How To Spot and Avoid a "Bull Trap"
#1
One website defines a bull trap as:

A sign which supposedly indicates that a security is reversing its path, and is starting to rise instead of decline, but in actuality the security continues to decline after this signal is seen. It is seen as a trap because some people will see this signal and purchase the stock because they believe they will benefit from this increase in value, but they are trapped with a poor performing stock when they find out that the stock is still falling.

A few months back (I am not sure when exactly) of testing how to trade, I know I have experienced bull traps and was in fact "lured and trapped". The definition above clearly defines what a bull trap is. Pero in practice po, can you give tips on how to spot and avoid it? Is it necessary that we also spot patterns to know that a security is supposed to be declining instead of rising? Do we also use RSI divergence to be able to spot this?

TIA po!
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#2
i dont know if this belong to such category but nevertheless baka maka tulong.
identify the hard core resistance or breakout level. i noticed that a "whipsaw" occur if the stock price have risen so much before testing this hard level. example stock's breakout is at 2. the stock have risen from say 1.50 and is about to test the hardcore 2. with the aid of rsi and any indicator for that matter or just say a little reasoning, that's more than 33% coming from 1.50. does the stock have enough legs to break 2 considering it already made 33%? personally i will sell near 2 or if got lucky few ticks if it breaks 2.
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#3
nice tip, boss Spy!
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#4
newbie question lng po mga sirs, i don't know if sa tamang thread dapat itong question but here goes. what do you do if you bought an issue during a breakout pro false pla? is it better to sell closest to the old resistance or hold? thank you in advance po.
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#5
...city make a new thread for your question ok Smile

...to answer this, actually depends on the stock yan sa tingin ko eh...if you are buying into reliable stocks or blue chips, ok lang yan maipit Smile the value of the stock would eventually catch up with your ipit price...akin lang yan ha? others would have a different opinion on the mater especially kung gusto eh laging may trade transacions...what these guys would do is cut loss immediately and enter into a stock that is showing signs of an upward move (with volume dapat), ride the winner and ditch the laggard/loser...

...good day city759 and thanks for adding up on your posts, dagdagan mo pa pls



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#6
(11-10-2011, 03:50 PM)Ollie Wrote: ...city make a new thread for your question ok Smile

...to answer this, actually depends on the stock yan sa tingin ko eh...if you are buying into reliable stocks or blue chips, ok lang yan maipit Smile the value of the stock would eventually catch up with your ipit price...akin lang yan ha? others would have a different opinion on the mater especially kung gusto eh laging may trade transacions...what these guys would do is cut loss immediately and enter into a stock that is showing signs of an upward move (with volume dapat), ride the winner and ditch the laggard/loser...

...good day city759 and thanks for adding up on your posts, dagdagan mo pa pls

thanks sir ollie! ill keep that in mind. almost got into bel for the breakout. follow up question lng sir. you mentioned entering into a stock that is showing signs of an upward move with volume, sir how do we filter out the one day wonder stocks that ends in the red the next day?

yes sir dami pa po akong newbie questionsBig Grin
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#7
A valid breakout:

1. More volume than usual
2. Closing price is above the resistance

My simple breakout buying strategy: Buy in the following day or a few minutes before the market close.

Reasoning: Confidence is established in the breakout so just buy it. You can scale in during intraday if you wish. Don't expect it to shoot up to the ceiling. There will be noise as there are other who think otherwise and just wanted out. However, due to the breakout volume the majority who bought in wouldn't sell lower than their buy price which is near the breakout level.

Now what if you bought the day after the breakout then the price closed below the breakout level? This could be your one-day-wonder-stock. First of all, before buying in, you have define your stop loss points. It could be just below the breakout bar/candle's low or a previous support level. You have take these points as well when deciding to even trade the stock. You also have to determine your target price and ask yourself if the stock is even worth the trade.

Your trading plan should consider the following:

* Entry price - know when to buy at market and when to buy at limit price.
* Stop loss - This is where you accept defeat
* Target price - Not worth the trade if the potential profits is just few pesos.
* Breakeven price - You jumped in joy as you watch your stock go up! Profits coming in, yay! Anything can happen so protect your capital by knowing when to bail out when the stock starts turning south. Profits can turn into a loss in a blink of an eye. 0 is better than negative right?

Reference implementation:

Potential winners:
- AGP - Noise near breakout level. Market will decide soon.
- MRC - Watch out for this. Noise going on near 0.32 and 0.33. Market will decide soon.

Potential olats:
- ORE - Price is almost near my stop loss.

Winner:
- BEL - My stop loss is now at breakeven. I'm expecting a pullback.

Details are in the Hit List section of absolutetraders.com. You'll notice that in my charts that I only use S&R (support & resistance) to trade. I give more importance to price action than technical indicators. The cycle indicator in the chart is only used for validating harmonic patterns. KISS - Keep It Simple Simple Big Grin

As you gain more experience, these thing will get automated in your brain. You can even trade without looking at the charts. Your instincts will just tell you... it's a buy yo! But that's another story Wink

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#8
simple answer:
the resistance level ay dapat maging support.

scenario:
price breaks resistance level, price revisits breakout point, then price moves back up & makes a higher high.

kung marunong mag interpret ng volume, mas ok.
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