Forex Trading Strategy With Bull Trap Pattern
When prices fail to break through resistance, do not despair first, because you can take advantage of opportunities by recognizing the Bull Trap pattern
Have you ever felt fooled by price movements? The pattern cue is really support the bullish continuation , but the price actually moves down after breaking the resistance. This is the Bull Trap phenomenon which is also known as one of the conditions of Fake Breakout . If you do not want to be fooled by Bull Trap signals, you can learn to avoid market traps like pro traders. After all, the first step in becoming a successful trader is out of amateur mistakes.
To be able to deal with market tricks with ingenious ways, there are 3 stages that you need to apply, namely:
1. Understanding the Basic Bull Trap
Bull Trap is basically a Price Action pattern that reflects market behavior. Therefore, the formation of Bull Trap can be identified from the trend of trader psychology . Bull Trap can actually be detected early if you understand how the plot.
Bull Trap Chronology
- The price is Uptrend and approaching the resistance level. Traders start signing in with Buy position in anticipation of Breakout.
- When the price touches the resistance, the trader’s position with the Sell Limit pending order will be triggered.
- Along with price strengthening, seller positions begin to close one by one, either due to hit Stop Loss or in- close manual by those who worry Loss further.
- As liquidity begins to thin, the price reverses back to the resistance area.
- The buyers who had been smiling sweet now start to panic and quickly close the order, thus encouraging further decline.
Thus, there was the Bull Trap phenomenon that tricked buyers into buying during Breakout as if it were going to happen. Bull Trap is more than just a price pattern that describes Fake Breakout. If you are already proficient in understanding market behavior, then you will know if Bull Trap is a visualization of the actions of amateur traders who are often used by pro traders .
From the above learning, it appears that the victims of Bull Trap are those who like to take decisions too quickly . It has not yet broken the resistance, the buyer has interpreted the Uptrend forwarding signal. Meanwhile, the seller who sets the Entry target in the resistance area is less able to properly place Stop Loss , or is affected by excessive fear so that it quickly closes the position without taking into account Bull Trap’s potential.
2. Recognizing Bull Trap Patterns
In order to avoid the panic that keeps you stuck in Bull Trap, learn to identify the pattern, before making any trading decisions. Bull Trap only entrap the buyers who expect uptrend forwarding from the Breakout resistance indication. So naturally, the pattern that should be wary of here is the Bearish Reversal formation in the resistance area.
In general, there are 4 types of price patterns that are detected to indicate Bull Trap.
A. The First Pattern
Bullish Pin Bar which broke through resistance, but closed below the limit.
B. The Second Pattern
The Doji broke through resistance but closed below it, followed by a bearish candle.
C. Third Pattern
The bullish candle is already covered above the price, but then followed by two bearish candles. Often, this condition forms a 3-candle reversal pattern like Three Inside Down , Three Outside Down, or Evening Star .
D. Pattern Fourth
The chart pattern of the Rectangle ends with a ‘wild’ movement, as illustrated by the long wheelbase candle following.
3. Develop a Bull Trap Trading Strategy
After knowing the patterns of Bull Trap, then you need to take action to respond to the appearance of this condition. If you are a trader breakout that only relies on the penetration signal for Entry, then you should cancel Open Buy after detecting the occurrence of Bull Trap pattern.
But if you are flexible and can take advantage of opportunities under any circumstances, take a Bull Trap signal as a Bearish Reversal Entry opportunity. As with the Price Action strategy in general, you do not need many indicators to set up the Entry Setup. The only widely recommended indicator to complete the Bull Trap strategy is the MA ( Moving Average ) period of 20, since the crossing of the price signal against that line can be used to confirm the Reversal.
Bull Trap Strategy Rules
- Pair trading : Can any pair.
- Time frame : No restrictions, but we recommend using high time frames as they are more relevant.
- Candle Pattern : Bearish Reversal.
- The price has shown one of the Bull Trap patterns.
- Candle indicating Bull Trap pattern is closed.
- If using MA20, make sure the price has crossed the MA line from top to bottom.
Setup Entry And Exit
To search for Entry targets, use a break from Low candle Bull Trap. Meanwhile, the most ideal Stop Loss estimates are in the High candle Bull Trap range.Here is the application rule of Entry and Exit settings in each Bull Trap pattern:
1. If it meets the first Bull Trap pattern , target Entry Sell at the Low Bullish Pin Bar. Stop Loss should be located in the High Pin Bar range. The higher the High level and the further distance resistance from the Close Pin Bar, the more valid the trading signal with the Bull Trap pattern on this one.
2. If what happens is the second Bull Trap pattern , target the Entry at the bearish Low Candle formed after Doji. Also note the High Doji that first broke the resistance, because the area could be a potential Stop Loss target.
3. For the third Bull Trap pattern , set the Sell target in the third Low candle. Break from that level usually confirms the Bearish Reversal. Stop Loss area can be searched in the first High candle, which is usually a big bullish candle.
4. When you encounter the fourth Bull Trap pattern , wait until the price actually completes the range, then post the Entry at the last Low candle low.Estimated Stop Loss is above the range area formed.
Beware of Bull Trap Strategy Deficiency
Just like forex trading strategies in general, this technique also has a weakness that needs to be considered. The first negative point comes from the basic concept of Bull Trap which is actually one of the Price Action patterns. Thus, the tendency of Price Action that tend to be subjective was also adopted by Bull Trap strategy . In order not to recognize the price pattern, you can wait until Bull Trap is completely confirmed. A crossing signal support from MA20 can also be added to add validation.
The second shortcoming of Bull Trap’s strategy is the determination of the resistance level, which again can be subjective . Support Resistance can indeed be determined with a variety of methods, ranging from psychological level, Pivot Point , Fibonacci, to dynamic like MA long-term line. Therefore, the resistance area where you are lurking Bull Trap may be different from the resistance observed by other traders.
However, this does not really matter too much, because the technical rules of the Support Resistance determination techniques are basically not much different from each other. So even though not exactly the same, the approximate resistance may tend to be uniform if the one concerned is the area, not the level.
The Key to Successful Bull Trap Strategy
Bull Trap’s strategy principle is to capitalize on the mistakes of the hasty buyers entering the market. So do not let you make those mistakes while looking forward to the opportunity of Bull Trap. The key that really needs to be emphasized here is patience . Even if the Bullish Pin bar has broken the resistance, do not confirm it as a Bull Trap before the price actually closes below the resistance.
In essence, note how the conditions of each Bull Trap pattern. Suppose the price ranging in the resistance area and is forming a long wheelbase bearish candle, wait until the candle is completely closed to confirm Bull Trap. One of the most fatal beginner mistakes is lack of patience and too fast to take a position. By becoming a trader of Bull Trap, you are expected to become more intelligent and can outsmart the trader’s overly aggressive carelessness . So again, do not do the same mistake with them, because later you will also be stuck in the same puddle.