SFP_and_OrderFlow_basics Trading Investment.pptx

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1. SMART MONEY IS PLAYING YOU. AND IT’S RIGHT IN FRONT OF YOUR EYES. SWING FAILURE PATTERN BASICS + ORDER FLOW BASICS VOL 1.

2. FORGET THE TEXT BOOKS. FORGET TRADING BREAKOUTS. How many times have you had your stop taken right before price heads the way you thought it would? How many times have you placed a long on the break of resistance, just to have price shoot straight back down into your stop? How much money have you lost following indicators and gurus ? Markets aren’t random. In this segment, you will learn to sight a simple trick being played in the market, and how to take advantage of it.

3. ALL ABOUT THE MONEY IT TAKES MASSIVE AMOUNTS OF MONEY TO MOVE A MARKET. IF SMART MONEY IS SPENDING BILLIONS, THEY WANT ONLY THE BEST PRICES. THEY CAN’T JUST PRESS BUY WITH A $500MIL ORDER. THEY HAVE TO TRICK YOU INTO SELLING/BUYING INTO THEIR POSITION. HOW ?

4. WHY YOU’RE ALWAYS GETTING STOP HUNTED (BASICS) Market makers / Big money need liquidity to fill their large orders. Why? Because of their deep pockets. If they tried to fill their whole position at one price, they would move the market before being able to fill the whole order. So what do they do to combat this issue? Market makers will use common trading techniques (S/R , Higher lows/highs, Lower highs/lows , generic trading patterns like triangles + the easily manipulated human psychology to trick retail traders into being on the wrong side of the market. Why do they need to trick you? For every buyer, there needs to be a seller. They are tricking you so they can fill their large orders. Before they start to buy, they sell, to push price down. They do this, to create more liquidity in the market. In other words, they trick you into shorting into their buys. Many of you may not be aware of this. But every time you sell and place a stop, you are placing a “buy stop”. The same goes for buying. Every time you buy and place a stop, you are placing a “sell stop”. Theoretically, buy/sell stops will market buy/sell + cancel your order at whatever price you place them at. So believe it or not, MM’s will manipulate price to trick retail traders into placing buy/sell stops that they will later use as fuel for the larger up/down moves. i.e. By creating lower lows in an uptrend to make retail believe that a new downtrend has started. Retail traders, being easy to predict and manipulate, will start placing sell orders with their buy stops just above the price that they sold at. MM’s will now use the liquidity generated by the buy stops as fuel for their intended up-move. Also, at the same time, the traders who short each lower low will now be helping MM’s fill their long orders. They are manipulating both sides of the market to accumulate and then re-distribute their orders at a better price whilst profiting off retail (you) during the entire cycle.

5. EXAMPLE OF A COMMONLY TRADED TRIANGLE BEING MANIPULATED TO GENERATE MORE LIQUIDITY IN THE MARKET (MATCH THE RIGHT SIDE OF THIS CHART TO THE DIAGRAM ON THE NEXT SLIDE)

6. ORDER FLOW DIAGRAM (SIMPLE)

7. WHERE DO WE ENTER ?

8. SWING HIGH A swing high is a group of 3 candles that form a high. To confirm the swing high, price must break below the 3 rd candles low. A swing high typically includes 2 outside candles that CLOSE lower than the middle candle .

9. SWING LOW A swing low is a group of 3 candles that form a low. To confirm the swing low, price must break above the 3 rd candles high. A swing low typically includes 2 outside candles that CLOSE higher than the middle candle.

10. SWING FAILURE PATTERN A swing failure pattern or “SFP”, represents a false break of support or resistance. More specifically, an SFP is signified by a candle breaking above/below a previous swing high/low while then closing the candle body back inside the previously broken swing high/low. Market makers engineer false breaks to provide liquidity to fill their orders. SFP’s are a great way to identify the false breaks. SFP’s can have a great win rate when used correctly and in confluence with other PA trading methods.

11. How to trade an SFP Find a range with an un-tested swing high or low. Mark the high or low of the swing with a ray. Determine a longer-term trend bias. Wait for the SFP to properly form. The more space in-between the swing high/low and the SFP the better the move will be. Ensure you see a noticeable rejection off the previous high or low before entering. Enter on the close of the SFP. Use the ATR or OOTE’s + OB’s to place an appropriate stop. Target near-by un-tested highs / lows or OOTE.

12. SFP inside of a range Price formed a low (A) Retail traders went long and placed their sell stops just below (A). Traders who sold at (B) and (C) had their buy stops just above the previous high of range. The traders who bought at (A) have now been stopped. A valid SFP has now formed. MM’s now have the liquidity required to enter their large long positions.

13. RESULT OF USING AN SFP INSIDE OF A RANGE

14. USING AN SFP WITH LONGER TERM HIGHS / LOWS Retail traders went short at (A), placing their stops just above the high. Retail traders went long at (B), placing their stops just below the low. (C) Price then moved up through the highs at (A), creating a valid SFP.

