TRAP

Here is a guest post from U R Dave who is a regular reader of the blog. The post is self explanatory and do not need any introduction. Kindly go through it and  give your feedback. Please do not forget to thank Dave for his valuable contribution.You may also have some of your own observations. Please do share it. You are always welcome to make a guest post if it is something related to pure price action.

This post is an attempt to find a trading opportunity when markets are trending so that we can trade in the direction of the trend.  Trend trades are always high probability trades as the market momentum is on our side.

We assume the market is ranging all the time and for us a trend is successive higher or lower ranges. An uptrend is successive higher ranges and successive lower ranges are considered as down trend. We try to sell the highs and buy the lows of these ranges.

Problem arises when market is in a clear trend or in a grinding channel. It is very difficult to identify the ranges on a type 1 trend day or on a channel day. I have experienced that MSP in such situations gives a very good trading opportunity. MSP is a very significant price level and it attracts a lot of order flow.

Let’s try to analyze the order flow at MSP. At MSP, we can expect a lot of SL orders from those who are riding the current trend. The break of MSP is perceived as reversal of trend. So there will be lot of BO trade orders trying to capture the new trend. What will happen in case of a BOF at MSP?

All the traders riding the current trend get shaken out of the trade. BO traders entered to capture the new trend get trapped. Those who have shaken out will try to enter the trend again and the trapped traders will hurry to exit. This order flow will create an accelerated move in the original trend direction.

If you observe closely, you can find that meat of the trend move happens after this pattern. This is a kind of trap where a lot of traders get caught on the wrong foot. We will call this Trend Acceleration Pattern (TRAP in short)

Before initiating the trade, we need to make sure that there is enough space for the trade to move and our SL is within acceptable limits

I am uploading  a few charts. Click to view them.(Remove tick at  use download manager) Please do give your valuable feedback.  I welcome your views, suggestions, comments and criticism.

Thanks

UR Dave

tradingblisspoints, a regular visitor of the blog has shared another interesting observation about MSP. You can read the post in his own blog. Click to read