Order Flow Intro: What are trapped traders?

Alright guys, what's going on? This is Ryan, AKA Karen Clark. And in this video we're going to cover the concept of trap traders. And I know that I've covered this probably ad nauseam at this point in other videos and on the community page, but I want to make sure that for more of the nuanced concepts that I have separate videos covering just them. Alright, Some people are new to the platform, they might not understand they see us talking about in a conversation. So let's talk about trap traders. All right, so trap traders term used to describe essentially a portion of the market that is caught offsides or is on the wrong side of the move. They're typically late to a move and often this happens at previous highs within market structure or previous lows. And you'll have traders that just say, for example, in the case of the high, we're trading back up to a high and they're anticipating a breakout and they buy above the level and price falls back within market structure. Okay, so price trades above the level and then falls back below the level. Okay. And the opposite could be said in the case of price moving down to a prior low, maybe we put in a pretty violent low, price moves down to the low again, trades through that low and the assumption is that if it broke that low that there would be continuation because maybe the prior low was very violent or was on high volume. And the assumption again was that there would be continuation in the short term. So this often happens to traders who are trying to force those breakdowns, they're trying to enter in short on a breakdown or they're trying to force breakouts and they're trying to long through an important high.

So essentially they are late to the move. Price has probably been in route for quite some time before it even got to that level and they're waiting for that type of higher time frame confirmation. And, and you know, you can't blame them because when we have a significant level or significant area that is established, okay, I say area of significance or inflection point, typically when you really do get a breakthrough these levels, it does result in continuation. All right, so if we form a range and we have an area that is a significant high, a significant low, and we've been respecting both of those for quite some time, when you do have acceptance through the level, it typically results in a new trend. Alright, so you go from range consolidation to new trend. I think I've said typical four times now, but this wouldn't be Ryan if he didn't say something repetitively. All right? And then make fun of himself for it. So identifying these at key levels, all right, and then seeing that participation is beginning to shift is a good sign enter into a counter trend trade. All right, And I say counter trend trade because essentially the trend was, let's say in the case of the image that I have drawn right here, all right, the trend was down and the counter trend trade is taking the trade in the opposite direction of the prior trade. Okay, so here's a key level, okay. And again, this is, in this case, this is a, the case of that we're looking at right here would be one of trap shorts. All right, so let's say we're looking at a four hour chart. Here's a prior swing low, okay? The assumption is that if we break this low, there's going to be continuation. Maybe this was a, a low established on high volume. All right, A violent breakdown came into this level rapidly. Again established this low, quite an impact. And then we're trading back down to the low. The assumption is that we break this and it's going to be further down we go. So you have traders that they don't want to enter into a short maybe up here. They are looking for more confirmation. They are late to the move because they're entering it in down here. And by now they're caught. All right, so it happens at a key level. That's one of the more important things. So we need to see that it happens at a key level. Okay? It comes into a previously contested area that served to reject progress in this case. So progress down. So just going over some of the points that we want to look for. So price comes into a previously contested level. So that's right here. Here's your level. Let's say this is a higher time frame level as well. So higher time frame horizontal, in this case, support and resistance. Okay. So price comes into it, bounces off of it and is coming into it again and this time it actually violates the level. So when I say it violated the level, what I mean is it actually passed through the level. So you got some level of puncture down here. So it passes through the level. And what happens is through the level we have a substantial increase in volume. So we're going to look at a few footprint charts to go over this. But relative volume compared to the volume above the level increased dramatically. So we see a substantial increase in volume through this prior low. The relative volume compared to prior footprints above the level is much higher. All right? And more of the volume is at the Directional extreme. So what I mean by that is you'll see when we look at the footprint, it will be shaped in the form of a B. Okay. Versus the active participation that ends up coming in, that takes on the shape of a P. So we look for that type of form through this type of level with again the other criteria met as well, that substantial increase in relative volume. And then we look for a shift in delta participation. So below this low right here, we might come into it on very heavy volume, tremendous volume. Delta being very negative.

