Last week I shared a short article on trap entries and how they're applicable in all markets and all timeframes.
It was essentially just based on the following image:
This led to a comment on facebook as follows: "When you show an example like that it seems to be so easy, but to get in the trade is actually quite hard."
My facebook response was: "Confidence builds with time and experience. If these entries cause problems then spend a period of time reviewing hundreds of examples… trending market, break against the trend which pauses & reverses. ie. study CPB's or Wyckoff springs. Study those that work. Study those that fail. It's a learning process. Also… work on your expectations for individual trades. Could this trade have failed? Absolutely. But the risk was small compared to potential reward. So taking it is the right thing to do. Think profit over a series of trades, not on individual trades."
Let's add to that comment now with something a little extra!
A common reason for difficulty in taking trap entries is our faulty expectations.
Price was in an uptrend but has just broken the swing low.
Almost all trading education tells you that the uptrend has ended when a swing low has broken. Prepare for a reversal. Some even tell you to enter short on the break.
And yet here I am telling you this is an opportunity long!
This goes against all your prior education and all your experience.
The same applies for a breakout at the edge of a range. Almost all prior education would have taught you that a break of such a significant level marks the end of the sideways phase and the start of a new trending phase. Breakouts lead to new trends.
And yet here I am telling you this is an opportunity to fade the breakout.
Again, this goes against all your prior education and all your experience.
What are your thoughts on seeing this price action:
My expectations are different!
You're expecting breakout success. I'm anticipating breakout failure!
Which will occur? Well any one particular example could go either way. But the fact is that a significant proportion of breakouts DO fail. And when the breakout occurs against a larger market bias, I'd say it's a better than even odds trade.
Here's how this one played out.
If you look at the 1-min trading timeframe chart it also showed two earlier opportunities as price broke prior swing highs against the larger bearish bias.
So again, as stated in the prior article, 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.