Anyone of a bearish persuasion always runs into the same issue when we rip like this.
If you know bull trap formation, you know they form like this. It's always tempting to fade- but if you are objective about whether you'll be right at all as a bear and also consider the different style of bull traps, you have to be aware of the risk. Because your idealised signal is stupidly strong move up, but this can also happen when a new high will be made.
Successfully dealing with bull traps in such a way as to profit big when right and do okay even if not, you have to think ahead.
If you follow my work you'll know I have a rather static style as to how I try to do this. When we're dropping into big supports, I always tend to discuss these different types of bull traps and I always try to buy where I think the low is. Citing that not only am I doing it for the immediate chance to make money long- but it's an important part of my bear plan later.
I know if I get the first trade right even just betting on a rally to the shallow retracement level, I catch between half and a third of the move up. This is going to cover my risk for what I'll spend if I get on all the bear traps and all of those setups fail. It allows me to get on them on with increasing RR. More scope for profit with a well predefined risk.
Into a rally I always look to fade the shallow bull trap. Very often that at least produces a dip. So I can often position for a 1:10 or better RR trade and generally will breakeven on the attempt if I get it wrong. Only in the times of extreme run-away moves does this fail. And I accept those are conditions I should expect to lose in.
If and when I think I am seeing signs of the shallow trap failing I get long targeting the 76 trap. Hitting this trade can be extremely lucrative and it allows me to either be sure a net profit on the swing or have the option to size my bear bets bigger aiming for a big jackpot if it works out.
When buying I consider all the main ops/risks.
Here's the new high move mentioned into the drop.
Here's the classic 76 which would also present as a head and shoulders (and butterfly) pattern now.
When I plan my bull trap trading I am always wanting to buy at the green arrows and short at the red.
I also do this with the assumption I'll be entirely wrong and lose all of my bear bets, and I try to structure it in such a way that will be massively net profitable if I hit my bull trades.
Bulls tend to show up on my posts being somewhat rude any time I do this- but this is outperforming buy and hold. At worse, I'm level when we get back to the top. Usually, I'm considerably ahead. And in the one instance the market makes the big reversal - I know I'm going to be left standing. Perhaps standing in very good stead if I get it right.
Using this basic template I find extremely useful for dealing with bull trap betting.
It provides a functional and practical framework to be able to benefit from most types of moves. Doesn't pretend to know the future. Is essentially direction agnostic. Can be quantified as profitable with backtesting against both rallies that make a new high and crash events - often with extreme outlier results in crash events.
Whatever happens, and whatever news drives it, this is the plan I'll execute on so long as the market moves in a way relatively similar to my template.
If you know bull trap formation, you know they form like this. It's always tempting to fade- but if you are objective about whether you'll be right at all as a bear and also consider the different style of bull traps, you have to be aware of the risk. Because your idealised signal is stupidly strong move up, but this can also happen when a new high will be made.
Successfully dealing with bull traps in such a way as to profit big when right and do okay even if not, you have to think ahead.
If you follow my work you'll know I have a rather static style as to how I try to do this. When we're dropping into big supports, I always tend to discuss these different types of bull traps and I always try to buy where I think the low is. Citing that not only am I doing it for the immediate chance to make money long- but it's an important part of my bear plan later.
I know if I get the first trade right even just betting on a rally to the shallow retracement level, I catch between half and a third of the move up. This is going to cover my risk for what I'll spend if I get on all the bear traps and all of those setups fail. It allows me to get on them on with increasing RR. More scope for profit with a well predefined risk.
Into a rally I always look to fade the shallow bull trap. Very often that at least produces a dip. So I can often position for a 1:10 or better RR trade and generally will breakeven on the attempt if I get it wrong. Only in the times of extreme run-away moves does this fail. And I accept those are conditions I should expect to lose in.
If and when I think I am seeing signs of the shallow trap failing I get long targeting the 76 trap. Hitting this trade can be extremely lucrative and it allows me to either be sure a net profit on the swing or have the option to size my bear bets bigger aiming for a big jackpot if it works out.
When buying I consider all the main ops/risks.
Here's the new high move mentioned into the drop.
Here's the classic 76 which would also present as a head and shoulders (and butterfly) pattern now.