Substantially greater than the prior candles through the level. And then what we have is since price fails to break down, maybe it consolidates sideways for a little bit. We see a shift in participation. So we might go from the dark red to light red and then suddenly we're seeing more of that green or blue come in depending on your chart settings, indicating that is positive delta coming in. And now we have that P shaped candle where outside and back through the level. So price reclaims a previous microstructural level. We're talking about this low. Again, price trades back above it. You'll see that the volume in these candles in these individual rotations is more towards the high of them. Okay. So this chart really doesn't do it justice. Let's take a look at two separate footprint charts to give you an idea of what I'm talking about. Okay. And how you could couple this also with trade size. Alright, so now let's take a look at it on the footprint chart. So I have XO charts currently open. I also have the Sierra charting platform. Same thing. Alright. So with Sierra charts you just get a little bit more information, a little bit more of a breakdown. But for this example we'll pay attention to Sierra. It has the adequate amount of information to find trap traders. So again there's those bullet points that we want to hit as far as the criteria that we're looking to satisfy. So the first thing that we need to establish is that price comes into a previous low or comes into a level that has already established a previous low. So the low that we're talking about is right here. So we're going to extend this moving forward. Okay. That's the low we're talking about. This was on October 18th, okay. When price traded into the 9600 zone and it looked like it was going to break further down. All right. We mapped out this area market structure over a week ago. It's been up on the chart and this was the area that again I said to start paying attention for Delta Divergences and signs that traders would be caught offsides. All right. Sure enough, we actually did get a blatant delta divergence. All right. And the delta divergence indicates that for more aggressive selling, overall price is moving less. Okay. In this case, it didn't move at all. We had a very clear delta divergence and price was actually on its way up already. All right. But the trap traders are ways of finding those isolated positions that we can enter more clearly around. Because around those positions or around those indications, the signs of trap traders, we're able to see where the participation shifts, which is going to be one of the more important facets of this trade or this, this setup, whether or not you're looking for trap longs or trap shorts. So price comes into a previously contested area that served to reject progress. And in that case, we're talking about this on the left side of the chart over here, price traded into this level and it briefly rejected progress. So we had basically a bounce of $100 held up here briefly. We're looking at a 15 minute chart. And then we traded back down to the level. And you could see that there's a good amount of buying volume here, not tremendous relative volume whatsoever. You could see the individual volume for each candle. You could see the delta, whether or not it's negative or positive, nothing really substantial. So price trades high again, trades back down, and you start to see a shift right here. You have a shift in participation, you have a shift from buyers again back to sellers. And now we're starting to get that pattern that I talked about. Okay. See how the volume is starting to dominate the lower portion of these structures. That's one thing that you want to pay attention to through a level trade down to the level.

Now we trade down through the level and the level is violated and passed through. So this candle right here is what we're paying attention to. And with this candle, we have all of the other criteria met. We have a candle that has a substantial increase in volume. So looking at the volume over overall 80 million contracts, it's almost a multiplier of or a multiple of 2.5 compared to minimum of. I'd say 2.5 compared to previous candles. Okay. So in some case, three times as much, just under four times as much, at least two times as much compared to prior candles. So relative volume is much higher. All right. And then not only that, we have delta relative volume much higher as well. So you could see 4 million contracts, 14 million contracts, 21112 to 147,010 million. In this case, we have at least double that amount in terms of more aggressive sellers than aggressive buyers. So negative 26 million delta. All right, so substantial increase in volume through this level. Okay. You could see indicated through, through each rotation, rather in this entire rotation you see each level as a negative delta. So for each level within this candle, for each tick increment, there were more sellers than there were buyers. So the whole candle is negative delta, with exception to the bottom, which is really negligible anyway because only about.

