P&F Bull & Bear Traps [ChartSchool] (2024)

- Introduction
- Bull Trap
- Bear Trap
- Bullish Catapults
- Bearish Catapults
- Conclusion
- Further Study

Introduction

Bull and Bear Traps are P&F signals that quickly reverse. In particular, a Bull Trap is a Multiple Top Breakout that reverses after exceeding the prior highs by one box. A Bear Trap is a Multiple Bottom Breakdown that reverses after exceeding the prior lows by one box. Bull and Bear Traps provide quick indications of a signal failure, but chartists should be careful not to get caught in a catapult.

Bull Trap

A Multiple Top Breakout includes a Triple Top Breakout, a Quadruple Top Breakout and anything wider. A Triple Top Breakout occurs when two successive X-Columns form equal highs and the next X-Column breaks above these highs. A Quadruple Top Breakout is similar to a Triple Top Breakout, but with three successive X-columns forming equal highs instead of two. For a Bull Trap to be possible, this breakout can only be one-box. Breakouts that move two or more boxes above resistance do not qualify. The Bull Trap occurs when prices reverse after a one-box breakout and the subsequent O-Column moves at least three boxes lower. A one-box breakout is not that strong and the immediate reversal shows renewed selling pressure.

The chart above shows Apollo (APOL) with a Bull Trap in April 2010. First, the stock forged a Triple Top Breakout as the third X-Column exceeded the prior two by one box. Second, this breakout quickly failed as the stock formed a three-box reversal. This O-Column broke below the prior O-Column to forge a Double Bottom Breakdown and fully negate the Triple Top Breakout.

Bear Trap

A Multiple Bottom Breakdown includes a Triple Bottom Breakdown, a Quadruple Bottom Breakdown and anything wider. A Triple Bottom Breakdown occurs when two successive O-Columns form equal lows and the next O-Column breaks below these lows. A Quadruple Bottom Breakdown triggers when three successive O-Columns form equal lows and the next O-Column breaks below these lows. For a Bear Trap to be possible, this breakdown can only be one-box. Breakdowns that move two or more boxes below support do not qualify. The Bear Trap occurs when prices reverse after a one-box breakdown and the subsequent X-Column moves at least three boxes higher. A one-box breakdown is vulnerable to whipsaw and the immediate reversal shows renewed buying pressure.

The chart above shows Snap On (SNA) with a Quadruple Bottom Breakdown in August 2010. Notice that SNA broke support with only one box or one X below the prior three lows. This breakdown did not last long as the stock quickly reversed and forged a three-box reversal. The rising X-Column extended to forge a Double Top Breakout that fully negated the Quadruple Bottom Breakdown.

Bullish Catapults

Bull and Bear Traps can sometimes fail and evolve into catapults - kind of like a double trap. A Bullish Catapult forms with a Triple Top Breakout, a pullback into the pattern and then a Double Top Breakout. A one-box Triple Top Breakout and a pullback into the pattern qualify as Bull Trap. Chartists should be careful because the Triple Top is a congestion area that represents a support zone. While the pullback into the pattern shows hesitancy for the bulls, it takes a Double Bottom Breakdown to produce a bearish P&F signal that would fully counter the original Triple Top Breakout.

The chart above shows Vertex Pharma (VRTX) with a Multiple Top Breakout in October 2010. The breakout X-Column exceeded the prior four highs by one box. This breakout did not last long as the stock reversed with a decline back into the congestion zone (green box). The lows of this zone ultimately held and the stock forged a Double Top Breakout on the next upturn. The Bull Trap failed and evolved into a Bullish Catapult.

Bearish Catapults

The opposite holds true for Bear Traps, which can evolve into Bearish Catapults. These patterns form with a Triple Bottom Breakdown, a bounce back into the pattern and then Double Bottom Breakdown. Technically, a one-box Triple Bottom Breakdown and a bounce back into the pattern qualify as a bear trap. Chartists should be careful because the Triple Bottom is a congestion area that represents a resistance zone. While the bounce back into the pattern shows resilience, it takes a Double Top Breakout to produce a bullish P&F signal to fully counter the original Triple Bottom Breakdown.

The chart above shows Unum Group (UNUM) with a Triple Bottom Breakdown. Notice that this support break occurred with just one box (one O below the prior two O-Columns). The breakdown did not last long as the stock reversed higher to forge a Bear Trap. However, the Bear Trap did not last long either as the stock turned back down and broke below its prior low. The combination of a Triple Bottom Breakdown and Double Bottom Breakdown forged a Bearish Catapult.

Conclusion

Bull and Bear Traps serve as an early warning system for chartists that a signal is failing. However, traps are not perfect signals and may instead evolve into catapults. When looking at a bull trap, look at the size of the congestion zone and identify support. A pullback that holds above support could be just that, a pullback. When looking at a bear trap, be sure to identify congestion zone resistance. A bounce back into this resistance zone could simply be an oversold bounce. Chartists should employ other aspects of technical analysis to confirm signals on P&F charts.

Further Study

Thomas Dorsey's Point & Figure Charting examines the basic ideas and key patterns of P&F charts. Dorsey keeps his analysis simple and straightforward; as a relative strength disciple, he devotes a complete chapter to relative strength concepts using P&F charts. These concepts are tied in with market indicators and sector rotation tools to provide investors with all they need to construct a portfolio. Additionally, Dorsey incorporates lessons on how to use P&F charts with ETFs.

