How to Recognize Bull Traps

[rxs0005 10]

hi all

 

In Intraday charting how do you recognize a Bull trap ,

 

I see that a stock is showing a up trend and has reversed from its down turn but very soon it reverses the direction and continues to head down

 

I have been caught in that bull trap

 

how does one recognize this pattern

 

thanks for your in sight

 

rxs0005

[shrike 10]

only after it's happened i suppose

[shrike 10]

I 'm studying if a divergence betwenn price and oscillator that measure strenght of trend could be signs a bull or bear trap but its difficult find a good oscillator that works well :helloooo:

[shrike 10]

Now i see a divergence on ES could be a good chance ?? maybe stop thin

[rcoolkarni 10]

hi all

 

In Intraday charting how do you recognize a Bull trap ,

 

I see that a stock is showing a up trend and has reversed from its down turn but very soon it reverses the direction and continues to head down

 

I have been caught in that bull trap

 

how does one recognize this pattern

 

thanks for your in sight

 

rxs0005

 

I am not sure about the specifics and not sure what is your definition of Trend but here are somethings I can tell you to watch .

1) Where the market internals in line with new trend?

2) Always watch for important price levels ( Previous session high/low, Globex Hi/Lo (in futures)). Most of the time the price retest these levels couple of times (sometimes overshoot a little to take out stops) before starting to moving in other direction.

3) Watch for Price Action. You said up trend - did it have bull candled with large bodies each having low above the previous candle low which represent a trend up? or they were combination of bull/bear/doji candles representing profit taking from previous move rather than representing new trend ?

I do not use indicators so cannot talk about that. Above things are not fool proof. It is possible that you looked at all the above things and they all represented that the trend had changed, but even then the price can move in opposite direction because Price can do whatever it wants and that my friend is just part of trading

[rcoolkarni 10]

I am not sure about the specifics and not sure what is your definition of Trend but here are somethings I can tell you to watch .

3) Watch for Price Action. You said up trend - did it have bull candled with large bodies each having low above the previous candle low which represent a trend up? or they were combination of bull/bear/doji candles representing profit taking from previous move rather than representing new trend ?

 

To elaborate more on point 3 - look at the attached screen prints. The first one is YM 150 tick chart as it is happening now (real time) - the up and down gyration (almost cyclical) is most of the time consolidation. Off course this could turn out be a trend but i can only make decision based on whats happening now. The second image is from Friday for ES has 2 markers. 1 st one is again a cyclical gyration (consolidation) where as take a look at the second marker see the difference (reversal). second marker does not have the cyclical gyration.

[aadambell 10]

thanks "rcoolkarni" i have stuck in that trap two times. I will be careful from now.

[Worshire 10]

Most of the time it is when the mv averages cross that is the time trend changes directions.

So you have a bunch of order causing large parabolic moves

[szgy74 10]

hi all

 

In Intraday charting how do you recognize a Bull trap ,

 

rxs0005

 

Hi,

 

I would suggest to look at one or two higher timeframe charts to get a better picture of the market, the overall / major trend (for example for M5 chart check M15 and M30 or H1).

This way you can see when a trend is only a pullback.

 

Another point is the important price levels, zones, like S/R areas, pivot levels, round numbers. When price approches these levels usually the trend pauses, goes sideways or turns back.

 

Bit more complicated but you may check divergences. Regular divergences suggest weakness while hidden divergences suggest the trend will continue.

 

Gyula

[illcrx 10]

I cant be sure if you talking about an actual bull trap or if your talking about a normal reversal, also your style of trading, timeframe for trades and a few other things need to be discussed before you can get an answer that will actually help you.

 

The best way though to get out of any trap or reversal is to have strict money management rules that you adhere to 100% of the time after you find a system that you can work within. This way it doesnt matter if its a trap, reversal, pullback or whatever you can always protect yourself. Remember that you can always get back into a trade, but they will never give you that money back!

[rseye 10]

Hi rsx0005,

 

Try putting a line chart up on your screen, this will show all the pivot hi/lo's based on the price close

 

For a downtrend, the trend is still in place so long as price shows lower pivot lows and lower pivot highs - if the sequence is broken, you no longer have a downtrend, if it shows higher pivot lows and higher pivot highs, then you have an uptrend - otherwise you have a ranging market

 

or simply put a trendline across the pivot highs of the existing downtrend.............

 

Sometimes you enter as per your analysis, and the market swings around and takes out your stop - thats life! it happens

However the odds are on your side

There is nothing wrong in re-entering a trade - after all the initial oversold condition has not changed ???

 

Hope this helps

PS The line chart is also very useful for picking out patterns, takes away all the noise of candlesticks etc (Candlesticks and bar charts are still important though, they also provide a wealth of info)

 

Peter

[legendkiller420 10]

Hi,

 

You can avoid bulls trap in Intraday trading by looking at the breakout in the Intraday chart. Since you are talking about Bulls trap in INTRADAY TRADING, I suppose you should be monitoring the tick everytime. So Just place your trailing stop loss at the down breakout. (If it goes higher, move your trailing stop loss higher).This way you can avoid the false bullish trend and get away with quick profit. All the best

[neoikon 10]

My quick opinion is one person's "bull trap" is another (higher time-frame) person's "short setup".