532,000 contracts bought more than they were sold. And I'd imagine there's barely any volume down there to begin with. So we break through this level, okay. The volume is in the direction of the extreme. So you could see that for example, we are traveling downward and the volume is favoring the downside portion of these candles. So right here, down here you can see down here when participation begins to shift, the selling is still at the lows. So you want to see that the selling. Selling is down at the lows. Alright. So if I go over to Sierra chart to point it out as well, you could see that down here you have this shape that bows out towards the bottom. Okay. They're more narrow at the top, wider at the bottom. All right, so just outlining these point of control right there you can see that most of the volume takes place below the low. And this is the low on the prior chart. I just have this on a different setting. So most of the volume takes place in that profile shape. That's the shape we get because the volume takes place in that direction, meaning it's traveling down. And we're getting an increase in volume because once we trade through that level, you're getting all those traders that are trying to enter in on that breakout. And looking at Sierra charts right here, you can see there is a substantial increase in negative delta, a substantial increase in overall volume. And those other signs that we talked about when we were looking at xo, when we talked about the relative volume for the candle and the relative delta compared to prior candles as well. So when we have the breakdown, there's no follow through. Okay. You could see that immediately the candle that opens up afterward opens up within the other candle and we have an immediate sign of buying activity. And then right here is your clear sign of a shift in participation. You get a candle that is almost all positive delta. And we have the opposite shape occurring where the volume is taking place towards the high, as if buyers are buying this out of this low. Again towards the high following candle Slight selling comes in, right. Only negative 5 million delta for this one compared to again much higher down here. The sellers are really exhausted at this point. And then here is your absolutely just a clear shift in participation. Okay. This entire area right here, you could just highlight this and you see the difference from here into this low out of this structure. Okay, Same thing looking at Sierra charts, Right into the low, negative, negative, negative, all the way into the low. And then this is a point figure chart which again this just takes out time. I talked about the importance of when I'm looking at my more atomized charts and I'm not looking at something like a four hour, a four hour footprint chart, a lot of times I'll be either looking at a tick based chart, a volume based chart or a point figure chart. So I do change it up time to time. But I've been using the point and figure and this is actually a very clear sign right here. Right. This is a bar that was not generated by time. So it's not like you're seeing those time prints with multiple positive deltas. This entire candle is showing you right away that that buyers are back in control. Okay, major shift, pour into this negative delta down here and then you have a major shift in this candle. You could see all this happening in the beginning. That's the benefit of using a footprint chart. You don't have to wait for this candle to close before seeing that this volume has came in. Okay, so you see that you have this. I actually will make this a little bit.

More simple looking, but here is your candle. Okay. The wick started here down to here. There's really no volume up here. Most of the volume is down here. Now the following candle, after having no presence whatsoever, has immediate buying activity right above where this high volume area was. Okay, so these traders down here and these traders down here are now trapped traders. So what happens is price reclaims the structure that it lost. So if you look at this low, this low over here, and you're just extending this moving forward to give yourself an idea of a trigger. Well, what happens? Price regains acceptance, attempts to sell through again. So you notice how this low coincides with where it was attempted to break down again, where sellers attempted to push this down again. And here's your just absolutely clear sign. If you're not taking this sign or this sign, you have all of the confirmation you need that not only now are we above this level. The buyers are aggressively entering into position. They are aggressively taking liquidity out of this low. But not only that, look at the participation down here, you see that there's really no tremendous buying activity in the last few candles. It's all heavy selling, heavy selling, heavy selling, very heavy selling into this final exhaustive thrust. And then the last candle attempts to sell much more buyers come in. That's a heart for you. All right. We love that. Right? That's why. And then it's all buyer dominated. Moving forward, you have slight little selling to try to push this back lower again. And then immediately for the next few rotations, you see it's just pretty much buyers in control. All right. As highlighted by. I have this filtered out, so it's only going to show me certain values to indicate when there's very heavy selling or buying. But this is how trap traders work, right? You catch traders below or above a certain level, and then when you move out of this level, all right, they are forced to close out position, okay? They're forced to close out position either voluntarily and they buy back and move price up or they're squeezed out of position and they buy back, okay. Against their own will, right? Because they are liquidated and they're forced to close out positions. So recognizing these at highs and at lows. So if you see, for example, just a paint the opposite picture, if you see that we come into a high.

Come into the high, establish a high, come into it again, trade above it, and then have the same thing occur where you have that delta print. In this manner, you have trap trader set up. Because a lot of these, in this case longs looking to take advantage of breakout. Their stops are going to be within the structure and be traded back within it. It acts as fuel to move price back in the opposite direction. And when you do this, you want to target again the next sticky area. All right? So hopefully you guys really understand this thoroughly. Now, I did a separate video just for that. Feel free to reach out with any questions if you have any. Otherwise, as always, exercise proper risk management and trade effectiveness.