Traps III - Poor signal bars

The hardest kinds of traps to avoid are ones that give good patterns but poor signal bars. Unfortunately, these poor bars work a sufficient fraction of the time that they are hard to resist.

For example, b22 was a poor looking buy bar but worked for a small scalp. b35 on the other hand failed despite being closer to the ema. b42 was a bar with a entry side tail and yet it worked. b61 was a doji but worked very well.

How then, is a trader to distinguish between signal bars when they could work or fail with equal probability? On many strong days, especially soft-trend days, good signal bars are rare. Is sitting out of most of the trading day the only option? It certainly is the safe option and for most traders, possibly the best option but there are some heuristics that allow you to select your entries with higher chances of success.

Overlapped signal bars such as b35 and one legged pullbacks such as b22 are weak. You should never buy a poor bar at the top of a flag. Combined signals such as b61 DT and G are strong. With-trend signals such as b72 G2 are strong. Counter-trend signals such as b16 and b57 are marginal and only CT signals after a clear break of the trend such as b48 should be traded.

Traps II - Overlaps

While traps made of bars in the wrong place need some experience to recognize, traps caused by overlaps are a bit easier. Basically as long as you remember overlaps are trading ranges and resolve to only buy below and sell above them, you can keep out of trouble.

For example, b9 is a possible 1PB but since its a mid-range overlap, there is a very good chance of it failing and you should watch out for a sell signal above. A failed breakout at b13 is very likely to at least take the stops out (low of b9) and you should exit any long positions and reverse here.

While b23 on its own may look like a strong reversal bar, most of it overlaps two bars and is effectively a trading range. Worse is buying above b27 assuming its a second leg or above b29 assuming its a shaved reversal bar. Moreover, b23 is the first attempt to reverse the leg down and is likely to fail, i.e., its low should be taken out (as it did during b31).

The only time you can take an entry on an overlap is if both bulls and bears are already trapped AND you are entering with-trend. For example, b64 was a possible long entry after bulls above b61 were trapped out and bears trapped below b62.