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  1. #1
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    Traps of the market

    Hi traders!

    I’ve been talking about this numerous times, but nevertheless I see traders making the same mistakes over and over again. I’ve made special webinar on this topic, where I have provided my own view on this dilemma. Now I’ve decided to make a readable version of it.
    I’m doing education groups for traders for about 3,5 years and have my personal statistics of how traders think and what traps do they fall in. I have put this stats in a «top-list» below.


    #1. High/low fallacy.

    The most frequent mistake that traders make usually occurs when price was standing for an extended period of time in some trading range and had broken out eventually to a new highs/lows.

    Traders usually look back to 3-4 days, and rarely know what’s happening on at least one timeframe higher than theirs. So, they have seen numerous false breakouts before and now they think in the say – «this breakout will be false as well». Too often, it is far from true. Market conditions change and they (markets) transit from bracketing to trending conditions.

    There’s a common psychological explanation for this trap. When traders are so bored about low volatility (that usually is associated with the trading range), they become excited with volatility break. They see good prices that «will not hold for too long». It often leads to impulsive trade.
    It is pretty common phenomenon – when we are forced to make a decision, when time is running out, we will more than likely make wrong decision. Our brain operates from «template», from reactive mode when we lack time to make a decision. Reactive thinking means that you don’t keep an eye on a big picture, your attention is absorbed by the current price action in the right side of the chart.

    Attachment 10902

    Solution: I would recommend you to have chart with at least 1 timeframe higher than yours. The goal of it is to make your attention wide, to know not only what’s happening here and now, but what is your global trade location, what trend is on the upper timeframe? Traders have 2-3 monitors not for fun, it really helps them to see the picture in whole, not in fragmentarily.


    #2. Volatility bias.

    Many traders become to trade move actively after volatility breaks, in other words they tend to be more active after «trending» days – days with extended trading range. But if you analyze market statistics for at least last 5 years, you will see that more often market tend to consolidate within a body of the elongated candlestick (of course, I’m talking now about daily charts) for 2-3 days.

    There is a very simple explanation for such market mechanics. Big market participants rarely come to the market and drive it to a new prices, instead they prefer to act as a market makers – to provide liquidity. In other words – they don’t chase running market, they try to accumulate position in consolidation before (most frequently) or after (more rarely) the breakout to make sure that their average fill will not be the worst.

    On Forex market, days with extended volatility often don’t mean anything, it can be simply a «shakeout» or a single player stepping in the market without intention to continue pushing it to whatever side.

    Attachment 10903

    Solution: Don’t chase the market, find accurate trade location after market settles or when breakout is ready to occur, not after that.


    #3. Fortuneteller syndrome.

    This is the last but not least trader’s trap. It occurs when traders are too emotionally (as well as cognitively) connected to their forecast or market view. They often think in this mode: «If market reaches X point, it will definitely reach Y point.» In other words, confidence in one part of a forecast increases significantly after another part of forecast is completed.

    Attachment 10904

    Solution: As a solution, we should always remember that market can do anything in any time. Our overall market view can be right but market can go to your targets not in the shape of straight line. Always manage your risk, have a plan for different scenarios.


    Good luck and don't fall into any traps!

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  2. #11
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    Quote Originally Posted by aa1 View Post
    the common traps in the Forex trading system which are used by the market to manipulate the traders only when the trader were having lack of skills and strategy and the traps are like low high price scheme and volatility of the market.
    I feel that the manipulation in the market movement do happen with the currency pairs which are traded by most of the traders or which is highly liquid. Thus, in such scenarios we always need to implement the good account management such that we can save ourselves from the market traps.

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    Registered user taqiniazi's Avatar
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    I wish currency trading investors can follow the factors as above, it is the way that will really create the investor get the achievements in the doing of it. There so many factors you will listen to or see in the marketplace, but you will only need to be cautious in the way you do your dealing approval. Wet significantly, try to pay excellent interest to the excellent and levels in the marketplace.

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    Rookie mohabbat's Avatar
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    Quote Originally Posted by mani89 View Post
    Traps of the market is generated with any of the indicators used in the forex trading platforms. Indicators will make any one to follow and access with the forex trading to get good knowledge and skills with use of the forex system. so every profits and stop losses is controlled by the indicators function only.
    use one of the best indicators i mentioned below.
    MACD
    Oscillators
    [/COLOR][/SIZE]
    well dear mani89! I think bollinger band or moving average both same for understanding traps of the market, but both indicators not so strong as like MACD or Oscillators, so a trader can easily understand what happen next by using MACD or oscillators and I conform about it...

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    Don't loss you hope.

  5. #14
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    a nice thread for newbie traders to prevent from traps in Forex trading. risk management and proper knowledge on Forex trading can help u out to prevent from traps.every traders must know that market is volatile in nature and can cause heavy loss.emotions in trade can let traders to fall in traps, so beware of it.

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    Rookie rinaji's Avatar
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    well, this is three condition that often frustrates me when in the end I always failed and led to emotional. The funny thing is about points 1 and 2, false breakout and fake overbought / oversold, these two conditions are reversed, many traders are trapped. But risk management can help us to keeps our account safe.

    And the important thing is we have to make special plans as a solution when we get bad conditions of our position in the trade.

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    If you lose, be patient. If you win, stay humble

  7. #16
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    There are many traps of the market of the trap is that it can make you think that is is moving in the direction you want it to move but suddenly with out warning it goes sharply into the opposite direction. this has happen to me and the decline was so great that I had margin call on my account.

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  8. #17
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    Very so much explanatory article in regards to the traps which the traders should keep away from while they are trading in this extremely dangerous the Forex market market. in this industry minimizing the risk is the one criteria that allows you to lead us to earnings and luck. keep away from the trap and make logical and sensible profits with just right wisdom and simple analysis.

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  9. #18
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    Quote Originally Posted by dreamgirl41 View Post
    Very so much explanatory article in regards to the traps which the traders should keep away from while they are trading in this extremely dangerous the Forex market market. in this industry minimizing the risk is the one criteria that allows you to lead us to earnings and luck. keep away from the trap and make logical and sensible profits with just right wisdom and simple analysis.
    True, now that we are aware of the traps that we may have to avoid or be aware of. We should also make sure that we are very much aware of the market chart patterns such that best and high probability trades can be taken with certainty. Hence, traders should be very much aware of the famous chart patterns.

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  10. #19
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    in forex trading risk losses very large, but we can minimize losses in berrdagang with the installation stop loss, risk management is very important and should be owned by each trader if want to avoid large losses, as any time losses could have happened to our trade

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  11. #20
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    Quote Originally Posted by Value trader View Post
    #3. Fortuneteller syndrome.

    This is the last but not least trader’s trap. It occurs when traders are too emotionally (as well as cognitively) connected to their forecast or market view. They often think in this mode: «If market reaches X point, it will definitely reach Y point.» In other words, confidence in one part of a forecast increases significantly after another part of forecast is completed.
    It made me laugh when I read this because it's one of my biggest mistake too. Market usually always move like this but sometime they also ignoring this rules too. There is no guarantee if the trend will continue when they just break the support or resistance. Sometime they do it just to complete their previous pattern so they can reverse.

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