An introduction to traps

Traps are unique Point & Figure (PnF) chart formations. These patterns give an interesting information. PnF charts are a breakout charts. They show a clear breakout. The most basic pattern is a Double Top Buy (DTB) and Double Bottom Sell (DBS). DTB is a bullish breakout pattern and a DBS is a bearish breakout pattern. DTB is formed when a column of X rises above the most recent column of X. DBS is formed when a column of O declines below the most recent column of O.

It is simple that when a DBS forms, it means a bearish sentiment and when a DTB forms, it means a bullish sentiment. Right? This is right but only sometimes. Other times, these breakout turns out to be false breakouts. It can sometimes happen that the pattern formed is DBS and then the price tends to enter into a bullish trend.

These traps are important to spot on the charts.

Construction of traps

Traps are of two types: Bear trap and Bull trap.

Both the trap patterns are 4 column patterns. Bear traps are formed when a DBS (Bearish breakout) is immediately followed by a column of X. This column of X breaches the previous column of X to form a DTB. Bull traps are formed when a DTB (Bullish breakout) is immediately followed by a column of O such that this column declines below the previous column of O to form a DBS.

To keep things simple, Bear trap = DBS+DTB and Bull trap = DTB+DBS.

These 4 column patterns are known as pure patterns. Traps have another variation to them that are 6-column patterns.

In these variations, the two breakout patterns form one after another as two separate patterns.

How to use traps like a pro

Bear trap are a bullish pattern. It shows that when the DBS formed, market participants were bearish and took trade accordingly. The completion of the pattern shows that the market participants that took a bearish position are now trapped. Similarly, Bull trap patterns are a bearish pattern. When DTB formed, the market participants were bullish and took trade accordingly. The completion of pattern shows that the participants who took the bullish trades are now trapped.

Traps should be traded in the direction of the trend. It is highly unlikely that a pattern of opposite nature to the trend will sustain when the trend is strong. Trade Bear traps in an uptrend and trade Bull traps in a downtrend.

EMA channels can act as a great trend filter tool.

Price above EMA channel = Bullish trend

Price below EMA channel = Bearish Trend

This is only one of ways to trade traps on PnF charts. In my experience, these have turned out to be one of the most powerful patterns on PnF charts.

I have further discussed this concept in my video so make sure you check it out.