From the Cotorra Springs dreamcatcher take the railroad tracks going east across the Bacchus Bridge. Head north uphill on the trail from Bacchus Station. Take a right at the fork to head east. Follow this trail east until you reach The Loft. The dreamcatcher is in the only bare tree on the right of the trail.
Finding all 20 dreamcatchers will reveal the location of the Ancient Arrowhead treasure; A unique item that makes Arthur's stamina last twice as long when using the bow.