Hello crypto traders. Today I want to talk about false breakouts and traps for traders when trading cryptocurrency. The fact is that the digital money market is very manipulative, and even deep knowledge of technical and fundamental analysis does not guarantee profitable trades, because there are false signals and traps. I will tell you how to avoid them later.
Traps for cryptocurrency traders
Some technical and graphical analysis setups often mislead even professional traders, and in some cases they deliberately deceive. Many of you have already heard that the cryptocurrency market is controlled by market makers and whales (traders who have more than 1000 BTC). And it is they who often create traps for ordinary traders, in order to sell the tokens at a higher price or collect Stop Loss.
A false breakout is a deceptive price movement on a chart in which a market maker breaks out a resistance or support level. Such a large trader collects Stop Losses and orders for the sale/buy of tokens and then reverses the price in the opposite direction. The meaning of the trap is very simple, but novice traders are led to it – they buy expensive where they should have sold and sell where they should have bought.
I propose to take a closer look at the false breakout price levels in digital money. For example, we have a bearish downtrend on ETH. The price falls down to some strong resistance level. Technical analysis and chart patterns, together with indicators, draw a descending triangle and its breakdown even lower. Additionally, there is news that says that the price of ETH will update to new lows, and miners will stop working further.
False signals in cryptocurrencies
The price can go lower for some time or stop. At this time, beginners in a panic begin to sell their coins, and professional traders in technical analysis exit by Stop Loss (their Stop Loss was below the resistance level). But here the price turns sharply and goes back up, leaving traders who have just sold their tokens cheaply or were knocked out of a Stop Loss transaction in anger and bewilderment.
Some traders, hoping to make money on a price reversal and possibly on a trend, enter the trade again. But here the price can again go down by several% in order to collect Stop Loss once again and force nervous traders to exit. And then the price continues to move in the direction that is beneficial to a major player in the market. And it happens all the time! What’s the matter?
It is profitable for whales to take other people’s money and manipulate the crypto market in such a way that newcomers could not stand it and sell their tokens cheap, and experienced traders acted on technical analysis and also lost money. Unfortunately, it is not always possible to predict a false breakout and a trap. If it were possible, then such traps simply would not exist.
How to avoid pitfalls in crypto trading
Of course, there is a false breakout trading technique called countertrend trading, but it is only suitable for professional traders. Therefore, there are only 3 ways to avoid the pitfalls in crypto trading. The first way is to place Stop Losses below the support or resistance level. Yes, you can be thrown out of the deal, but this is better than going into a bigger minus.
The second method is Stop Loss by time (timeout), which can be set in SmartTrade or 3commas bots. That is, if the price reaches a critical level, you are not immediately closed by Stop Loss, but after a specified time (minute or hour). If the price reverses, you stay in the trade. The third method is averaging instead of Stop Loss, which allows you to buy an asset at a lower price when the price falls.
In addition, averaging shifts Take Profit closer to your entry point, allowing you to quickly close a profitable trade. It is more convenient to use averaging in SmartTrade and 3commas bots (safety orders). Remember that there are no ideal solutions and tools to protect against false breakouts, so you have to accept the probability of the outcome, in some cases, of unsuccessful trades.
The video about the wave of false breakouts and signals in cryptocurrencies is coming to an end. I told you the main types of traps for traders, as well as why even correct signals from the point of view of technical analysis may not work. Be always on the alert and vigilant! That’s all until the next videos on botcryptotrade.com