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Most Efficient Pattern For Day Trading & Swing Trading Stocks (50 SMA Strategy) - YouTube
Channel: The Secret Mindset
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Tell me if you relate with the follwing scenario.
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You trade this chart, you see that the trend
is down, all indicators are pointing down,
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and you spot this imminent breakout to the
downside.
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And you go short, confident that the price
has nowhere to go but down.
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And surprise, the price does a rapid jump
contrary to your trade.
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But the thing is you鈥檙e so confident that
the price will go down, so you increase your
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stop loss.
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And the price goes even higher.
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At this point you say yourself, ok, I鈥檒l
wait until the price comes back to my entry
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point, I don鈥檛 need a profit, I just want
to see breakeven or a small loss and I will
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100% exit my position.
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And you guessed it, the price flies to the
upside and never comes back.
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Have you ever felt that?
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I bet you have.
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This is how i lost my first trading account.
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This is a rookie mistake, later I found out
that that i entered the market during a bear
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trap.
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The bear trap pattern is a very basic setup
and one of the most profitable ones if you
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identify them correctly.
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So, in this video, we鈥檒l discuss about the
most important stock pattern you need to master
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in order for you to profit from the novice
traders that enter the market at the wrong
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prices.
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Before we continue, if you are new to the
channel, make sure you subscribe, click the
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notifications bell and leave us a like to
show your support.
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So, a bear trap appears when a stock is apparently
going down in price, only to have the stock
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reverse and shoot higher.
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Some traders or investors might want to short
the market, either because they feel that
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the market is overvalued, or because they
feel that a correction of the trend is imminent.
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This counter move produces a trap and often
leads to sharp rallies.
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The bear trap pattern is easy to be seen.
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Usually, such sharp downward moves in a bull
market last for a very short time, and any
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bearish traders shorting the market after
the sharp sell-off are caught at the bottom
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of the move.
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You will want a recent range to be broken
to the downside with preferably high volume.
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The stock will need to get back above the
breakout point within the next candlestick.
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Also, the stock should have a decent price
range.
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A wide price range is critical, because will
increases the odds that the stock will have
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room to move.
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You might wonder why a bear trap works and
produces big moves to the upside.
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Very simple, a first wave of buying will occur
when the most recent swing high is exceeded,
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because of the number of traders who have
their stops slightly above the most recent
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swing high.
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Another wave of buying pressure comes into
play once other market participants realize
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that there are a lot of traders trapped at
the bottom of the move.
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And the price flies to the upside.
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In order to be successful in profiting from
bear traps, you need 2 things.
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First, you鈥檒l want to avoid bear traps and
second you鈥檒l want to join the upside movement
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once the bear trap was confirmed.
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You will encounter many bear traps during
your trading day.
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As i said earlier, the key is not to fall
into one.
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The trading reality is that is impossible
to avoid every bear trap, but there are several
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clues you can lookout for in order to avoid
these losing trades.
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The first one is the volume.
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If the market changes direction and the volume
is low, it might be a bear trap.
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Pay attention to this chart.
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We are in a bullish trend.
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Suddenly, the trend line is broken and the
price begins to decrease.
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At the same time, volume is relatively low,
which is a sign that the reversal is suspect.
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After the break in trend, the price rallies
back up to the recent swing and later, we
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noticed another break, giving the impression
that the resistance area is too strong to
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be broken.
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However, the break happens during lower volumes,
like the previous breakout.
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We have 2 suspicious bearish breakouts.
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A lot of novice traders shorted the market
in at least one of those 2 points.
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But the price continued to go higher and higher
and if you had shorted the market, you would
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have gotten yourself into a bear trap!
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The second clue that you might be in a bear
trap is the divergence.
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If you trade with indicators which give you
divergence signals, then you can easily spot
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bear traps.
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If the price breaks downwards, but the indicators
shows for a bullish undertone, then you should
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suspect the bearish move is likely a trap.
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In this example, we have a trading range and
a breakout.
