During the upward trend of the market, there are often unexpected sharp turns in the overall market trend, with leading stocks plummeting and the index continuously falling rapidly. At this time, investors should be more cautious of the bearish trap to avoid being washed out and losing chips. The identification and judgment of short traps can be comprehensively analyzed and judged from five aspects: news, funds, macro fundamentals, technical analysis, and market sentiment
1. From the perspective of message analysis. Market leaders often use their promotional advantages to create a short selling atmosphere. So, when investors encounter continuous negative market conditions, they should be extra careful. Because it is precisely under the heavy bombardment of various negative news that the main funds can easily build positions. At this point, it is necessary to firmly judge the overall trend. Market policy guidance and the flow of main funds will support the sustainability of long-term trends and will not be reversed by sudden short-term news.
2. From the analysis of trading volume. The characteristic of the short trap in terms of trading volume is that as the stock price continues to decline, the volume remains in an irregular contraction. Sometimes, there may even be a phenomenon of unlimited short or sudden drops on the market, and individual stock transactions are also very inactive during the trading session, creating an atmosphere for investors that the bearish trend is far away. It is precisely in this atmosphere of creating pessimism that the main force can easily build positions at low prices, thus forming a bearish trap. So we need to combine quantity and price to avoid excessive panic.
3. From a macro fundamental analysis. Investors need to fundamentally understand the policy factors and macro fundamental factors that affect the strength of the market, and analyze whether there are substantial negative factors. If there are no significant negative factors in the stock market policy, but the stock price continues to plummet, it is easier to form a bearish trap. The actual negative factors also need to be combined in multiple ways, such as the end of the bull market at the end of 2007 with the central bank raising interest rates, the suppression of the housing market, strict monetary policy tightening, the increase in stamp duty, the US subprime crisis, and the withdrawal of foreign financial capital. A series of negative factors have led to accurate conclusions based on the comparison of market long and short fundamentals, rather than short-term pullbacks.
4. Analyze from a technical perspective. The characteristic of the bearish trap in the K-line trend is often a series of long bearish lines plummeting, breaking through various strong support levels, and sometimes even accompanied by a downward gap, triggering a chain reaction of panic in the market. After continuous corrections, the 30 cycle and 60 cycle moving averages often receive strong support and form resistance platforms due to volume contraction. No matter how long the lower shadow line is, it cannot represent the trend of the main chips in the market, but often reflects the essence of low-level chip suction.
In terms of form analysis, the bear trap often intentionally creates a technical breakthrough, causing investors to mistakenly believe that there is huge downward potential in the future and sell their holdings one after another, thereby allowing the main force to take on a large amount of cheap chips at a low level. In terms of technical indicators, the bearish trap can lead to serious divergence characteristics in technical indicators, and it is often the synchronous divergence of multiple cycles of multiple indicators, rather than the divergence of one or two indicators. It is important to pay attention to the defects and easy inducement of technical indicators here. It is not advisable to rely solely on technical analysis.
5. Analyze from the perspective of market popularity. Due to a prolonged decline, a heavy trap will be formed in the market, and popularity will be depleted as it continues to be trapped. However, this is often a time when market sentiment is extremely low, which precisely indicates that the stock market is not far from the true bottom. It is worth noting that after experiencing a significant decline in the index, the systemic risk is already very low. Overly bearish on the future market may inevitably lead to falling into new bearish traps. Once public opinion and the government re promote the stock market or make new policy changes, it will regain popularity.
