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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. #941
    Rookie layigold's Avatar
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    There is nothing hundred percent sure or certain in forex trading , everything runs on probability and that is every trader must get prepared for any eventuality by making sure the he carefully manages the risks of train . There are so many scenarios in trading that might appear as good opportunities to make make money but would only end up being a bullish or bearish trap . This sometimes happens when a significant level appears broken or violated but only to end up being a false a break . Those who trade that breakout might eventually get trapped

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  3. #942
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    Quote Originally Posted by layigold View Post
    There is nothing hundred percent sure or certain in forex trading , everything runs on probability and that is every trader must get prepared for any eventuality by making sure the he carefully manages the risks of train .
    you are right there is nothing confirm 100% sure. but with hard work with some proper strategy we can earn we should not think about 100%, if we work on 70% also its good because good profit is possible but all time profit is not possible. so a trader need to learn trade if we learn we can use market for earning because we follow and our following can give us money otherwise we can lose if we go against to the market

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    Quote Originally Posted by altafch View Post
    you are right there is nothing confirm 100% sure. but with hard work with some proper strategy we can earn we should not think about 100%, if we work on 70% also its good because good profit is possible but all time profit is not possible. so a trader need to learn trade if we learn we can use market for earning because we follow and our following can give us money otherwise we can lose if we go against to the market
    achieving win ratio between 70% to 80% should be enough to give us a guaranteed trade and we don't have to expect higher percentage than that. remember it's forex market we're trading and no chance of making it becomes 100% accurate. mistakes are always behind our trades and only our managements can save us from big loss from unexpected movements.

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  5. #944
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    Sascha, yes no way can give us more accurate trading here like 100%, we can make some good orders if we have good management, if we try to earn every time that is not true, some time we can earn by luck, some time we can earn by experience but all time earning is possible with some hard work, but it not means our all orders will be into profit, some time we can lose also, but in short we will be in profit overall

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    Quote Originally Posted by naeem555 View Post
    Sascha, yes no way can give us more accurate trading here like 100%, we can make some good orders if we have good management, if we try to earn every time that is not true, some time we can earn by luck, some time we can earn by experience but all time earning is possible with some hard work, but it not means our all orders will be into profit, some time we can lose also, but in short we will be in profit overall
    trying our best to trade by using our best experience and analysis won't give us a guaranteed trading but at least it's enough and best we can do. what makes it become more dependable is how we treat our own strategy while we use it confidently. not to mention we're trading with overconfidence attitude, we just do our best shot with our strategy by looking at market movements and apply every traps and patterns we can see and find.

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    When you see a level ( support or resistance ) that has been firmly holding for quite some period of times , that shows how significant and relevant it may be and when this level appears broken , some traders who are not too familiar with market trap might have loaded trades so heavily only to discover it was a false break in the first instance as the price corrects above that level and before you know it again , all stop losses are already hit . There is need to get the break of any level of support or resistance confirmed before you eventually take a position .

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  8. #947
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    Quote Originally Posted by layigold View Post
    When you see a level ( support or resistance ) that has been firmly holding for quite some period of times , that shows how significant and relevant it may be and when this level appears broken , some traders who are not too familiar with market trap might have loaded trades so heavily only to discover it was a false break in the first instance as the price corrects above that level and before you know it again , all stop losses are already hit . There is need to get the break of any level of support or resistance confirmed before you eventually take a position .
    market traps usually identified as weak or misleading patterns which also called as market noises. that makes forex market itself is risky to trade because we need to make sure by validating our ideas before we execute a trade since market may give us accurate trading or a wrong one. focus will help us to stay sharp with our strategy and give us knowledge to know what kind of patterns that accurate to take or leave.

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  9. #948
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    Quote Originally Posted by Sascha View Post
    market traps usually identified as weak or misleading patterns which also called as market noises. that makes forex market itself is risky to trade because we need to make sure by validating our ideas before we execute a trade since market may give us accurate trading or a wrong one. focus will help us to stay sharp with our strategy and give us knowledge to know what kind of patterns that accurate to take or leave.
    if market is easy then i think everyone will be rich this is trick and we all need to know when market shows wrong things and it goes opposite, i believe time is best thing for it, if we wait for little more time after getting signal we can understand its right signal or its fake one, we can miss some pips in this way but we can save self also from losing money and time both, so give it time for securely trading

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  10. #949
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    This market traps are so common that we face them on a daily basics. I lost number of counts where I follow false breakout, false pin bars and weak support / resistance levels. The market can trick you to believe they are so and after you must have opened a trade you will realize that there were false thereby giving you loss. Also there are times you could set stop loss above a support or resistance level only for the market to touch your stop loss and start reversing back.

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  11. #950
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    Tonycee, there is nothing false breakout i think, actually market can not be very accurate, if you are using some indicator or using some support and resistance so it not means from the exact point market will make turn, it will take some time so nothing can be accurate that is reason we use management, so some time market make breakout for some time but its not in actual, that is reason i recommend always to wait for some more time to understand real trick

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