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But at the same time we have a divergence
between the price and the oscillator, the
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price is making lower lows, while at the same
time the RSI is clearly moving upwards.
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Despite the bearish breakout we have a bullish
divergence between the price and the indicator.
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This is a sign that a short position would
not be a good move in this case.
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If you want to learn more about divergences,
make sure you watch this tutorial, in the
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right corner.
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Now, the third clue is the price action, through
bullish candlestick formation.
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Most bullish reversal patterns require bullish
confirmation.
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In other words, they must be followed by an
upside price move which can be followed by
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high trading volume, as I previously said.
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So, look mainly for hammers and bullish engulfing
patterns during these moves.
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This is another example of a bear trap, which
could be easily recognized with simple price
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action techniques.
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Despite the price broke the support, we noticed
a hammer.
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This is a famous reversal candle pattern,
which signals an upcoming price increase.
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But, despite all that, you will sometimes
get trapped in a bear trap.
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If you enter a bear trap and you have an active
stop loss order, never increase your stop
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loss hoping for something good to happen.
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In some cases it might happen, but it only
takes one bad trade to wipe out a large part
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of your account.
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So, you learned to detect a bear trap and
hopefully you are not trapped in it.
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How do you trade a bear trap.
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Here鈥檚 how it works
You identify a move coming into support, but
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in an uptrend.
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So look for the price to make higher highs
and higher lows on higher timeframes and search
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for periods of corrections
You look for a breakout below support (to
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trap the novice breakout traders)
You look for a strong bullish close above
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resistance
And finally use, the 50 simple moving average
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as the final confirmation that the bears are
trapped and the long trades are on the cards.
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So, in short we want the price to close above
the 50sma, after a clear breakout to the downside.
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And all of the conditions must happen in an
uptrend.
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Why?
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Because you want to be a trend follower and
take only high probability trades, in the
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direction the trend.
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Here is an Apple chart, with an obvious bear
trap pattern.
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We are in an uptrend and the market opened
with a gap down.
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The volume was significantly lower compared
to the previous up swings and the price retraced
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to the breakout level.
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As the price closed and consolidated above
the 50SMA, this was a good time to buy the
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stock, in the direction of the main trend,
and with a lot of trapped trades below us.
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Observe how the volume increased once again
after the upward trend was resumed.
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How do i know that a lot of traders were trapped
there?
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Take a closer look at what happened when the
price reached the exact point.
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Boom, the market reversed right in that point.
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Because trapped traders closed their short
positions and new buy orders entered the market.
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Let鈥檚 consider another example.
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We have an uptrend, with the price consolidating
in a range.
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The price broke the support and immediately
retraced within the consolidation area.
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At this point, you only need the price to
close above the 50 SMA and go long.
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The price took off, leaving the traders trapped
with short positions below the 50sma.
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And another example here.
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Observe the breakout area below the consolidation
area and below the 50SMA, followed by a retrace
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above the SMA.
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You don鈥檛 even have to enter in the same
day when the bear trap occurs.
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You just have to acknowledge the trap and
enter at the best price around the 50SMA.
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The same pattern in this example.
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Higher highs and higher lows and the price
made a breakout.
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In real time, you wait for the clues to see
if the price has some intentions to go back
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up.
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You already have just one scenario in your
head, to go long, so even if this breakout
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is real, you don鈥檛 trade it, because is
against the main trend.
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So you wait for the price action to confirm
or invalidate our scenario.
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The wick on this candle is the first clue
that the market has upward plans.
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Once the price closed above the 50sma, we
have the uptrend on our side and a lot of
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traders trapped on the short side eager to
get of their positions.
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Pay attention that right at this point, after
a short pullback, the price immediately bounced
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and rallied upward.
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That鈥檚 because some traders trapped at the
false breakout managed to close their short
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positions and at the same time, adding momentum
to our long positions.
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If you enjoy this type of content, make sure
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and leave us a like to show your support.
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Until next time.
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