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I am a bit paranoid about getting sucked into traps when it comes to BOs of TRs.
I was looking at two examples, a successful bear BO vs a failed bull BO, and I wonder if anyone can tell me what distinguishes them.
The first chart is of a successful bear BO is from course video 8B:
The second chart is of a failed bull BO from the BTR recording of January 9, 2015:
In both cases, the initial follow-through is poor. The the failed case, there was simply no follow-through.
In the first case, bar B is the follow-through bar and it's a bull bar, although follow-through did come on the next bars (bars C and D).
In the second case, 69 is the BO bar, and bar 70 was a bear bar. Al waited for bar 70 to close and said after the lack of follow-through he thought (correctly) this was going to be a trap.
So my questions:
- Both had poor follow-through. Would the next bar (ie bar C in the first case and bar 71 in the second case) be the key?
- If in the second case, bar 71 were to be a bull bar, would you (or Al) have concluded that the BO was successful?
- Is there any other consideration?
You can get out of the trade and think that a failed breakout is a potential reversal.
Else
A fail of the failed breakout is a the BO pullback and you have another chance to get in.
I will sell below "C", if "D" close the gap, that's mean it is not a breakout and breakout fail.
I will stop loss accordingly.
Thanks, Carpet.
I think my main struggle is that even after taking into account all factors, there is still a huge amount of pure chance that determines whether a BO will succeed or fail. I remember when I first studied the relevant BTC videos on second entry traps and failed BOs, my heart literally sank, and I gave up on BTC for a few months, because it appeared to me that it's just random.
Dear P.B,
After bar C is closed, you confirmed that the GAP has not been closed, the trading range is being breakout. I will sell the close of bar C or place a stop order sell one point below bar C.
Regards,
Ma Hei Chun
Thank you both for your replies. Ma Hein Chun, your reply was an eye-opener. Even if I do take the trap trade by mistake, the moment the gap closes (even with a body gap / negative gap), that's my cue to get the hell out of that position.
