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Classic Bear Trap Swing Forex Trading Strategy

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Previously, I’ve discussed how we can make money even when other traders are losing money. Sadly, it is even at their expense. I am talking about the classic bull trap strategy previously discussed. But the opportunity is not limited only to trapped bulls. Even bears could be trapped as well.

Bullish, overly optimistic traders are not the only ones that could be trapped in a trade. Bearish traders are not immune to traps especially in this day and age, and especially in the forex market. It used to be that the market moves only purely with buying and selling. This made overly optimistic bullish swing and position traders get trapped in a market that is going down. They see price breaking out of a resistance, they take a position, then price immediately heads back down. However, because trading also allows for shorting on most instruments, a trader could also be overly optimistic that price would go down. They see price breaking below support, they take the opportunity to short, then price immediately heads back up. This is especially true with forex. This is because the currencies market is not just buying and selling, it is basically trading a currency in favor of another. Buying one currency means you are selling the other, and vice versa. This makes the probability of a breakout of a resistance and a break below a support almost symmetrical, depending on the current market condition.

Bear Trap

A bear trap is exactly the opposite of a bull trap. If you understand how a bull trap works, flip it over and it is exactly how a bear trap would work.

Basically, a bear trap is a situation wherein bearish traders who thought they saw a signal candle breaking below a support level would short a currency pair or any trading instrument, hoping that price would continue dropping. In some cases it would work. However, there are also many cases wherein price would poke below the support, only to return back above it and close. That would mean a rejection of price below the support. It would also form a candle with a wick below the body. Then, a little later, price would bounce off the support level and head back up. Some traders would have a stop loss in place while others would hold on to that losing trade. As these traders either get stopped out or squeezed out of the trade, price would then begin to have momentum going up as closing a sell trade is effectively a buy transaction.

Trading Strategy Concept

The bear trap strategy is basically a strategy that aims to get in on a trade as price shows signs of having a failed break below a support level.

Within the day, as price starts to poke below a support level, many breakout traders would take notice of this and many would jump ahead and short the pair. Then, as price closes back above the support level, a candle with a long wick below the body or a bullish pin bar candle would be formed. This shows signs of price rejection. This would be our signal to set our buy stop order above that candle. Then, as price starts to head back up, many of the bears would be squeezed out of the trade, either with a stop loss being hit or manually closing a losing trade as the pain of losing intensifies. As this takes place, price would then gain momentum heading back up and hopefully at the other side of the range.

We will be making use of longer timeframes as this allows for more bears to be trapped. The more bears trapped, the more potent the setup becomes.

Currency Pair: any

Timeframe: daily timeframe

Buy (Long) Trade Setup

Entry

  • Identify a horizontal support level by determining swing lows or an actual horizontal support level with multiple touches
  • Wait for price to revisit the area of the support level
  • Wait for price to poke below the support level and closing back above the support level
  • The candle should form a bullish pin bar pattern or a candlestick with a long wick below the body of the candle
  • Set a buy stop order above the high of the candle

Stop Loss

  • Set the stop loss below the low of the candle

Take Profit

  • Set the take profit at the body of the previous swing high

Conclusion

This scenario is a commonly recurring one. You would often see this in one of the charts. This is common even on other instruments. Imagine, if you are a retail investor or a position trader. You’ve been hearing in the news that a certain currency, commodity, stock or bond has been dropping. Then you hear one of the bubble heads in the news saying that price is already below an important support level. So, you hurriedly call your broker or take a trade selling the said instrument. Then, price suddenly bounces back up. Often, you would hear them rant about it as the pain becomes stronger. Then, they just can’t take it, they either call their broker or close the trade. These are the traders or market participants we are trading against.

This strategy works well as more and more bears are trapped in the trade. So, the longer the wick, the better, the higher the timeframe we are playing at the better. Long wicks mean more transactions, more bears caught in the trap. Higher timeframes mean more time to allow bears to get trapped. Then, as soon as they start closing their positions at a loss, our position starts to take off.

Forex Trading Systems Installation Instructions

Classic Bear Trap Swing Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex system is to transform the accumulated history data and trading signals.

Classic Bear Trap Swing Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this system accordingly.

How to install Classic Bear Trap Swing Forex Trading Strategy?

  • Download Classic Bear Trap Swing Forex Trading Strategy.zip
  • Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex system
  • Right click on your trading chart and hover on “Template”
  • Move right to select Classic Bear Trap Swing Forex Trading Strategy
  • You will see Classic Bear Trap Swing Forex Trading Strategy is available on your Chart

Click here below to download:

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