Trend line traps explained on Nasdaq example

Instrument : E-mini Nasdaq futures

Date : 2021-02-05 10:20

I will take the opportunity of a long trade I just took to share with you something that is very often unknown from retail traders : the trend line traps.

After some big moves in the market (up moves in the example below), you can easily understand the big market players need some sellers / some liquidity to continue the buying activity. That’s why you will often see the same pattern over and over again: after every big push up, look at the clear down trends forming.

You can easily draw every down trend line? Why? Why would the big players let you go short at every trend line touch so easily?
Answer: because they need some sellers to buy from.

I’m not saying that every trend line is a trap, but you have to be suspicious when the trend lines are too obvious.

This gives you a big picture, but when to enter a long trade knowing that?

You still need to have a valid buy reversal signal from your strategy as an entry, but here is one tip: the down trend retracement moves often end with a bigger push down as a final trap move + a W pattern.

This morning I saw a bigger push down to VWAP and then a W pattern. I will teach you this soon, but a W pattern with a second leg around an interesting price zone is often a good buying signal.

I entered long right after I saw the W pattern and my initial mental target was the trend line, just in case the big players decided to go down another time at the trend line touch to induce sellers.

I entered a second time at the conservative entry and made my day with these 2 positions already. A nice conservative entry that often works is when the price pulls back to the “W” neckline. Again I will teach this deeper later.

Why not holding the trade longer? here a few reasons:

  • We are at Nasdaq all time high, a scalp is acceptable but holding a buy is dangerous
  • NFP news is coming, I don’t expect a big move
  • Look at the white arrows representing the up moves in the first screnshot => the up moves are getting smaller and smaller, that could indicates a down trend is coming.
  • The cumulative volume delta is increasing. In this context, it could reveal that the big players are absorbing sellers (because the price went up during this time). But it could indicates that a down move is coming too, it’s always better to be careful in trading and protect your capital.

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