We discussed about Bear Trap and Bull Trap formations during last Newsletter. We discussed that:
Bear Trap is a bullish pattern, Bull Trap is bearish pattern
Bothe are objective four-column patterns
Bear Trap in uptrend (above moving average) is more bullish and Bull Tap in downtrend (below moving average) is more bearish
Bear trap when average line is rising is Rising Bear trap pattern
Bull trap when average line is falling is Falling Bull trap pattern
At times, pattern is strong, but stop-loss is not affordable. Follow-through pattern is a strong and objective pattern of Point & Figure charts which is useful from practical trading perspective.
Double-top buy pattern after Bear Trap is a Bullish Bear Trap Follow through pattern. Double Bottom sell pattern after Bull Trap is a Bearish Bull Trap Follow through pattern.
Follow-through works as a confirmation to the trap pattern and also provides affordable trading opportunity.
We discussed that double top buy immediately followed after double bottom sell is a Bear trap pattern. The idea is that Bearish pattern did not witness a follow through and failed immediately. It shows strength of the bulls and weakness of the bears. At times, pattern doesn’t get failed immediately, it happens after a column making it a six-column pattern. It is a variation of trap pattern.
Double bottom sell followed by Double top buy after a column is a six-column Bear Trap variation pattern.
Double top buy followed by Double bottom sell after a column is a six-column Bull Trap variation pattern.
A P&F column represents a swing move. Remember, A six-column pattern on daily chart doesn’t mean six- day pattern. It shows a pattern over last six swing moves.
If we draw a line connecting these swing points, it will look like below:
Let me show that removing P&F behind it
They look like Head and Shoulder and Inverted Head and Shoulder pattern. Essence of the bullish pattern is – bearish pattern is followed by a bullish pattern.
Defining the pattern on P&F chart makes it objective and scannable on any timeframe and instrument.
We have discussed follow-through and variation of Trap pattern. Check what we discussed during last week and explore the concepts. Try drawing this pattern on a piece of paper, it will help you to gain better understanding of the pattern and give you more ideas.