Thread by @jagtaparun007

#Thread
Hello Everyone, this is a Thread on Traps And Fake Breakouts..

Explained with most Recent Examples in BNF n TATAMOTORS.

How to Identify them..?
How to avoid Getting Trapped..?
When can Traps Occur..?

Share n RT if u find Value Addition in terms of Learning.

What's A Trap...??

A Trap is Basically a False Signal that gets generated at 'Obvious' & 'Common' levels of TA. It Happens when Price Breaks outs Above the resistance & Most traders Enter by Applying -a common TA Based strategy.

There are 2 types of Traps.
-- Bull Trap
Happens After Breakout Above the Resistance level. Fresh Buyers Enter Assuming a Breakout & get Trapped.

-- Bear Trap
Happens after Breakdown below Support level. Fresh Shorters Enter on the First sign of Breakdown & get Trapped.

Most Recent Bear Trap Example in BANKNIFTY. Price was Bouncing back from 31200 constantly for 2-3 days. So, 31200 level became most IMP from Perspective of breakdown.
Means, tonne of Shorters r going to Enter if BNF breaks 31200 & that's what Exactly happened...

Same Happened with TATAMOTORS, just on the Upside. It was UP 7-8% Previous day & Gapped up with Volume & Interestingly Broke Resistance Zone of 179-180. So, Fresh & Convinced Buyers Entered Above 180-181 zone. I did too. But, I got suspicious due to the Denial of Obvious thinking

How to Avoid Getting Trapped..??

1) Don't Enter immediately after seeing a Breakout. Wait for a Retest of the Broken level & Validate the Breakout.

2) Put a SL Below the Main Broken level or At 15-20EMA so u can Get out with Minimum damage if Breakout is False.

3) Question the Obvious. Usually, Obvious in Markets means Cautious. So, if Everyone has the same Analysis & they Expect the Same direction, It's time to Be Suspicious & Avoid "The Herd Mentality"...

4) Broken Resistance Should act as a Support to Validate a Breakout...

...& Same way Broken Support should act as a Resistance in case of Breakdown.
Enter Only after Successful retest of Breakout. PERIOD.

5) RSI Divergence is a Great tool for Identifying the Fake Breakout. So, we have 2 parameters to confirm a Given Breakout. Retest n Divergence.

2 Major Things Happen at the Time of Traps.
1) Buyers Get Trapped Due to False Breakout & in-turn has no option than to Book a Loss.

2) SLs Of Existing Shorters get Triggered & they get pushed out Even if they're Right.

Same Applies for Bear trap, Just on Opposite Direction.

Finally, To summarize.
TRAPS can Be HACKED.
Don't Enter into any Breakout just out of Excitement.
Instead Wait for it's Confirmation.
Stop Being 'Part of the Herd'..
Learn to Control FOMO.
Implement an Habit of Patience & Enter Only After Retest Of a Breakout...

Thank You...!!!