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Fakeout

Why BEAR-TRAP occurs? How to Avoid and Trade a BEAR-TRAP?What is a BEAR-TRAP? --> BEAR-TRAP is a condition in the market where the Price gives a Breakdown below a Potential Support zone but quickly Reverses back above the Support without giving a follow up bearish candle. Why a BEAR-TRAP occurs? --> Big Players who are bullish on a specific stock would be wanting to buy a big quantity of shares at the best price , but there will be no enough sellers . Hence All Buy Orders of Big Players would not get filled. so what's the solution? --> Big Players know that the Retailers have maximum of their StopLoss order's just below the Support. --> Big Players will place Contra-Short Trades and will trigger the Stop-Loss Orders of the Retailers turning them into a Seller .Hence All Buy Orders of Big Players will get filled. . --> New Breakdown Traders place Fresh Short-Sell Orders looking at the Breakdown and if its a F&O stock , Call-Sellers open new positions at ATM (At the money) Strikes. . --> Now as All Buy Orders of Big Players got filled. . BIg players aggressively start moving the price up and trigger the Stop-Loss Orders of the New Breakdown Traders and Call-Sellers who entered looking at the Breakdown which ,again shoots up the price. -->Hence All Bears are been Trapped. How to avoid a BEAR-TRAP ? --> Look at the Volumes on the Breakdown ! If the Volumes are Low , It is probably a Fake Breakdown! . --> Wait for a follow up Bearish- Candle after the Breakdown Candle! i.e Take a entry only when the Low of the Breakdown-Candle breaks. --> Check out if there is a significant Long-Unwinding if its a F&O stock. How to trade a BEAR-TRAP ? -->Check out for a Reversal Pattern soon after the Breakdown. Eg: Bullish Engulfing, Bullish Harami, Bullish Piercing .etc --> This Reversal Candle Stick must close above the support. -->Enter a Long Position above the high of this reversal candle . Real Example! --> NSE:POWERGRID was trading within a Rising Channel . --> POWERGRID gave a Rising Channel Breakdown below 196 and gave a daily closing at 191. Perfect breakdown right? -->Breakdown Traders entered here keeping their Stoploss above the POC or just above Psycological level 200. and Call Sellers would have Shorted the POWERGRID 200 CE STRIKE . --> Check out the volumes on breakdown! Its very very low signifying its a Fake Breakdown. --> POWERGRID on the following day made a Bullish Above Stomach Candlestick pattern and gave a closing above the support level 196. -->Perfect Buy would be on 1HR Closing above the support level 196 on the next day. -->Boom! Price made an Impulsive Movement after it triggered all the StopLoss Orders placed at Psycological level 200 by the Breakdown Traders and also due to the Short Covering at 200 CE STRIKE . --> Wasn't it a perfect BEAR-TRAP Trade? If you liked this Educational Idea, Kindly LIKE,COMMENT, SHARE, & FOLLLOW me on Trading-View for more educational posts like this.
NSE:POWERGRIDEducation
by Roswin-Fernandes
2
BREAKOUT vs FAKEOUTTrading breakouts is a most profitable trading strategy that involves buying or selling an asset after a long period of consolidation. Confirming breakouts before jumping into a trade is the key task to become a successful breakout trader. Now lets see about the important key points to consider to confirm such valid breakouts TYPES There are different types of breakouts including 1)Trend line breakouts (diagonal form of S&R) , 2)Horizontal price breakouts, 3)Pattern breakouts (double top, double bottom & other) 4)All time highs/lows breakouts, 5)Fib level breakouts etc., The support and resistance lines that are drawn at potential breakout points "should be seen as area/zones instead of fixed lines" . BREAKOUT : A breakout is when the price of the stock breaches a support or resistance levels that has previously formed followed by a strong candle close. FAKEOUT : A false break or fakeout, as the name implies, is any move above a resistance or below a support followed by a reversal that fails to close above or below the broken level. WHEN THE FALSE BREAKOUT HAPPENS : A false breakout happens when there are no enough buyers or sellers to continue supporting the stock towards the breakout direction. In the examples above,the upper false breakouts happened because there were no enough buyers to continue pushing the price higher & tends to reverse similarly viceversa for the lower false breakout. VARIOUS SCENARIOS OF FALSE BREAKOUT POINTS TO REMEMBER 1)False breakouts can be avoided by waiting for strong candle closure above or below the levels to confirm the breakout strength. 2)Avoid the breakouts with non-stop parabolic movement (without pullback or retest). 3)Instead of using a single line as support or resistance, it is better to have an area/zone that covers all shadows in previous touches. 4)To take entry, always wait for the zone to breach by the candle closing confirmation combined with price action. Hope it was helpful to you, Happy Learning & Profit making :) Thanks & Regards Divyaapugal
NSE:NIFTYEducation
by Divyaapugal
29
Trading setup for beginnersOne thing that is a problem for novice traders is the lack of repeatable trading setups. Manually scanning through charts every day is counterproductive. One might take a trade just for the sake of it if they do not find anything worth trading. This pattern can be scanned very easily on charting platforms. Lack of patience is very real during early days as a trader. Having a fixed systematic pattern like this is an antidote to lack of patience and bad trades. Whenever the market penetrates the mentioned low and doesn't follow through, one can expect a short time spike in prices that can be capitalized. These patterns tend to resolve themselves within 3-5 days and occasionally make take some time. This pattern is called Turtle Soup/Turtle Soup Plus One. If the market closes above the mentioned low on the same day, it is called turtle soup and if it closes higher the next day, it is called turtle soup plus one. I learned this strategy from a legendary veteran trader, Linda Bradford Raschke, in her book Street Smarts. The trading pattern is explained thoroughly on the chart but if you have any questions, you can drop them in the comment section. P.S. I highlighted the most recent trade because that was the one that I took and the previous examples on the chart may look like a benefit of hindsight, but that is simply to see how the markets reacted and whether this trade would have worked out or not. Past market behavior is very important. *Welcome corrections on the chart if any*
