What causes trapped traders and how to see it happening
Trapped traders is a term that get thrown around a lot these days.
You hear it all the time “Traders were trapped there.”
But unfortunately, the people that throw the term around the most
never bother to explain why or how the traders were trapped.
There are actually many ways for traders to get trapped.
One of the easiest ways for traders to get trapped, caught offsides,
or how I prefer to say it, stuck, is when short term traders are over
run by longer term traders entering the market.
Short term traders tend to move in a herd and tend to dominate short
term price activity in the absence of longer term trader activity.
What do you think happens when the short term traders face off against
the longer term traders? Its like a group of kittens going up against
a pack of elephants. They will get run over.
Here is a great example in the FGBL, Bund Futures, the market had just
made a high of the day and started to come off and made two attempts to
rotate back to the high, but each time it put in a rally short term traders
were “trapped” by the longer term traders who had a lot of supply to dump on to them.
What makes order flow so advantageous to a trader is the ability to see this
happening in real time. What does that mean? Well, price action traders will
look at the same chart and say “there were lower highs and lower lows, so the
move is down.” But that is well after the fact, long after the market moved.
Order flow allows you to see this happening as it happens, so you can confidently
say “traders are getting trapped here.”
Now, for many traders trying to understand order flow is like trying to learn
another language. They either don’t have the time or inclination to learn how
to analyze order flow.
So what I have done is taken the analysis that goes into understanding trapped
traders and created a tool for NinjaTrader 8 called the Stuck Traders indicator.
What makes this indicator so unique is that it analyzes the underlying order flow
and will signal on your chart where potential trapped traders are.
The Orderflows Stuck Traders Indicator works on minute based charts as well as range based charts.
The thing to remember when trading against trapped traders is you have to take advantage
of them quickly, so you need to be able is recognize when traders are trapped as soon
as they are getting trapped. That is why we created the Stuck Traders Indicator, so you
can see it happening long before other traders start to sense traders are caught offside.
To learn move about the Orderflows Stuck Trader Indicator, please visit this page:
The Stuck Traders Indicator is designed for scalpers and short term day traders.
Knowing where traders are stuck in losing positions gives you great trading opportunities.