Trapped Traders and their Significance in Price Action Trading – Trading coach (2024)

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Price action Trading

If there’s one Price Action Dynamics concept that can give you a significant advantage in trading, it has to be “Trapped Traders”. If you could understand and design a strategy based on it, you’ll get an excellent edge in the markets.

What Exactly is the Notion of Trapped Traders?

The legendary trader, Richard Wyckoff, popularized the idea of trading Trapped traders in his book, Studies in Tape reading. He has defined the concept of Trapped Traders as –

“Traders who’re caught on the incorrect side of the Market, their emotional response can move the prices sharply in one direction, which a prudent trader can take advantage of”

To put it simply, Uninformed Traders who find themselves trapped on the incorrect side of the Market, experience situations like – being struck in a wrong trade with a losing position or getting stopped out of a position which later moves according to their way etc.. In those cases they’re forced to take emotional trading decisions which can move the prices sharply on one side. Trading these so called Trapped Traders can help us to capture some good movements.

The behavior of these Trapped Traders will reflect as numerous patterns and structures on the price. By Identifying and trading these patterns, you can capitalize on the vulnerable traders who’re caught on the wrong side of the market.

Who can get trapped in the Market?

Most of the Contents on the Internet don’t explain the concept of Trapped Traders clearly. The belief that only retail traders get trapped in the market is not true. If you logically think about it, even Institutions and big players can get trapped in the Market.

Of course, most of the Retail traders get caught in the whipsaws and sudden changes on the price, but big players are not exception to it. Even a Multi-million dollar Investment firm, despite all its cutting edge research can end up taking a wrong trade and get trapped. That’s the reason many give importance to Risk management rather than relying only on strategy.

Take a look at these Examples on Price Action..

Trapped Retail Traders

Retail traders mostly get trapped by False Breakouts and Whipsaws. They often take trades around predictable areas such as Support, Resistance, Key levels, Breakouts, Chart formations etc. Structures created by Trapped Retail Traders can be very obvious to spot through Price Action.

These Structures don’t always lead to significant moves, but trading them does provide a good edge. If you’re a novice Price action trader, it’s better to start off by identifying these Trapped Retail Traders on the Chart.

Trapped Big Players

Most of the Big Players and Institutional traders are very well informed and don’t get trapped in markets very easily. But they’re not exception to Trend changes and Unexpected Reversals. Sudden changes in the Market Sentiment and narrative could turn out to be a problem for these Big Players. They will find it difficult to exit from the market quickly, because of the large positions they hold.

Behavior of Trapped Big Players can lead to Strong and Sharp movements in the price. You can get excellent risk – reward by trading these patterns, but you need to have some experience to recognize them.

Trading the Trapped Traders

Trading the Trapped Traders is all about identifying the patterns created by their behavior on the Price Action. Panic and Anxiety of these trapped traders can result in strong price movements. One must learn to identify these patterns and design a strategy according to it.

As we have discussed, Market can trap both Retail Traders as well as Big Players. Price Action Patterns such as False Breakout, Retest failure are caused by Trapped Retail traders. On the other hand, patterns such as Accumulation – Distribution failure, Volume Rebound etc. are created by Trapped Big Money Players.

A Trading approach that’s based on the concept of Trapped traders not only helps you to spot High Probability trades but also gives you a different perspective to feel and trade the markets.