NSE:TECHMEducation
by vorayash05
3
How do the Breakout traders get trapped? Part- IIPsychology and Behind the scenes stuff: 1. At the BO, there was a massive bullish candle with a very high volume. This took out the previous resistance level. 2. The retailers saw this opportunity because the price closed above the previous resistance. Hence, they entered Longs. 3. The BO was followed by a Doji and then a Bearish candle. This indicated no Bullish follow-up. 4. The next candle was the last try to trap more longs before breaking down. This is indicated by the good volume on this candle. 5. Finally the price broke down with back-to-back bearish candles and reached the previous swing low. Warning candles: 1. Doji + Big Bearish candle indicating that there is no follow-up on the BO 2. Relatively good volume on doji indicates significant selling pressure. Never a good sign for a breakout. 3. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:BANDHANBNKEducation
by johntradingwick
34
How Breakout traders get trapped? Underlying logic: 1. The market already gave 11% in the impulsive move and created a high. Obviously, the momentum was fading out. 2. If you recall my lecture on market structure, you already know that after the creation of a high, we must come down to create a new higher low. The market cannot keep making new highs without creating a higher low. 3. There was a Bearish divergence. The price was moving up and up but the RSI was creating an equal high indicating that there isn't enough buying pressure. (I have already covered this in my older posts) Psychology and Behind the scenes stuff: 1. At the point of BO, there was only a round bottom, so nobody would have thought of it as the cup & handle pattern. 2. After the BO failed and the price dropped and formed the handle, the retailers thought of it as a cup and handle pattern. Only after the formation of the pattern, you would think of it as a pattern. 3. But the BO traders already got trapped at the top. You aren't aware of this if you don't have knowledge 4. So, in the end, nobody really paid attention to the manipulations done by the institutions. This is how retailers are trapped. Warning candles: Doji + Hammers + Bearish candles indicating that there is a problem with the follow-up. Relatively good volume on hammer & doji, which is never a good sign for a breakout. It indicates significant selling pressure. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:GRANULESEducation
by johntradingwick
248
How to avoid Fake Breakout? A lot of retailers may have gotten caught in this fake breakout in TCS. I provided that rough path (which I anticipated it would follow) in my original idea because I believed the conditions were not right for a breakout at the moment. The majority of the time, we cannot avoid getting trapped in fake breakouts. But in the recent case of TCS, the fakeout could have been avoided. Underlying logic: 1. The market already gave 8% in the impulsive move and created a high. Don't you think it needed a little rest before the next leg up? 2. If you recall my lecture on market structure, you already know that after the creation of a high, we must come down to create a new higher low. The market cannot keep making new highs without creating a higher low. 3. There was a Bearish divergence. The price was moving up and up but the RSI was creating a lower high indicating that there isn't enough buying pressure. (I have already covered this in my older posts) Warning candles: As soon as there was a breakout, there was a series of Hammers + Doji indicating that there is a problem with the follow-up. There was a significant volume on hammer & doji, which is never a good sign for a breakout. It indicates significant selling pressure. A bullish breakout must always be accompanied by a good follow up, else it cannot sustain. Bullish BO needs good bullish candles, NOT dojis. P.S: I am not saying the fakeouts can be avoided. But there are a few cases where fakeouts can be avoided. Also, this is NOT investment advice. This chart is meant for learning purposes only. Invest your capital at your own risk.
NSE:TCSEducation
by johntradingwick
24
Edge of Space (EOS) trade in RComWhat is Eos ? EOS stand for Edge of Space. It is basically a line drawn at the previous Swing High or Swing Low. If the price breaks and closes below the previous swing low making a new lower low, we say that the market wants to go down. However, if later the price rises and cloese above the EOS line, (which might be the case with RCom), we consider it a fake out and expect the market to reverse to hit our very small target. Similarly, If price breaks and closes above the previous swing high making a new higher high but soon after closes below the EOS line, (drawn at the high of the previous swing high) we consider it a fake out as well. We rake the help of RSI to confirm the EOS trade. RSI divergence adds to the probabilty of the trade working in our favour. In the case of Rcom, if the price closes above the EOS line, we go LONG for a small target with stops just below the previous swing low. Do tell me what you think.
BSE:RCOMEducation
by Dpk.Htkr