Market Traps: The Deceptive Nature of Price Movements
"What PRICE is Expected to Do," and the right side illustrates "What Actually Price Does."
Expected Price Movement (Left Side):
The blue line represents the expected price movement, showing an uptrend with a series of higher highs (HH) and higher lows.
Traders expect the price to break the higher high (HH), confirming the uptrend.
They plan to place long orders (buy) at the breakout point (higher high).
Actual Price Movement (Right Side):
The orange line depicts the actual price behavior, which often deviates from expectations.
Instead of continuing upward, the price reverses, taking out both long and short positions.
This movement traps both long traders, who expected a continuation of the uptrend, and short traders, who had close stop losses (SL).
The shaded green and red areas represent the zones where long and short positions are placed, respectively.
Key Insights:
Type 1 Traders: These traders place long orders expecting the uptrend to continue after the higher high is taken out.
Type 2 Traders: These traders are looking to short the market with close stop losses, expecting a reversal.
Expected Price Movement (Left Side):
The blue line represents the expected price movement, showing an uptrend with a series of higher highs (HH) and higher lows.
Traders expect the price to break the higher high (HH), confirming the uptrend.
They plan to place long orders (buy) at the breakout point (higher high).
Actual Price Movement (Right Side):
The orange line depicts the actual price behavior, which often deviates from expectations.
Instead of continuing upward, the price reverses, taking out both long and short positions.
This movement traps both long traders, who expected a continuation of the uptrend, and short traders, who had close stop losses (SL).
The shaded green and red areas represent the zones where long and short positions are placed, respectively.
Key Insights:
Type 1 Traders: These traders place long orders expecting the uptrend to continue after the higher high is taken out.
Type 2 Traders: These traders are looking to short the market with close stop losses, expecting a reversal.
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