a breakout then a pull back right into the range? Those who traded the breakout are trapped? Any other examples where I can learn how to spot which side is trapped and areas where people lose money? I was told "you make money when people lose, look for those areas."
People continuously shorting shallow retraces in an uptrend would be another example. Regardless, I don't think this type of reasoning will do you any good as it's more concerned with the why and not the how, which is what matters. Further, you'll find that flipping a coin is just as good. Don't concern yourself with other people losing. It's not relevant to you.
Very good question indeed. You are on the right track and if you keep that question in the back of your head every time you pull the trigger, you are a big step ahead of the crowd. If you don't know who pays you, you are the one that pays the other guys. However, I would not focus on the charts too much, it's more a general concept. Remember $KBIO? If not, look it up. The company was supposed to go bankrupt and a couple of days before, everyone was like "this is the short to make my year." If they had watched the tape, they would have realized someone was soaking up 2M shares into the close at 2$. Why is this a good example? Well, everyone was trapped into the thinking that the company was about to go bankrupt. It was advertised everywhere, it was a well known fact. So if a person buys half of the float into the close a couple of days before the company was delisted, he or she is either incredibly stupid...or the other guys selling to him/her are. Either way, there was a reverse merger going on and everyone who shorted $KBIO lost their shirt. Stock went to 25$ in the afterhours. Lesson here: People always lose money in situations that seem to be 100% foolproof and when everyone knows about it. Just keep an eye on the media and watch what everyone is watching. Chances are that the people on the other side of the trade know something the sheep don't or that the trade is already so crowded that a move in the other direction is very explosive. - CNBC's death cross in the index --> better look for a long trade - Apples next big iDontgiveafuck --> short the key note - Twitter is all over the place regarding a big iceberg in $BABA --> better don't touch it (since what would you think if you read about your own limit order being discussed by the entire FinTwit community? "Yeah, I'm just going to leave my order here and let them frontrun me"? I don't think so)
Better to concern yourself with what works for you rather than what doesn't work for others. Learning to read charts and developing a viable trade plan requires time and effort but it's easier than trying to read the minds of anonymous people around the world. Real traders don't get "trapped", if a trade doesn't work, they take their loss and wait for the next one.
Laissez Faire is spot on of avoiding shallow trend line shorts. Way too many people use trend lines and they not done enough study on how to draw trend lines. Many draw through parts of other bars, unless they are a service that many others follow like www.Finviz.com, myself I never draw thru them. I do use this free service, because so many others use them, and when the herd jumps on, can force the instrument to go towards a certain direction. If is like fibs and 61.8 percent retracements, of course I look at them in day trading and longer term trading, and if they make sense to me, I take them. And I usually take them as I prefer trades where you wait for price to come back. NoDoji some years ago wrote about traps and I am sure many others have written as well, but people either don't know how to use search button as they keep making posts like these. Traps are fine for more of the advanced trader, but anyone starting out should be concerned writing a Trading Plan first just to get out of the gate. Get something going in profitable direction, monitor your losses, where they not right for overall market principles. How come few newer traders writes journals on their losing trades? Who cares what they did right, most of times in day trading if you get rid of two trades, you have a profitable day. If you risk is same as reward and you have a 5 wins-5 losses and had two less losers, you'd be 5-3, traders who concentrate on more risk management often loss less that overall community I think. Does not mean risk less and often times risk more, waves within a retracement are seldom studied, tough enough to get anyone to study Swing Lengths for low pivot low to high pivot high by the hour. study and record retracements in whatever your favorite one instrument like ES, see what the last 100 uptrend and 100 downtrend lengths are for retracements, so you get an average of how far they retrace AND define even more by recoding where they were within the Swing, were they 2nd or the 4th retracement? Say the ES has a "mean" average of 4 points retracement on 2nd wave, so when price is at 4 point retracement and one minute is showing signs of lows. Enclosed in ES chart, it is a time I don't manually trade only because lack of volume, but I use to day trade all day long. Retracement waves are different during all 3 segments of the day session, Morning 8:30 to 10:00, Lunch 10:00 to 13:15 and Close 13:15 to 15:15 CDT, lunch usually the tightest and right now at 2 point lunch(get checked on weekends) and lunch(normal chop small bars price action) has many more than 2 retracements as they often slow in direction. SO by using 18 SMA helps much for me to quickly find deeper retracements, so I want to see where the 2 point retracement ends up and has to be on other side of the 18 SMA, as you can see by chart, circled areas show left area shows previous S/R and deeper 2 point retracements of 2 points works well. Circled areas show 2 point retracements beyond the 18 SMA, not going to be perfect all the time as volatility changes, but for tighter chop price structure, learning about wave lengths can add to one's Trading Plan. Have a HAPPY Father Days.
Don't forget "stock market is zero-sum". Furthermore, as long as there is tax and commission, the market is minus-sum. If tax+comm takes 5% of all available money in all people, then most will be broke after 20 years. It is well-known that only 5% will be a winner IN THE LONG RUN, specially for frequent traders. However, unlike BlackJack and Baccarat in casino (game against casino, not against other player), trading is a game against other player.
Here are a few examples of where inexperienced traders get trapped and how one can do better by feeding the weak hands their exits, and getting in better by 3-6 ticks depending on angle of trend line and number of bars back to trend line, so getting in better and can risk less. Now there are those who will say I am losing out by the breakouts that never come back, and very true, I miss those, but these type of support/resistance trades often work because the weak hands are more emotional, and when they see they had selected the right direction at first, will often jump right back in, as I am scalper, I can often get out with two points. I prefer taking trades that lose less times than taking other entries which are too often 50/50. I only scalp till 9:30cdt and after have automation.