Saturday

Common Trap

Observing the image below, it would be easy to enter short based on:
1. Overall direction is down
2. New buyers have entered the market who will need to cover if price rolls over
3. Evidence buyers can no longer push price higher at prices where sellers previously took control

Click on image to enlarge

However, if trading is akin to poker, then the “sucker” (poker term) is the one who is unaware of who is being caught out.
The second chart highlights what I term the expansion trap, that point where the outcome is known. Too many traders will be wanting to avoid buying and will likely join the sell side. That being the case, the trap will move from catching out buyers to catching out sellers.
The expansion trap can be identified as price ballooning away from the moving averages at the same time as the moving averages ballooning away from each other.
I don’t use a number of pips or a calculation to confirm expansion. Rather, with significant screen time trading one instrument, I’ve developed an accurate mental image of what expansion looks like. This is just one of the many examples of the critical role accumulated screen time plays in trading.

Click on image to enlarge