Video Transcript:
If we’re looking at this chart blank, okay, from what I see, if I were looking at this chart and you said, “Mark up this chart,” I would say, “Okay, we’ve got a fair value gap here. We’re delivering from nice accumulation right here. This could be nice manipulation, and we’re getting good momentum out of this manipulation. Okay, and if we inverse this fair value gap right here, I’m going to go long because this is a good setup. This is what I’m learning. This is AUD/USD. It’s delivering from a fair value gap. It’s got everything. We inverse the fair value gap down here, and now if we inverse here, this is a great trade. This is what I learn. This is what I learn from David every single day.”
Is there anybody here that does not believe that this is a good trade setup just by looking at this? Don’t say yes, it’s a good setup. Does anybody here think it’s not a good setup? Don’t worry about the SMT. Let’s pretend we have SMT. Okay, you don’t need to say yes or no. I’m looking at it and I’m saying this is a good setup. Is there anybody here that says, “No, this is not a good setup”? Well, we’re really not in a range, John, because this is the range—we broke out of the range. This is a typical accumulation–manipulation–distribution setup that we always play. Would everybody agree? Is there anybody here that would not buy the inverse of this fair value gap right here for any reason? Nobody. Everybody agrees this is a good setup. Okay, it’s a good setup.
Is it still a good setup? Forget that. Is it still a good setup? It’s still a good setup, Sebastian. You just got stopped out. How is it a good setup? Why did this fail? This is a perfect setup—it has everything we look for, right? We’re delivering from a fair value gap. For argument’s sake, we have SMT with NZD/USD. We have accumulation, manipulation, we inversed at this fair value gap, and now this fair value gap. We got a clean target. Sometimes you lose. Okay, that’s true—sometimes you lose. But what’s the one thing we’re missing here? What’s the one thing we didn’t do? What’s the one thing we didn’t check? No, no, no. Dan, no. Yes, Marcus—thank you. Everybody stop—Marcus is right. We did not check the higher time frame. That’s what I’m looking for. Everybody else isn’t wrong, but we didn’t check the higher time frame.
Okay, this is a 4-hour chart. Let’s go to the daily chart now. Now we’re looking at the daily chart. All right, so I have the 4-hour to the left and the daily to the right. Now that we’re looking at the daily, was that 4-hour trade a good setup? Are there still people here who say yes? Let’s look at the weekly. This is the weekly chart. Fair value gap here. That’s the weekly chart. Anybody now looking for longs on AUD/USD? Is there anybody here that still would have taken this 4-hour trade no matter what, considering the higher time frame bias? No way. No way.
So what the trader did wrong here is he focused on a pattern on one time frame without any consideration for the higher time frame. As a matter of fact, he shouldn’t have even been looking at the 4-hour chart, because the weekly and daily—especially the weekly—clearly show a bearish bias. We’re coming into a fair value gap and rejecting it. We have fair value there, right? No one’s interested in going long. The daily still looked good, but wait a minute—we switched here. So this is the daily. These are the daily fair value gaps. I’ll put the daily ones in yellow just so we can see them.
Okay, so what’s good about the daily, John? Good from what perspective? The higher time frame—a short or a long? Are you saying this daily chart confirms the 4-hour bullish bias? They both have reasons why you shouldn’t have taken the trade. Obviously, on the weekly, we were coming into a higher time frame fair value gap and we rejected it—hard. That’s number one. Then on the daily chart, the short-term price action is rejecting a bearish fair value gap inside that weekly fair value gap. But we also have a bullish fair value gap below. This is what I call trapped order flow—when you have bearish fair value above and bullish fair value below, and you’re kind of in the middle. That’s trapped order flow.
But if I had to make a bias, and you put a gun to my head, if I’m looking at this and see price come into a weekly gap like that, it’s going down. I’d say to myself, okay, we rejected here. Then I’d go down to the daily chart and see what’s going on. I see we’re rejecting a fair value gap inside the weekly, but there’s also a bullish fair value gap here, which the student used to try to go long. But to go long here means you’re going long right into a daily fair value gap that’s rejecting and a weekly fair value gap that’s rejecting. Now, if we were to inverse this daily fair value gap, then the higher time frame is in alignment—weekly and daily both bearish. Now you can go down to your shorter time frames and look for a trade to the short side, targeting these lows and this fair value gap on the weekly.
My point here is this: if you’re looking at one time frame and see something that looks really good without the context of the higher time frame, then you’re just a pattern trader. We can’t pattern trade—we have to have the context of the higher time frame. The only reason the AUD/USD setup here would be valid is if you had a bullish bias coming from the higher time frame, which was nowhere to be seen. So the point of this chart is to make sure that whatever trade you’re taking, you have higher time frame context.
Hey everyone, it’s Dale here. I hope you enjoyed the video. If you’d like to trade alongside me and our team of prop firm funded traders every day, then click the link below the video and hop aboard. We’re looking forward to trading with you.
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