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The trap we’re going to look at today is on a four-hour chart of the AUDUSD, and these are known as multiple structure failure traps, which occurred in this area here. This strong drop in price would’ve induced people in, thinking that the market was heading lower. As price pulls back, it starts to sell off, and I refer to this as entry cheese. This is the confirming price action that will convince you in to take some risk.
It also happened here as well. As traders come in and go short, believing that this will follow through, what actually happens, as you can see, is the market goes strongly against their position. So, what we’re betting on at this moment is that traders in here are stuck and trapped and losing a lot of money. This now means that the edge is to the upside, because we’re betting that humans are not very good at discipline and they start to hemorrhage outside of their process, canceling stop losses, holding on to losers too long, etc.
So, if we get a little pullback in this move higher, this looks like a great place to get long.
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