TRAPPED TRADERS : LANCE BEGGS
Let’s look quickly at a second example, this time in a downtrend.
3-swing retrace - short
This example is not as technically beautiful as the previous one, but then price action patterns are rarely text-book perfect. If you look at the positioning of the labels A to D, you’ll clearly see the 3-swing retracement pattern. In this case we have a downtrend leading to…
- A lower low at pivot A, followed by
- A lower high at pivot B,
- A higher low at pivot C,
- A higher high at pivot D, and
- A price reversal back in the direction of the original trend.
The candle at pivot B offered an excellent rejection of higher prices, perhaps tempting many of the traders in a short position to tighten their stops above this candle. These positions were of course stopped out on the run up to D, trapping the bears out of their position as it then resumed its downward move.
Likewise, anyone entering long on the break above pivot B suffered through a 3 candle pause before being trapped in a drawdown situation.
Both groups of traders, those trapped in a losing long position and those trapped out of a profitable short position, will now contribute to the bearish order flow through their sell orders, as price plummets from pivot D.
We’ll look at more trapped trader patterns in future articles.
Till then, watch out for these patterns when the market is trending. Awareness of these setups can be difficult in real-time as it is quite common for traders to be searching for reversals. It’s important to remember though that trends will often continue a lot further than you can possibly expect. So don’t be too quick to change your bias. Watch counter-trend setups for possible failure opportunities, which often give a great entry back in the original trend direction.
Lance Beggs
Let’s look quickly at a second example, this time in a downtrend.
3-swing retrace - short
This example is not as technically beautiful as the previous one, but then price action patterns are rarely text-book perfect. If you look at the positioning of the labels A to D, you’ll clearly see the 3-swing retracement pattern. In this case we have a downtrend leading to…
- A lower low at pivot A, followed by
- A lower high at pivot B,
- A higher low at pivot C,
- A higher high at pivot D, and
- A price reversal back in the direction of the original trend.
The candle at pivot B offered an excellent rejection of higher prices, perhaps tempting many of the traders in a short position to tighten their stops above this candle. These positions were of course stopped out on the run up to D, trapping the bears out of their position as it then resumed its downward move.
Likewise, anyone entering long on the break above pivot B suffered through a 3 candle pause before being trapped in a drawdown situation.
Both groups of traders, those trapped in a losing long position and those trapped out of a profitable short position, will now contribute to the bearish order flow through their sell orders, as price plummets from pivot D.
We’ll look at more trapped trader patterns in future articles.
Till then, watch out for these patterns when the market is trending. Awareness of these setups can be difficult in real-time as it is quite common for traders to be searching for reversals. It’s important to remember though that trends will often continue a lot further than you can possibly expect. So don’t be too quick to change your bias. Watch counter-trend setups for possible failure opportunities, which often give a great entry back in the original trend direction.
Lance Beggs