The Definitive Guide to Point and Figure, by Jeremy du Plessis, lives up to its title and is required reading for the Chartered Market Technician exam. Chartists can learn about 1-box P&F patterns/counts, 3-box patterns/counts and various trading strategies. du Plessis also shows how to apply P&F charting techniques to other analysis tools, such as relative strength and Fibonacci retracements, using plenty of real-world examples are provided throughout the text.

Point & Figure Charting Thomas Dorsey	The Definitive Guide to Point and Figure Jeremy du Plessis

Insights, advice, suggestions, feedback and comments from experts

Introduction

As an expert and enthusiast, I have access to a wide range of information and can provide insights on various topics. In this case, I will provide information related to the concepts used in this article. The concepts discussed in the article are Bull Trap, Bear Trap, Bullish Catapults, Bearish Catapults, and their conclusions. Let's dive into each concept and explore their meanings and implications.

Bull Trap

A Bull Trap is a pattern in Point and Figure (P&F) charting that occurs when there is a Multiple Top Breakout, which means the price exceeds the prior highs by one box, but then quickly reverses. It is important to note that a one-box breakout is not considered strong, and the immediate reversal indicates renewed selling pressure. The chartists should be cautious not to get caught in a Bull Trap. An example of a Bull Trap is shown in the chart of Apollo (APOL) in April 2010, where a Triple Top Breakout quickly failed and reversed, leading to a Double Bottom Breakdown that negated the Triple Top Breakout .

Bear Trap

A Bear Trap is another pattern in P&F charting that occurs when there is a Multiple Bottom Breakdown, which means the price breaks below the prior lows by one box, but then quickly reverses. Similar to the Bull Trap, a one-box breakdown is vulnerable to whipsaw, and the immediate reversal indicates renewed buying pressure. The chartists should be cautious not to get caught in a Bear Trap. An example of a Bear Trap is shown in the chart of Snap On (SNA) in August 2010, where a Quadruple Bottom Breakdown quickly reversed and led to a Double Top Breakout that negated the Quadruple Bottom Breakdown.

Bullish Catapults

Bullish Catapults are patterns that can sometimes evolve from Bull Traps. A Bullish Catapult forms with a Triple Top Breakout, followed by a pullback into the pattern, and then a Double Top Breakout. The Triple Top Breakout and the pullback into the pattern qualify as a Bull Trap. It is important to note that the Triple Top is a congestion area that represents a support zone. While the pullback into the pattern shows hesitancy for the bulls, it takes a Double Bottom Breakdown to produce a bearish P&F signal that would fully counter the original Triple Top Breakout. An example of a Bullish Catapult is shown in the chart of Vertex Pharma (VRTX) in October 2010, where a Multiple Top Breakout quickly reversed, but then the stock forged a Double Top Breakout on the next upturn, turning the Bull Trap into a Bullish Catapult.

Bearish Catapults

On the other hand, Bearish Catapults are patterns that can evolve from Bear Traps. A Bearish Catapult forms with a Triple Bottom Breakdown, followed by a bounce back into the pattern, and then a Double Bottom Breakdown. The Triple Bottom Breakdown and the bounce back into the pattern qualify as a Bear Trap. It is important to note that the Triple Bottom is a congestion area that represents a resistance zone. While the bounce back into the pattern shows resilience, it takes a Double Top Breakout to produce a bullish P&F signal that would fully counter the original Triple Bottom Breakdown. An example of a Bearish Catapult is shown in the chart of Unum Group (UNUM), where a Triple Bottom Breakdown quickly reversed, but then the stock turned back down and broke below its prior low, forming a Bearish Catapult.

Conclusion

Bull and Bear Traps serve as early warning signals for chartists that a signal is failing. However, it is important to note that traps are not perfect signals and may evolve into catapults. When analyzing a Bull Trap, it is recommended to look at the size of the congestion zone and identify support. A pullback that holds above support could be just a pullback. Similarly, when analyzing a Bear Trap, it is important to identify the congestion zone resistance. A bounce back into this resistance zone could simply be an oversold bounce. It is advisable for chartists to employ other aspects of technical analysis to confirm signals on P&F charts .

Further Study

If you're interested in further studying Point and Figure charting, I recommend the following resources:

"Thomas Dorsey's Point & Figure Charting" by Thomas Dorsey: This book examines the basic ideas and key patterns of P&F charts. It also covers relative strength concepts using P&F charts and how to use P&F charts with ETFs.
"The Definitive Guide to Point and Figure" by Jeremy du Plessis: This book is required reading for the Chartered Market Technician exam. It covers 1-box P&F patterns/counts, 3-box patterns/counts, various trading strategies, and how to apply P&F charting techniques to other analysis tools, such as relative strength and Fibonacci retracements.

These resources provide comprehensive insights into Point and Figure charting and can help you deepen your understanding of the subject.

I hope this information helps! Let me know if you have any further questions.

P&F Bull & Bear Traps [ChartSchool] (2024)

Table of Contents

Introduction

Bull Trap

Bear Trap

Bullish Catapults

Bearish Catapults

Conclusion

Further Study

Insights, advice, suggestions, feedback and comments from experts

Introduction

Bull Trap

Bear Trap

Bullish Catapults

Bearish Catapults

Conclusion

Further Study

References