Posted by: joetradingplace | June 26, 2013

Trapped Traders

This article is in response to a question asked by Neil….

Hi joe what do trapped traders look like on charts? (Maybe pinbar that didnt makr a reversal?)An example would help very much thanks. Also obvious pattern you mean like a head and shoulders pattern that fails? Or like a 100dma looking to hold kind of idea?

 

Trapped Traders

Trapped traders are traders who are in a losing position and they are panicking and become very desperate to dump the position. Where would you look for trapped traders to take advantage of their position…you look for false breakouts, especially when the market is going up and we break the recent low but fails to follow through…you know there will be a lot of trapped traders there and you are also trading in the direction of the prevailing trend, so you know the odds are more likely to be in your favour, vice versa for downtrend . Some traders buy at support and sell at resistance, imagine what happens when these levels fail to hold.

Also look for very popular patterns like HnS, Pin bars just to name a few…you know that when these fail, there are a lot of trapped traders and you take advantage of these trader liquidating their positions in panic, thus moving the market in the opposite direction of the breakout. Another nice price action to look for is failed failed patterns…you have a pattern like the HnS, it breakouts out on the neck and fails to follow through, price then reverses and head in the opposite direction, but again fail to follow through and trade back in the original direction of the broken neckline…that’s a failed failed pattern.

Some traders don’t want to be left behind and if they see the market going up and up , they think they have missed the trade of the year, so they jump in at the top of the trend, and when traders who bought lower are taking profits, price moves lower a bit…now these traders who bought at the top panic and think that the trend is reversing…they rush to close their positions.

It is done by market makers pure and simply for that reason, to trap. They have the ability to see the orders, and move the market, a massive advantage…so trade with them not against them. Successful traders avoid these traps instead they take advantage of these traps. Trapped trader patterns can be used in any timeframe and any market.

 

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