Trading in the Forex market, I have been caught by bear traps more times than I’d like to admit. Fortunately, I’ve learned a few tricks that allow me to avoid or at least minimize the damage when a bear trap pattern occurs.
In this post, I’m going to show you three bear trap chart patterns that you may not know of but can be incredibly helpful when trying to make smart trades.
If you don’t know what a bear trap is at all, then don’t worry!
Read the post I wrote called “What is a Bear Trap in Forex Trading” for an in-depth explanation and some tips for trading with this knowledge.
Now, let’s dig into those three key patterns so that you can improve your strategies and start making consistent gains today!
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What Is A Bear Trap?
A bear trap is a technical analysis pattern in Forex and other instruments that occurs when a downtrend fails to continue and the price reverses higher. This break below the support level creates an illusion of weakness, causing traders to sell and get trapped when the price turns to the upside.
A bear trap candlestick is the candlestick that will either:
- break the support level and closes below it
- or break the support level but that closes above it
Right after the bear trap candlestick forms, the price action that follows will either range or turn to the upside.
Bull Trap VS Bear Trap
A bull trap is the opposite of a bear trap. A bull trap occurs when an uptrend fails to continue past a resistance zone and the price reverses lower. The break above resistance creates an illusion of strength, causing traders to buy and get trapped when the price turns down.
Is A Bear Trap Chart Pattern Bullish Or Bearish?
If you’re looking for a bullish signal in the stock market, a bear trap chart pattern should be on your radar.
These patterns often form when the price hits a major support level and looks as if it’s about to break it, only to turn around and head back up. To spot this chart pattern, be sure to keep an eye out for those all-important support levels!
Examples of Successful and Unsuccessful Trades Using Bear Trap Chart Patterns
Let’s look at an example of a successful trade using a bear trap chart pattern.
- Successful bear traps break support and reverse
- Unsuccessful bear traps break support and trend lower
Bear Trap Chart 1:
Bearish Bear Trap Candlestick Breaks And Closes Below A Support Level
EURUSD daily chart shows a perfect bear trap. The large red momentum candlestick breaks below and closes. The small doji shows indecision and then momentum steps in to push price to the upside.
This is a perfect setup for a bear trap as the momentum break of support will trick a lot of traders to short. Once they see they are wrong, they run for the exits.
Bear Trap Chart 2:
Bullish Bear Trap Candlestick Breaks The Support Level and Goes Down But Eventually Closes Above The Support Line Forming A Bullish Candlestick
Price breaks below support and once sellers start to trade, the price rips back to the upside on the same candlestick.
The large green momentum candlestick after the bear trap begins shows many traders that went short unloading their positions. The price eventually rallies over 1000 pips to the upside of this trap.
Bear Trap Chart 3:
Bearish Bear Trap Candlestick Breaks the support level but closes above the support level. The next 1 or 2 candlesticks are bullish
Here is the example of that situation shown below by this bear trap chart:
No close below support and the lower shadows are showing the price was making lows below which points to sellers (or unloading positions). In the end, a double bottom was formed and the price ripped to the upside.
How To Avoid Getting Caught in a Bear Trap
There is no 100% guaranteed way of avoiding getting trapped but there are some things to look for.
- When price breaks support, we want to see acceptance of the lower price
- Price should not form a trading range directly under the broken support zone
- Consider trading the breakout of support and a pullback instead of shorting the break
Since currency trading is greatly affected by news/economic data, be aware of any news events by checking an economic calendar which can cause heavy price swings
3 Quick FAQ
What is a Bear Trap Chart Pattern?
A bear trap chart pattern is a technical trading formation that occurs when the price of an asset breaks through a key support level, only to reverse direction and move higher.
How Do You Spot a Bear Trap?
A bear trap can be spotted by looking for a key support level that has been broken and then observing the resulting price action. When the price breaks through the support level, it may initially look like it will continue downward, only to reverse and move higher.
What Are The Benefits Of Trading Bear Trap Chart Patterns?
The benefit of trading bear trap chart patterns is that they can provide a great entry point for traders looking to buy on a break of support. These patterns often form because many traders are expecting the price to continue lower and will short, only to be caught when the price reverses higher.
If you’re an experienced technical trader, then these bear trap chart formations should be music to your ears. Having a formation that signals that buyers may be entering the currency pair give you an initial edge in the market.
It can be the difference between making a profit and watching prices remain down.
When you see one of these formations coming up around major support levels, it’s time to pay close attention to how the markets move. Keep an eye out for the bear trap candlestick, as well as what kind of activity comes after its formation.
With any luck, when it happens, you’ll be counting your profits rather than your losses.
You may also be interested to read:
- my free price action trading course
- top 10 reversal candlesticks
- how to trade elliot waves in 6 simple steps
- the ultimate guide to order flow trading
- 7 things you need to know about head and sholders chart pattern
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