Video Transcript:
And here’s an example of why the ES might have been a better trade here. See this? We took out this liquidity here and had the SMT. Then we inversed this fair value gap. Can anybody tell me the difference between these two fair value gaps and the possible entries on that? Who can tell me? The break-even point. Yep. So this one closed below what we call the break-even point. This one didn’t. And then obviously after that we had a big crash down below. So that, Jason, would be the occasional time where I might take the ES, even though both of these patterns are fantastic. Here, the ES is actually the stronger one, but the setup was better. That’s all I like to focus on—one thing I really do—and that’s why I’ll always trade the NQ, but I have both.
Can you elaborate on what you just talked about there? Why would you have chosen ES in that case again? So, typically when we get into an inverse fair value gap, okay, we know with great certainty—now in this case it was different because we had targets of liquidity lower, so the conviction that we were going lower was high anyway. But normally, when we get an inverse fair value gap, we know with over 90% accuracy that we’re good at least to this pivot low right here. And as you can see, this is a 15-minute chart. We closed below that pivot low. So typically when we inverse this fair value gap, when we get to this level and close below it, this is where we want to go break-even because price should not just sweep this level. It should really go through it and not come back up. If price sweeps this level, then it’s just a liquidity grab and it’s going to go back up, and it won’t work. That’s why we go break-even at this level.
So, the NQ crossed above and ended below this break-even. The ES didn’t. That’s your entry candle on the ES. That’s your entry candle on the NQ. Plain and simple.
I see that, but I guess I’m failing to understand why you think ES was a better choice on that short. Well, they were both fine, but ES did not close below the break-even point. NQ did. You can’t enter a trade after it crosses the break-even point. Here you enter a trade. Once it crosses here, you can now go break-even on this cross and protect your trade. Here you can’t because it already crossed the break-even. That invalidates the entry when it does that. It already came into a recent internal low. Now, on a day like this, we knew that we were going lower because we wanted to get to this Nvidia data low. That was the draw in liquidity. But normally, in a normal trade, this is invalidated because it closed below break-even. ES didn’t. So ES would have been the better trade. It was the only trade.
Gotcha. So you’re basically saying you can’t define your risk once you break past that. Yeah, because once it breaks past here—yeah, you’re right—I can’t define my risk anymore because I know I’m good to at least here. So when I enter right here, I enter on the short right here. I know with over 90% accuracy that we’re at least going to go to that low. So when it hits that low, I can now go to break-even. And then obviously it was a protected trade the whole way. Here I can’t do that because the close of the candle that inversed the fair value gap closed below the break-even point. So I can’t manage my risk here. If this move was just a liquidity sweep, then this would have jammed me way back higher and this would have been a loser instead of a break-even. That’s the rationale behind it.
Is that clear, Crystal?
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