This website or its third-party tools use cookies which are necessary to its functioning and required to improve your experience. By clicking the consent button, you agree to allow the site to use, collect and/or store cookies.
Please click the consent button to view this website.
I accept
Deny cookies Go Back
  • Price Action Trading Course
  • Trading Setups
  • Topics ↓
    • Price Action Trading
    • Day Trading
    • Trader Development
    • Site Map
  • TSR Trading Guides
  • Trading Resources
    • Trading Journal Software
    • Our Partners
    • Support Us
  • Member Login

Trading Setups Review

Trading Strategies, Guides, and Articles for Active Technical Traders

Forex Tester 5 - Software for traders by traders
You are here: Home / Trading Articles / 3 Price Action Examples Of Trapped Traders

3 Price Action Examples Of Trapped Traders

By Galen Woods in Trading Articles on December 21, 2018

The idea of trapped traders is a useful concept for price action traders. It is not a trading strategy per se. But it is of great value as it helps you to focus on finding the right context for entering the market.

This approach is encompassing so it’s hard to reduce it to rigid trading rules. Hence, the best way to gain more insights is by studying trading examples of trapped traders.

In this article, we will cover three setups based on locating trapped traders on price charts.

The following chart examples come from a variety of markets and time frames:

  • Futures: NQ 3-minute
  • Forex: USDJPY 4-hour
  • Stock: MMM Daily
This set of examples is an extension of what we covered in this previous article. It introduced the guidelines for finding and profiting from trapped traders. You should take a look at it before reviewing the examples below.

Example #1 – Intraday Outside Bar Trap

The first bar of the chart below is the first 3-minute bar of the session.

Trapping Intraday Bears

  1. The market rejected a test of the high of the day (HOD). It drew bearish interest as some sellers saw it as a chance to short at the high of the session; a tempting setup.
  2. The congestion that followed added anxiety for buyers, and confidence for sellers.
  3. Trend bars are useful for gauging sentiments. These two bearish trend bars were signs of bearish traders moving into the market.
  4. The bulls tried to push back, but the attempts were weak; small bullish bars.
  5. This bullish pin bar / outside bar sealed the deal and trapped the bears. It was a clear failed bearish attempt. As the bearish traders recognized that the market was not on their side, we get a nice bullish entry.

Example #2 – Trapped Out of The Market

There are two trading traps you can look out for.

Traders can get trapped in an awkward trading position. Or they can get trapped out of a desirable trading position.

This example sees the market through the lenses of the latter group.

Outside Bar Trap

  1. After extended congestion, the market slugged upwards.
  2. Then, a single bearish outside bar erased the gains of more than ten preceding bars. It also punched below the supporting trend line. Alarmed by the sudden reversal, myopic bulls ran out of the market. They did not wait to see if the congestion zone would hold up as a support level.
  3. Generally, outside bars should see follow-through pretty quickly. If not, there’s probably no interest in following through. In this case, it was clear that the bearish outside bar failed to overcome the supply at the congestion zone. At this point, the bulls that exited realized that they had been trapped out of the market.
  4. As the bulls try to re-enter, follow them in for a nice bullish push.

Example #3 – Gaps & Expanding Triangle

Expanding triangles are like outside bars. Both involve an expanding range and increasing volatility. An expanding triangle may well turn up as an outside bar on a higher time frame.

As these patterns introduce volatility and uncertainty, they prompt strong responses from market players.

Let’s take a look at an example of an expanding triangle on the daily chart.

Expanding Triangle Trap

  1. The two blue lines highlight the expanding triangle formation.
  2. The first attempt to break away from the expanding triangle enjoyed an optimistic close. However, the breakout was short-lived.
  3. For daily charts, gaps offer great windows of opportunity. These gaps were among the widest in the past few weeks. Moreover, down gaps are reliable signs of eager sellers.
  4. This pin bar was the telltale sign. It represented the failed breakout of bearish traders who were trapped. It was the ideal long entry in this example.
  5. The expanding triangle offered a projected target which worked exceptionally well.

