When traders expects a bearish trend to become bullish they often get caught in a bull trap where the price may show a deeper pullback but later ends up continuing the bearish trend. You can use the Pro bundle to detect bull trap scenario's (or fakeouts).
Lets analyze the above chart in the order of events occurred:
Bearish divergence starts forming in lower chart. (bearish)
Trading line confirms bearish trend has ended. (50% bullish)
High risk trading zone has started. (bearish)
Price moves above the trading line. (bullish)
Strength arrows appears showing strong upside momentum. (bullish)
Price hits upper band resistance level.
Trading line confirms bullish trend. (bullish)
Bearish divergence is complete and yellow line is starting to close below 80 mark. (bearish)
Price moves below the trading line. (bearish)
Which of the above events contributed to a bull trap scenario?
It is not possible for a trader to accurately predict the next price movement but one can make an informed decision based on the above information. Events 2,4,5,7 provided signals for a bullish trade. At the same time, pro bundle displayed a bearish divergence and identified the price action was inside a high risk trading zone. As the divergence traded out, it validated the bull trap scenario.
What is the importance of a divergence setup?
When a chart is trending, price will often pullback or show a divergence opportunity. Some pullbacks are minor and others look like fakeout. If the chart shows a divergence then price will most likely merge into the main trend. As a trader, if you can distinguish between a strong or weak divergence then you can gain an edge and trade accordingly. The pink line (aka momentum line) is an absolute money saver. If the pink line stays below the 50 mark then the current setup can be concluded as a bull trap. Feel free to try it on other charts and you will know it!
Pro bundle provides a trading framework which can be used to identify strong or weak divergent setup.
What is the importance of a high risk trading zone?
When you are trading in a low risk trading zone, its easier to make profits as the chart is trending and momentum is strong. It is quite the opposite in a high risk trading zone where price may be range bound, volatile or not trending.
Pro bundle is equipped to showcase high risk trading zones so that traders can proactively adjust their trades with tight stop loss or small position size and focus on low risk trading zones
This is another example of bull trap and the same explanation provided above applies here as well. Keep an eye on the pink line (divergence setup).
