Recently I posted an article that smashed the record for the most feedback so far in 2013 – Gaining Confidence in Taking the Trap Entries.
It seems that a lot of people got great value from this article. I’m very happy with that! One of my primary goals is to help people see the markets and the trading game from a new perspective. And that’s exactly the result that was achieved.
So let’s take another look at this concept with two more recent chart examples. If you missed the first article though, please go and read it first.
- A common reason for difficulty in taking trap entries is your faulty expectations.
- You’re expecting breakout success. I’m anticipating breakout failure!
Why is this the case?
- Standard TA teaches us that a breakout of a key level or a significant swing high or low is a potential sign of a new trend.
- This leads to people expecting breaks to work.
- The reality is that it’s only a potential sign of a new trend… at least up until price acceptance in the new area and signs of strength in this new direction.
- The reality is that breaks against bias often do fail.
- So, if you can gain an entry on a break against your bias, with acceptable reward:risk parameters, then this is a trade that you SHOULD be taking.
If traps aren’t currently a part of your strategy then please take some time out to consider whether or not they should be!
Adjust your expectations. Breaks of swing highs & lows and the edges of trading ranges are not necessarily the start of a new trending move, just because all the trading books say so.
When a breakout occurs against a larger market bias, anticipate a failure.
The breakout is not confirmed until price acceptance has occurred in the breakout zone.
Until then… anticipate failure.
Keep your focus ahead of current price. If it’s going to fail, what signals will price give you? Then watch and wait. Stalk the opportunity from the safety of the sidelines. Does the breakout stall as you expected? If so, you’ve got a potential trade developing.
Your beliefs and your expectations will greatly influence your confidence in taking a trade.
So if you’re lacking confidence in taking trap entries, is it perhaps because you’re expectations are not in line with the reality of the markets?
You can change your expectations. You do that through repeated exposure. Whatever market you trade! Whatever timeframe you trade! Find 100+ examples of breaks against bias and study them.
Trending markets… find breaks of swing highs/lows against the trend.
Ranging markets… find breaks around the edges of range support and resistance.
Study those where the breakout failure did provide opportunity. Study those where the breakout failure failed. (Yes… they can fail. Sometimes the trapper gets trapped! But if you’ve got the context and bias assessed right they usually offer a good low-risk opportunity compared with potential reward.)
Print your trading timeframe chart. Find traps against the market bias. Drill down to the lower timeframe to study them. As you can see… traps provide a lot of opportunity if your market beliefs and expectations allow you confidence to trade them.
I would like to share yesterday’s trade here, I went long in Crudeoil after it breaks a good resistance level and then suddenly a breakout failure and my SL got triggered. And today, it goes to same resistance level but after reading this article, i was ready for both scenarios ( breakout failure or continuation of up move ) and it turns out to be another failure. I went short and close this trade in profits. All credit goes to you. Keep sharing such amazing articles to help new traders like me.
Thanks. I’m glad you got some value out of my writing! 🙂
All credit goes to you though. You’re the one who found the trade and acted to achieve the profits. Nice work.
I’d love to see the trade if you want to email me the details.
hello Lance ,
how can I know that the breakout is accepted or not
Price holds in the new area, beyond the breakout. How long it needs to hold to be considered “accepted” though – that’s subjective.
Its really great insight. Thanks so much..
You’re welcome Arun. Thanks for the feedback.
Best of luck with your trading. 🙂
This article is very useful for me too and since yesterday I have been checking the breakouts in the same way as you said
Thanks a lot MR LANCE.