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Thread: Traps of the market

  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. #961
    Trader Azis Muslim's Avatar
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    Quote Originally Posted by Abu George View Post
    there is no doubt that the market can be full of the traps which may not be expect able . thus the trader has to make higt own arrangements and has his own alternative plans . at these times of reflecting . so the right way to think with is very required to find good and effective strategies . also this may be very sm,art to find the market get clearer to you by time you think well
    Do not call it a trap because market itself has its own complexity which we can not always understand every time we want to trade. The only reason why we lose to market sometimes because market is providing something with its patterns we do not really understand what they are for and we misuse them. Good grief we still can survive our account with stop loss and avoid the same mistakes to come after we learn from them.

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  3. #962
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    Quote Originally Posted by Azis Muslim View Post
    Do not call it a trap because market itself has its own complexity which we can not always understand every time we want to trade.
    actually we people are here who want to earn big but its not good, we can move slowly just with proper management and with proper analysis, in trading when we trade with some complexities its wrong, so make sure you trade with complexity and its wrong, we should trade without it, when we trade with confusions we can lose just so work hard and be patient, we can not earn well if we do not be patient

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  4. #963
    Trader Silhouette's Avatar
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    Traps are lying everywhere in market and could trap reckless traders who misses their trading strategies or forget what they have in their strategies in rules and mistakes they've done before. That becomes the main reason why traders are still losing until now because they forget about their strategies. Soon after they remember everything and know the solution how to deal with market, they can recover their losses and continue their positive performance back again.

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    rules made to be followed, not to be broken

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