15. RESULT OF USING AN SFP WITH A LONGER-TERM HIGH / LOW

16. PLACING STOPS WHEN TRADING AN SFP Just because SFP’s represent a type of stop run, doesn’t mean price wont make a second SFP above the first. So when trading an SFP, stop placement is a crucial step in ensuring you are successful. There are 2 ways to place your stops when trading SFP’s. The first, uses a looser set of rules with a tighter stop and a lower win rate. The second, uses a strict set of rules with a wider stop with a higher win rate.

17. USING A MANUEL STOP WHEN TRADING SFP’S Always set your stops as you place the trade. However, if you enter an SFP and it later closes a candle body (15min +) above the previous swing, the SFP is now automatically invalided. So if you see this happen, close your position before you get stopped.

18. AN EXAMPLE OF WHAT COULD HAPPEN IF YOU USE INCORRECT STOP PLACEMENT WHEN TRADING AN SFP

19. 1st STOP PLACEMENT METHOD WHEN TRADING SFP’S When trading SFP’s, like any other method, you must decide what the appropriate stop loss might be. The more confluence you can find when trading SFP’s, the tighter your stops can be. E.g. 1 If the bearish SFP you are trading is inside a bearish OB, then it is safe to say, that you should place your stop on the outside of the bearish OB. E.g. 2 If the bullish SFP you are trading fits inside an OOTE, then it is safe to say that you could place your stop on the outside of the OOTE.

20. 2nd STOP PLACEMENT METHOD WHEN TRADING SFP’S (AVERAGE TRADING RANGE) An ATR calculates the volatility in a market by using the average range within a set time period. Like I explained earlier, using an ATR will decrease the chance of you getting stopped if a second SFP occurs after the 1 st , however, the stop placement is quite wide. Go to your indicators list on MT4 OR TV and activate ATR. Double click the ATR line that shows up underneath your chart. Set the value to 20 Line up the SFP and the ATR indicator using a vertical line or the grid lines on your chart. EXAMPLE 1 (GOING SHORT) While trading a BEARISH SFP (Looking to go short) Multiply the amount of pips that the ATR shows by 2, then add the pips onto the current high of the SFP and place your stop wherever that lands. So for this example while trading an SFP on EURAUD, my ATR was 0.00225 PIPS and the top of the SFP was at 1.63533. The formula for my stop placement would then be; 0.00225 PIPS x 2 = 0.00450 PIPS + 1.63533 = a stop placement of 1.63983 EXAMPLE 2 (GOING LONG) While trading a BULLISH SFP (Looking to go long) Multiply the amount of pips that the ATR shows by 2, then subtract the amount of pips off the current low of the SFP and place your stop wherever that lands. So for this example while trading an SFP on EURAUD, my ATR was 0.00317 PIPS and the bottom of the SFP was at 1.54267. The formula for my stop placement would then be; 1.54267 – 0.00317 x 2 = a stop placement of 1.53633

21. ATR STOP PLACEMENT EXAMPLE 1 The image below shows a valid BEARISH SFP. The SFP’s high is at 1.63533 and the ATR at that level is 0.00225 Adding the ATR x2 onto the SFP’s high gives us 1.63983

22. ATR STOP PLACEMENT EXAMPLE 2 The image below shows a valid BULLISH SFP. The SFP’s low is at 1.54267 with an ATR at 0.00317 Adding the ATR x2 onto the low of the SFP gives us a stop placement of 1.53633

23. How not to trade an SFP SFP’s can be used on all timeframes. However, like many other methods, the higher the time frame, the more reliable the method is. IF the 15min - hourly body of the candle closes outside the previous swing, but the 4HR candle body closes inside, is the SFP still valid? The answer is no. The SFP is no longer valid. If price doesn’t have a solid rejection + close inside of the previous swing on all TF’s (15 min +), we should then expect price to continue moving past the swing. Although, SFP’s MAY still work even if a lower TF candle body closes outside the previous swing. A close inside the previous swing high/low on a 4HR – 1MONTH TF would be a clear signal that the SFP is in fact invalid.

24. EXAMPLE OF WHEN NOT TO TRADE AN SFP Here we can see an SFP on the 4HR TF, then not long after, we see a 4HR close above the previous highs. Meaning, the SFP is now invalid. As soon as a candle body (15min +) closes above the previous swing, the SFP is now invalid. A 4HR close above the previous high is showing us prices willingness to break upwards. As you can see, not long after, price does in fact rally.

25. SECOND EXAMPLE OF WHEN NOT TO TRADE AN SFP

26. CONTINUATION OF THE SECOND EXAMPLE OF AN INVALID SFP.

27. YOU SHOULD NOW HAVE A BASIC UNDERSTANDING OF Order flow / buy + sell models (Accumulation + distribution models). How MM’s / Big money manipulate price in order to trick retail traders into being on the wrong side of the market. How MM’s benefit off stop runs. A basic understand of what an SFP is. How to place your stops when trading SFP’s. Where to take profit when trading SFP’s (basics). What invalid SFP’s may look like.

28. THE NEXT FEW SLIDES ARE EXAMPLES OR BLANK CHARTS FOR YOU TO TRY AND FIND AN SFP

29. TRY TO FIND THE SFP’S BEFORE MOVING ON

30. SPOT 2 SFP’S

31. PRACTICE. MARKETS AREN’T RANDOM.