Thursday, November 09, 2006 8:59:29 PM
Definition of a 'Bear Trap'
A bear trap begins with a Triple-Bottom Breakdown that encourages traders to establish short positions in anticipation of further downside. The Triple-Bottom Breakdown, however, is then followed by a sharp rally (like the one that began on Monday) that traps the bearish traders in their short positions.
The following Point & Figure Chart of the Nasdaq Composite Index displays a classic bear trap formation. The arrow on the chart points to the Triple-Bottom Breakdown, that occurred last Friday. The rising column of Xs that immediately follows represents the sharp rally of Monday and Tuesday(Wednesday's and Thursday's continuation of the rally, not shown here, stacks even more Xs).
To learn more about Point & Figure Charts, the following web site provides an interactive online turtorial that is excellent and free: http://www.dorseywright.com
A bear trap begins with a Triple-Bottom Breakdown that encourages traders to establish short positions in anticipation of further downside. The Triple-Bottom Breakdown, however, is then followed by a sharp rally (like the one that began on Monday) that traps the bearish traders in their short positions.
The following Point & Figure Chart of the Nasdaq Composite Index displays a classic bear trap formation. The arrow on the chart points to the Triple-Bottom Breakdown, that occurred last Friday. The rising column of Xs that immediately follows represents the sharp rally of Monday and Tuesday(Wednesday's and Thursday's continuation of the rally, not shown here, stacks even more Xs).
To learn more about Point & Figure Charts, the following web site provides an interactive online turtorial that is excellent and free: http://www.dorseywright.com
Buy at Support
Sell at Resistance
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