Polkadot needs to close above $18 to avoid a bull trap

Polkadot (DOT) price is seeing plenty of ask prices hit by buyers as price action bounces off the $17-handle and markets breathe a sigh of relief on possible new talks underway between Biden and Putin. With the rally underway, one risk needs to be underlined, and that is the emergence of a possible bull trap. Traders are jumping on the rally driven by Fear Of Missing Out (FOMO), but bears could still push price-action back to $16.95. Expect the rally to gain pace as the US session is under full speed. A close above $18 and the high from Sunday would wash out the bears and defuse any bull trap possibly forming.

Polkadot set for 20% gains if bull trap can be defused

Polkadot price action was on the cusp of breaking below $16.95 as geopolitical tensions weighed on price action over the weekend, pushing DOT back to the low levels of 2022. As hopeful news hit the wires early on Monday morning, however, the descent shifted 180 degrees to an ascent, with DOT up 3% during European trading hours. Expect more to come, although much will depend on the outcome of the US session as Polkadot price action needs to pop above $18.00 to wash out any prepositioned bears lying in wait to trigger a bull trap.

The Relative Strength Index (RSI) is in any case pointing to some strong bullishness after  a sharp knee-jerk reaction against bears, which will undoubtedly have weakened some positions and triggered some profit-taking. The key will be whether DOT bulls can cover ground above $18, killing off some short positions, and with profit-taking triggered, ramp up more buy-side demand. That could mean that DOT is set to tick $20.60, in a relief rally holding 20% gains.

DOT/USD daily chart

As already mentioned a couple of times earlier, the risk is of a bull trap, with buyers who have joined the rally too blindly – and coupled with bad management – being left exposed to a full retrace back to $16.95. That would hurt bulls depending on their entry point, and a break below $16.95 would trigger quite a few stop losses and see the sell-side volume expanding in size. This could create a nosedive towards $14.00, shedding around 19% of market value.