If there were a pattern that appeared frequently but was recognized by only a few traders, it would be the Trap pattern. This pattern is highly powerful because it adds liquidity to a stock and often triggers strong momentum. Let us explore how traps form and why they play a crucial role in trend analysis.

How traps form

Traps are a Point and Figure chart pattern. Traps are of two types: Bull traps and Bear traps.

A Bull Trap occurs when a Double-Top Buy (DTB) is immediately followed by a column of O, completing a Double-Bottom Sell (DBS). Bullish traders enter on the DTB breakout, but when the pattern reverses into a DBS, they get trapped. Their exit adds liquidity and increases supply in the market. Therefore, the name “Bull” Trap.

The same logic applies to a Bear Trap, which occurs when a Double-Bottom Sell (DBS) is immediately followed by a column of X, completing a Double-Top Buy (DTB). Traders who sell at the DBS trigger get trapped when the pattern reverses into a DTB. As they attempt to buy back, their demand adds liquidity and strengthens the stock. Therefore, the name “Bear” Trap.

Traps and Trends

Bull Traps are a bearish pattern and Bear Traps are a bullish pattern.

In a strong bullish trend, there is significant demand for the instrument. During such an uptrend, each successive bear trap tends to form near or above the previous bear trap level.

In a strong bearish trend, there is significant selling pressure on the instrument. During such a downtrend, each successive bull trap tends to form near or below the previous bull trap level.

Traps are an effective pattern, but they are only valuable if identified within the right context. Recently, I released a YouTube video as part of the Swing Trading Using Point and Figure Charts series, where I explained Traps, their variations, and the best points to participate in these patterns. If you missed it, be sure to check it out.👇🏻👇🏻