 

From what you are describing, it seems like price is merely pulling further back than you are expecting based on the time frame you are looking at. Then, traders looking at an even higher time frame see that as a "just right" sized pullback in which to re-initiate or add to their short position.

 

Daniel

neoToolbox

[rseye 10]

Hi rsx0005,

 

Here's another option....................

 

False signals (bull/bear traps, false breakouts etc etc)

You will greatly improve your trading if you learn how to use multiple timeframes in your trading

 

Facts:

1 The smaller timeframes are the building blocks of the higher timeframes

i.e. if there is going to be a reversal in price on your trading timeframe - then it must occur on your next lower timeframe 1st

2 When we enter a trade we do not know if ouranalysis is going to be proved correct i.e. it is the most dangerous part of the trade

 

So what should we do

You need to protectyour trade in the early stages of its "development" - and if it does not develop into a good trade, at least give yourself the chance of having at least a smaller loss or perhaps even a reasonable profit

 

Method

When you move to smaller timeframe - you tend to stretch out the time axis, and magnify the price axis e.g. what might appear as a period of untradeable narrow consolidation of price, when looked at on a lower timeframe will probably offer good pickings for a swing trader etc etc

 

So basically what we need to do is.....

Find our setup starting to build on our trading timeframe

Check the next higher timeframe to ensure our trade is logical, i.e it has room to move, price is not at extremes etc etc

THEN.... go to the next lower timeframe (to our trading timeframe) and look for an entry

 

Your bull trap situation will be obvious on this chart and you exit at the bull trap hi reversal - using your normal technique

otherwise: if your trade is successful, then you move back up to your trading timeframe to manage the trade i.e. look for your exit setting up

THEN...go back to the lower timeframe and look for your exit , viola

 

Result

If you have a bull trap - you are most likely to get out with a small? profit

If you are successful - then you have entered at a better risk (lower stop)

and you have exited at potentially a higher profit

i.e reduced risk and increasd reward

 

What more can we ask for ??????

 

Easier said than done

Peter

again I have not checked the above and hope that it makes sense

[Obsidian 10]

from another thread--->Four Key Principles for Trading

 

...

No Surprise -- when things don't happen as you thought

No Hesitation -- when you are about cut your loss or take your profit

...

 

What I do depends on the time frame I trade...but if I understand that I fell into a trap and I am in the wrong direction, I just stop and reverse...

[ctalmadgebell 10]

NOTHING is accurate 100% of the time. However, this is what I check to see if a trend is actually running out of steam:

 

1. Moving Averages - I use the 50/200 SMA. If the stock price is approaching one of these, then many traders will begin to dump the stock.

 

2. Divergence of the Volume direction with the stock price direction, i.e. the stock priced is increasing while the Volume is becoming lower and lower.

 

3. Indicators that show slowing momentum: MACD, OBV and ADX.

 

If the majority of these are indicating weakness, I'll sell 1/2 of my position and move my stop/limit up close to the stock price. In this way I have 1/2 of my profits now and if the stock does turn down, I'll capture the other 1/2 at the higher stop/limit order. If the stock does not turn down, then 1/2 of my money is still along for the ride.

 

This is a conservative way to trade. It allows me to have small losses, gain decent profits, and sleep well at nights.

 

Others, may have risk tolerance and have a different apporach.

[joshdance 10]

hi all

 

In Intraday charting how do you recognize a Bull trap ,

 

I see that a stock is showing a up trend and has reversed from its down turn but very soon it reverses the direction and continues to head down

 

I have been caught in that bull trap

 

how does one recognize this pattern

 

thanks for your in sight

 

rxs0005

 

Why don't you post a chart of a time you have been trapped, or something that looks similar?

[DionysusToast 10]

My 2c....

 

Look at how much participation is in the moves, that will help you guage whether a move is a pullback or a reversal as well as how easy/difficult it would be to 'run the move over'.

 

DT

[smmatrix 11]

I don't think there's a real technical method in recognizing a bull or bear trap, but I think its a traders intuition that matters the most in identifying the traps. Gut feeling anyone?

 

Even still, traps like these will happen during choppy markets and/or counter-trend setups. If you're mostly trading with-the-trend, you don't have much to be concerned with generally.

[Steve66 10]

hi all

 

In Intraday charting how do you recognize a Bull trap ,

 

I see that a stock is showing a up trend and has reversed from its down turn but very soon it reverses the direction and continues to head down

 

I have been caught in that bull trap

 

how does one recognize this pattern

 

thanks for your in sight

 

rxs0005

 

This is how I see it:

A bull or bear trap is created on an opening gap when price action completely negates prior days move. Example: Monday closes very bullish and trader is carrying trade over night. The trader is expecting price continuation at open, but when Tuesday opens, the gap in price negates Monday’s price action and forces a now shocked trader to cover position and/ or exit the trade.