Why do we need to understand the concept of trapped traders? What are trapped traders?
We want to find trapped traders because trapped traders lose money. If we find them and take advantage of the order flow they create, we can take their money from them.
There are two types of trapped traders. We can easily empathize with them because at some point in our trading, we were trapped traders as well.
Two Types of Trapped Traders
1. Trapped in Losing Positions
The first type of trapped traders are trapped in a losing position. What do they have to do eventually?
They must exit their positions as dictated by their stop-loss orders.
2. Trapped out of Winning Positions
The second type of trapped traders are trapped out of winning positions.
For instance, you are in a long position and prices dropped and hit your stop-loss order. Almost immediately after you got stopped out, prices shot up again moving quickly up towards your original price target.
What would you have done?
Probably, you would chase after the market and try to get into the move.
Day Trading Strategies With Trapped Traders
Trapped traders are not a new concept in trading. In fact, there are many trading patterns that rely on trapped traders.
We have reviewed the follow trading strategies before. Here, we will point out the trapped traders in each trading setup. This will allow you to focus on the high quality trading setups with a healthy amount of trapped traders.
1. Hikkake Trading Strategy
Hikkake is an inside bar failure trading strategy. It waits for a break-out of an inside bar to fail. Then, Hikkake traders enter as the breakout traders are getting out of their positions.
This diagram shows the different perspectives of the trapped traders and the Hikkake traders.
If you understand the concept of trapped traders, you will know why Hikkake works exceptionally well.
Inside bars are narrow bars which means less trade risk. Traders love to lower their risk, and will not give up a low-risk inside bar break-out trading setup.
What does this mean for the Hikkake trader? It means more trapped traders, and higher chance of success.
So what is the first step to find high probability Hikkake setups? Find the best inside bar trading setups. Then wait for them to fail.
2. Two-legged Pullback in a Trend
Another well-known price action trading strategy is the two-legged pullback in a trend.
The diagram below shows the perspective of trapped traders. The two-legged pullback starts from the low of a down trend.
The power of two-legged pullbacks stems from the trapping of two groups of traders. This diagram shows only one group.
You can try to figure out where the other group of trapped traders are and how they went into the trap. (Hint: They went against the down trend.)
The concept behind this setup is similar to the Re-entry Trading Strategy.
3. Pin Bar Trading Strategy
The pin bar really goes the distance to trap traders by poking up above a swing high or below a swing low.
Not only that, its long tail confirms that a nice trap is present.
The best pin bars are those that went beyond major swing highs and swing lows. This is because many traders enter or exit their trades at major swing highs and lows. These traders, if trapped, will fuel our blast to profits.
4. Trend Bar Failure
Earlier, I shared a simple price action trading setup based on trapped traders with our newsletter subscribers. Its simplicity makes it one of the most versatile and effective price action pattern.
Conclusion – Traders’ Trap
One simple way to improve your trading with these trading strategies is to change your perspective.
Think like trapped traders but do not act like them. It is not that difficult because all traders, including you and me, were once trapped.
Once you think like a trapped trader, you will be able to find high-quality trading setups using these 4 trading strategies.
Want to study more examples of trapped traders? Click here for more chart examples.