The bear trap candlestick pattern is a trap trading strategy in which the bears or sellers look to make the prices decline in the support zones. But the bulls or buyers seek to take control of the overall price action and cause them to increase. It can also be said that the bear trap candlestick pattern is a false trading signal which leads the traders in the financial markets to start a short position close to the areas of support with the thinking that they will get some short-term gains. When the price goes past the support, the breakout traders get into the trade with their sell orders and look to decrease the prices to even lower levels. The buyers who have a lot of buy orders cause the prices to increase and trap those traders who have initiated short positions. Many retail traders seek chances of trading that give great gains in a short time frame. This thinking leads to them suffering the most losses because of this trap trading strategy. The trading bots can see the overall depth of the market orders. They also trap the traders in the main support levels that cause the bear traps.
The problem of the bear trap candlestick pattern comes with several solutions also, which we will discuss here. You can apply the tips given here to avoid these traps and decrease your risks when you look to trade in breakouts. The first solution is to learn technical analysis. You can find several setups for trading with good win rates when you understand chart patterns and technical analysis. For instance, in any descending triangle chart pattern, there are a lot of chances that the prices would go through the support line and decrease even more. So, suppose you are able to find out about these bear trap candlestick patterns. In that case, you can understand the overall scenario in a better manner and mold your expectations towards starting a short position near the support line.
The second thing you can do is utilize various risk management techniques. It will help to prevent big losses of capital through such bear traps. But you should always try to find the proper size of your positions and never try to open any positions using your entire capital. You should opt for the right position sizing depending on the market that you are in and your tolerance for risk. It is better to keep your percentage of risk in single digits of your overall trading capital. Also, you can ladder the trading positions to decrease your risk somewhat. You can purchase half of your trade before the level of resistance hits and purchase the remaining half after the breakout to decrease your chances of losses.
Following this, you can also try to find out more about pullback trading. You may be trading for gains in the long term with swing trading or position trading and not involving yourself in intraday trading. Then you have an obvious choice you can go for, which is regarding purchasing the price pullback. Professional traders utilize this method to prevent any bear traps. You should not open any short position near the support zone. Instead, you should try to wait till the price goes past the level of support and then put in your sell order that it has come back to a proper level of resistance. Another thing that you consider is utilizing volume indicators. These are quite useful for discovering the pressures of selling and purchasing and the bear traps and fake-outs. These bear traps typically happen rather rapidly and do not have high volumes. So, the prices decline suddenly with relatively low volume. They tend to rise again rapidly after only a few minutes. You can learn some other strategies which can assist you in trading breakouts in a much better manner.
It is also advisable to keep a strict stop loss. Setting up such a stop loss assists you in preventing a big capital loss when it comes to breakout trading. You should attempt to put a stop loss after starting your short position or have a stop loss in mind to utilize when it is required. Starting a stop loss order during breakout trading comes with more risk. The hunters of stop losses know where most traders usually put their stop losses. So, they will cause the prices to rise rapidly and hit those stop losses. It is much better to have a mental stop loss and utilize them when you find out that the trend is not bearish anymore and the prices are going to increase soon.
The best way to trade bear trap candlestick patterns is to avoid getting involved in the trade and stay away. It will help you to avoid any potential risks and losses. You should also keep a few things in mind to be a profitable trader in the financial markets. You should not short sell the financial markets on the main support areas. Also, do not put any orders to buy when the prices are near the resistance lines. You can also try to rethink your strategy after trading setups with short-term gains. You can try to focus more on creating a great trading plan and search for setups that have long-term gains.