As an aside, note the effectiveness of the top channel line. It flipped to become a support zone; look at the end of the chart where the market congested around it.

Price Action Principles – Trapped Traders

There’s a lot to take in from these examples.

Let’s focus and distill a few helpful principles from them to apply for practical trading.

Context matters

First, the most important takeaway here is that the context matters.

You don’t enter the market because of an outside bar failure.

You enter the market because you saw the preceding sluggishness (context). Hence, you know that the failure creates a knee-jerk response that you can take advantage of.

A market analysis of trapped traders forces you to focus on the context.

Contrast matters

Look for contrasting short-term momentum and longer-term support/resistance.

Emotional traders are easily swayed by short-term momentum. You can find them trapped if you give more weight to significant market levels instead of short-term fluctuations.

Go back to Example #2 – the bearish outside bar was in contrast with the support zone and the bull trend line. Such disparities offer a sound premise for trading setups.

Control matters

The general idea is simple. Look for bored and impatient traders. Identify anxious and scared traders. Think about what they are doing and take advantage of them.

But to do that, you must not be impatient or scared yourself. You must be calm and controlled, not anxious and jittery.

In a nutshell, to trade effectively, you need to stay in control.

Read more about Outside Bar, Price Action Trading, Trading Tips

If Trading Setups Review has helped you trade better, please support us on Ko-fi.

Support me on Ko-fi

Thank you for being awesome.

You can also check out other ways to support us here.

Or, please continue exploring what we have to offer…

How To Track Price Swings And Market Structure With Moving Averages

3 Useful Tips for Intraday Price Action Trading

10 Price Action Candlestick Patterns You Must Know

Why You Must Have An Initial Stop Loss?

How To Break Bad Trading Habits For Top Performance

Comments

  1. Shantu Dand says

    December 22, 2018 at 2:53 AM

    These are good teaching points and good examples on the charts. I am sure you are very familiar with the chapters on Upthrusts and Springs in the book, “Trades About” o Happen” by David Weis.
    Thanks for the re-enforcement of these principles.

    Reply
    • Galen Woods says

      December 27, 2018 at 10:48 AM

      Glad to hear from you! It’s great that you can see the overlaps among examples from different sources. David Weis’ book is included in our list of top books on volume trading.

      Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Trading Course Banner

Search Trading Setups Review

Recommended For You

Day Trading Setup Evaluation Cycle

On-Balance Volume Trading Strategy For Fading Dumb Money

7 RSI Trading Strategies That Will Boost Your Trading Prowess

The Ultimate Guide to Volatility Stop-Losses

How To Trade Candlestick Patterns With Trend Lines

A Guide to Trading the CBOE Volatility Index (VIX) – The Fear Index

A Simple Way to Look at Price Action – Trend Bars

Top Trading Books

Top 10 Volume Trading Books

7 Forex Trading Books To Get You Started

18 Trading Psychology Books To Help You Trade Better

Top 10 Price Action Trading Books

7 Trading Books For Your Library


If Trading Setups Review has helped you trade better, please consider supporting us on Ko-fi.

Support me on Ko-fi

Or, check out other ways to support us here.

Thank you for being awesome.


Get a Free Course Chapter from Galen Woods' Day Trading With Price Action Course [PDF]

Plus, our latest trading guides and tips in right your inbox.

Trading Setups Review

  • Support Us
  • Contact Us
  • About Us
  • Privacy Policy
  • Affiliate Disclaimer
  • Full Risk Disclosure

Learn More

  • Day Trading With Price Action Course
  • TSR Trading Guides
  • Trading Setups
  • Trading Articles
  • Trading Books
  • Site Map

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.


The website contents are only for educational purposes. All trades are random examples selected to present the trading setups and are not real trades. All trademarks belong to their respective owners. We are not registered with any regulating body that allows us to give financial and investment advice.


Trading Setups Review © 2012–2022

Anti-Climax Pattern - Free Course Chapter

Learn a new powerful price pattern today!

Download for free now.