Fighting Back: Outsmart the Market’s Dirty Tricks

In the previous posts, we discussed how liquidity grabs can shake you out of positions. Let’s recap with some examples to better understand how these traps work and how to avoid them:

1️⃣ The Spike and Crash: A sudden spike to the upside clears out short positions, forcing them to close. As the price crashes back down, longs get liquidated too. The market then continues upward, but you’re left with nothing—no position, no profits.

2️⃣ The Panic Dip: A sharp move downward liquidates long positions stacked below the price. Just as panic sets in, the price reverses upward, leaving traders behind who’ve been forced out by the drop.

3️⃣ The Double Trap: A quick double move—first up, then down—wipes out both longs and shorts in a single trap. This type of liquidity grab is efficient destruction, and it’s ruthless. It cleans out both sides before reversing direction.

What makes these traps even more dangerous? FOMO. Traders see rapid price action and rush in without a plan, hoping to catch the next move. But more often than not, the market reverses, and they’re caught in the chaos—twice.

How can you avoid these traps?

• Widen Your Stop Loss: Avoid getting wiped out by minor wicks.

• Protect Profits with a Trailing Stop Loss: Once you’re in significant profit, adjust stops to your entry point to safeguard your gains and still allow room for the trade to breathe.

• Be Patient: Don’t let FOMO dictate your moves. Often, price will return to test zones, giving you a better entry for the next move.

The market isn’t your enemy—it’s a battlefield. By recognizing these liquidity traps and trading strategically, you can avoid the pitfalls designed to take out the impatient.

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