Don’t be a trapped trader.. Be the trapper….
” Market moves not because it wants to. It moves because it has to.. “
People who read the book, Mastering the trade, by John Carter, might be aware of the above quote. If you haven’t read that, I suggest you to go through it as it has a great content about trading psychology. I didn’t like the trade setups in that book by the way.
What does that above quote mean?
By now, you already know that market doesn’t move because of the number of buyers and number of sellers, but moves because of the desperation of the traders to enter or exit the trade.
Trends continue for a long time, not just because of the fundamentals or some other reasons, it moves because so many people gets trapped taking trades against the trend. To understand it better, lets look at the following scenario.
Suppose there are two persons ‘A’ and ‘B. Also assume that A and B can move the market in a particular direction with their orders’. Person ‘A’ don’t have a position in the market and he is doing the job of a spectator as of now. Person ‘B’ has a position in the market and it is moving against him. So obviously, person ‘B’ is in pain now and that increases with every tick move against him. If that pain reaches to a threshold where it is intolerable, he will exit out of this trade by covering his position by creating a net orderflow in a particular direction which moves the market. Here, he has no chance except to exit as his pain is intolerable.
Now, look at out hero, person ‘A’, who is known for his patience levels, and also a seasoned trader. If he is smart enough to identify the threshold of pain of person ‘A’, he can initiate a trade in the direction of the orderflow created by person ‘B’. Or else he can sit aside watching the market moving without him. Here, he is not forced to do anything and hence is not responsible for the present movement of the market. Of course, his order flow will fuel the already moving the market, but the initial trigger for the movement is not given by him.
Now replace A and B with some crowd, namely, professionals (trappers) and novice traders (trapped traders) respectively. Now, you understand what John Carter wanted to say when he quoted the line at the beginning of this article.
Now, the point is very clear. If you want to be successful in trading, be like the person ‘A’, who always evaluates the likely path of the market and tries to understand what his opponents (those who are fading the high probable bias) are thinking. You must have enough patience to wait for the right opportunity and a stomach to digest some market moves without him.
If you are like person ‘B’, who takes trades based on his gut feel, without considering the condition the market is in, you are doomed. Your psychological capital will suffer a lot of damage than your financial capital if you are like person B.
Just be the spectator of the market, and react when it is needed without hesitation. Reacting without hesitation comes when you are totally confident about your methodology, when you really accept the initial risk and also with the hands on experience with your strategy. In the beginning stages, take the seat of a spectator and try to read the minds of the opponents. Rest all happens naturally.
I have taken a trade today in Crude and that reminded me of this topic. Here it is…
Look at the TTF chart for some context. Market traded in a sideways range and then gave a downside breakout. Price got accepted after the breakout (which gave me a downside bias), but bears are not showing sufficient strength. The pullback AB was strong and bears hesitated to take price lower after that pullback BC, which is good enough to attract the novice trades to initiate a long trade as price fails to continue after the breakout. But look what happened after their entry at C. Bulls are damn too weak in the swing after point C, that is when I realized that there is a potential opportunity. Then I prepared those two red lines using LTF chart where I expect the sellers to dominate the buyers. As expected, the top red line stalled price and market failed to break it twice. I placed a stop order at the LWP (8422) and a limit order at the top red line (8425) with a stop at 8428. Market was a bit quick and my limit didn’t get a fill. LWP taken care of the entry, and it nicely moved towards the targets.
This trade was taken by reading the minds of the trapped traders when I have a bias in hand and patience to act the role of a spectator until market reaches the level I am interested in.
Hope you got something out of this article..
Thanks. Good trade, lot of patience required to wait for this trade to show up.
How do we capture the rest of the down move? (How do we stay in the same trade until at least 2780-2770 ?)
There was an entry for that move. As the pullback started from the demand zone/ structural boundary(2791-2796), expect a CPB or a grinding pullback and time it at the potential minor resistance. 2808 was the level I got from if chart for that trade. My entry was at 2811 (BOF of the minor resistance,2808). I will post the screenshot of that trade in reply to this comment tomorrow.
In LTF, a clear stall is there at the LTF in the lower red line(xx22) and then price climbed to xx25. Is there a chance for an entry @ xx22 seeing it and got trapped and stopped out. How you managed it?
As bulls are strong and bears are weak in a downtrend, a future move expected is CPB (Rule2) and so waited for it. Is it like that?
Basically, I trade two types of CPB setups.
1) The CPB that breaks the intermediate SH/SL and then continues in the direction of the trend, and
2) Grinding pullback which ends at a price level that has some past significance.
Till now, I never timed the second type of CPB with perfection. Not even with stop entries.
Coming to the first type, I further classified it into two types.
a) The CPB which strongly gets rejected immediately after breaking the intermediate SH/SL and continues in the direction of the trend,
b) The CPB which extends beyond the intermediate SH/SL and takes a ‘U’ turn at the level that has some past significance to continue in the direction of the trend.
Here in this example, the bottom red line at 2822 is the intermediate SH and the top line, 2825, is the minor resistance from the LTF (I draw them by following the guidelines I have given to construct HTF structure), and I expect the pullback to end at this level if it belongs to the category ‘b’ of the multi-leg CPB. I don’t take the trade if there is a stall at the intermediate SH unless it gives a trap entry like upthrust/spring.
As there was no strong rejection after breaking the intermediate SH at 2822, I waited to see it’s interaction with the level of 2825 and reacted when market behaved as I expected.
I think ‘Understanding the traps’ is the very core of trading everything else is minor details.
Yeah. We make money only when someone else loses. We enter not because the market is moving in a particular direction. We enter because someone got trapped taking a position against the high probable future direction.
Good article and a really good example to explain what you said!
I like how you prepared the market with the area where you believed that the bears would come in and take back the market! Do you always use a limit and a stop market order in this kind of trades?
Why have you stopped posting your daily trade sessions? They were very informative and I learned a lot from them, I miss them!!..;-)
Keep up the good work
Thanks for the appreciating words and good work with your blog too. I appreciate your efforts. 🙂
Regarding your question about entries, Yes… I always prepare price levels to take action and I never trade beyond them. I have explained how I do that in my previous articles. These days, almost 70% of my entries are with limit orders. Price levels are a must to work with limit orders. Otherwise, we would end up in overtrading and increased commissions. I use stop market entry order only when it provides a favourable risk to reward.
I am trading two different markets and that’s keeping me around 11 hours in front of charts. So, stopped updating journal online every day as it is adding some burden. Also, I am receiving some stupid responses from readers about them. I will restart it after a while in a different blog by limiting the permissions to some selected users. I will let you know when I am ready with it.
Overtrading and increased commissions are something I, unfortunately, know a lot about.
You gave me some good ideas with these entries, I’ll try it out this week! Thanks! 70% with limit orders is really fantastic, gives you a very good R: R on most trades. 🙂
11 hours is a lot of screen time! Impressive! My blog is so new so I’m happy with all the responses (except all the spam) I can get..;-)
Make sure to let me know! we could change thoughts about our trades if you want..:-)
your trades are a treat !!!
Please tell what do you mean by “grinding pullbacks”.
Do you trade Nifty futures these days?
I meant slow PA with overlapping candles as grinding action. I am not trading NIFTY these days as I got occupied with some other stuff in the morning