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Forex Strategy
The trap we’re going to look at today is what I refer to as a rat trap, which occurred in this area here. This is a 30-minute chart of the EURUSD, and traders at the hard right edge would have witnessed this historical level of resistance breaking out to the upside. However, rather than prices following through and making those people a lot of money, as you can see, that didn’t happen and prices have dropped strongly since that moment, trapping those traders long. The reason they took the trades is because it would’ve looked very convincing in real time. I refer to this as entry cheese. It’s enough confirming price action that would’ve drawn the trader in from the sidelines and got them to commit and take some risk. As you can see now, those traders are trapped because I believe that humans aren’t very good at discipline. They take too much risk, cancel stop losses, and hang on to the losers too long. This gives the edge to the downside, so this looks like a pretty good place to get short because it has already retraced and it’s into this historical level of resistance that had also been support.
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Apr 26, 2016