up on Monday, February 25th until it returns to trade in a fairly tight range of just $25. Then, yesterday (Wednesday, February 27th), there was another big drop during the US lunch hour. That move was the first sign of some trickery.

There was a fairly fast and deliberate move from 3803.19 to the low at 3655. But there were two components that were missing from that move:

Volume.

Follow through participation.

Volume

Volume is one of the most essential (some say it is ‘the’ essential) indicators in technical analysis. This is especially true with instruments that have a fixed supply. In all of the major bearish breakouts we have witnessed in Bitcoin since 2017, the volume has been massive on the initial drive lower. That was not the case with yesterday’s move. Instead, price halted against some very predictable and key support levels and then just… hung there. I was watching the order books on Binance, Bitfinex, and Coinbase and for a few minutes, there was just nothing going on. That brings me to the second component that was missing, follow through.

Follow Through

When price breaks out of a certain level, whether its support/resistance, a pivot or just a ‘squeeze’, participation is essential to keep price moving in that breakout direction. That did not happen with the move yesterday. It stopped dead in its tracks. The order book on Binance was particularly interesting because. There were frequent 100+ Bitcoin orders at the Ask (sellers) – but they were being pulled very quickly, this is called spoofing and is illegal in some countries. However, someone trying to spoof got into some trouble. His order got ran over by actual buyers. I wished I would have gotten a screenshot because that 100+ order went down to around 88 then quickly was brought back up to 120+ Bitcoin and then buyers just ate it up (bought it up very fast). This caused a small pause but ultimately ended in a fairly deliberate rise over a 4 hour period.

Bear and Bull Traps

That big move with the 100+ Bitcin was either a well-capitalized entity that made a big oops or it was a very common tactic in trading known as a trap – in this case, a bear trap. A bear trap is a move that is meant to get traders into a short position but then swiftly reverses the price action to bullish. The reverse happens for bull traps. However, the same thing that was missing for a bearish move during Wednesday’s afternoon session was the same thing that happened during its recovery: no follow through to the upside.

Fast forward to the Thursday trading sessions and we see a very flat trading environment with the exception of a massive and short burst of activity right at the New York open. Bitcoin fluctuated wildly in a range from 3910 to 3754. At the time of writing this article, Bitcoin continues to consolidate in the 3800 value area and is creating a series of inside bars – there is a powerful squeeze forming on the chart but it’s not clear which direction it will break. It will be interesting to see how price and volume are going to behave at the close of the day because this is the final trading day for the month of February – and this month could close the 6+ monthly losing streak.