When I plan my bull trap trading I am always wanting to buy at the green arrows and short at the red.
I also do this with the assumption I'll be entirely wrong and lose all of my bear bets, and I try to structure it in such a way that will be massively net profitable if I hit my bull trades.
Bulls tend to show up on my posts being somewhat rude any time I do this- but this is outperforming buy and hold. At worse, I'm level when we get back to the top. Usually, I'm considerably ahead. And in the one instance the market makes the big reversal - I know I'm going to be left standing. Perhaps standing in very good stead if I get it right.
Using this basic template I find extremely useful for dealing with bull trap betting.
It provides a functional and practical framework to be able to benefit from most types of moves. Doesn't pretend to know the future. Is essentially direction agnostic. Can be quantified as profitable with backtesting against both rallies that make a new high and crash events - often with extreme outlier results in crash events.
Whatever happens, and whatever news drives it, this is the plan I'll execute on so long as the market moves in a way relatively similar to my template.
Note
Biggest risk for both bulls and bears would be the new high and then the multi month trapping pattern. The one discussed in this post.
If that happens, there's some good money to be made in the swing long and then it'll be a range based scalpy/theta market for a while. Given the scope of how long the last high took to form this and adjusting it for the bigger timeframe- this could be a long time of the market going essentially nowhere.
If that happens, the plan is to make a bunch in the rally to the high. Probably do some range based scalping intra day (intra day this could be big trend one way and big trend the other).
But in a big swing sense, I'll just be chilling and waiting.
If the trappy range comes- an exceptionally breakout will come from it. Could be up, could be down - either way ... lot of money to be made after it.
Knowing there's potential of a big prize at the end of it, my main goal during this time would just be to not get drained by the range so I am fit to bet big when the clean ops come.
After these multi 100 point a day swings, I'd look at that as a holiday. Some time to relax. Do some light day trading. Get caught up on the other things in my life I've lagged on with markets being so fascinating of late.
Which sounds nice, tbh. Made some epic profits in these last moves. More than covered what my target for a full year would usually be. A while ranging to get caught up on other things ... I'd not complain.
But the immediate thing to consider will be the 5800 short if we pop to there. That'd be classic bull trap.
Note
I suspect those who follow me regularly will know this, but just a heads up; if we do head into a prolonged trappy range near the top, my posts will drop to very low to zero here. I'd consider it an area where it's hard to have an edge on swing forecasts and when I do not explicitly know why the odds of what I am saying would make sense, I just don't say anything.
I'll wait until we have setups my strats tend to do well in.
But I will always be back when I think optimal trades are back on the table.
If we head into the range, my best swing forecast would be "Wait and see".
Note
People always assume when i make these posts I am talking about things I want to see. it's not true. A couple days ago many stocks forums had anti suicide hotlines pinned at the top of their pages.
You think I like profiting from that? It's not all that fun.
I try to share things that can help people to avoid getting into those situations and still benefit from upside moves when times are good.
There's a difference between plans and preference.
I'd prefer to see everyone do well.
Note
The fact it seems literally everyone KNOWS they can only ever make billions long as long as they don't bother with risk control and wait long enough ... makes it very easy to be net bearish. We're either going to be the luckiest generation with markets ever in the history of the world- or people are going to get wiped out.
And it's easier for me to believe markets will be brutal rather than eternally kind.
Being wrong on that would be nice. But to not consider it, would be ignorant of market history and odds.
Note
I do suspect we might end up seeing a new high here. 
We may be inside of a crash event to 3000 in SPX.
Read the full case with backlog of historic analysis/forecasts here: holeyprofitnewsletter.substack.com/p/the-case-for-3000-in-spx
Read the full case with backlog of historic analysis/forecasts here: holeyprofitnewsletter.substack.com/p/the-case-for-3000-in-spx
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
We may be inside of a crash event to 3000 in SPX.
Read the full case with backlog of historic analysis/forecasts here: holeyprofitnewsletter.substack.com/p/the-case-for-3000-in-spx
Read the full case with backlog of historic analysis/forecasts here: holeyprofitnewsletter.substack.com/p/the-case-for-3000-in-spx
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.