Video Transcript:
All right, hello everyone. This is David from Trader Dale, and today we’re going to go over a recent swing trade that we did on Bitcoin. I’m going to show you how we caught the recent move down and the overall basic logic behind it, which is pretty standard logic that we use in our trading, not only for swing trading but also for day trading as well. Okay. So, Bitcoin has been in a major up move really since 2023. The way we understand order flow is that price displaces and creates Fair Value Gaps along the way. We are on a monthly chart, so we’re looking more long term. We have a Fair Value Gap here that price tapped into and held, and then eventually moved higher, taking out those previous highs and establishing a new bullish Fair Value Gap right here, which we tapped into, defended, and extended higher, taking out external highs. This is basically how the market moves and how we determine order flow.
When that order flow changes, it’s typically when a Fair Value Gap like this gets inversed. Once price closes below this inverse Fair Value Gap, the order flow has now changed from bullish to bearish. Once we inversed this Fair Value Gap, we created a bearish monthly Fair Value Gap, which is another bearish sign. This is one of our favorite trading setups on any time frame: an inverse Fair Value Gap created together with a Fair Value Gap in the opposite direction. The way we handle this monthly Fair Value Gap is that we don’t automatically short when price moves into it. We need price to move into the gap, and then we need to see on a shorter time frame how price is reacting.
If we go to the daily chart, we want to see some type of accumulation, manipulation, and distribution. We want to see short-term price action tap into the gap and then go negative. How does it go negative? It creates an inverse Fair Value Gap. Once it creates this inverse Fair Value Gap to the downside, the short-term price action is now bearish, which aligns with the longer-term time frame. In that situation, like we did before on the daily, we created a Fair Value Gap which we used as a pullback area to enter a position and trade lower.
Where are our targets here? Our targets are external liquidity levels. The first external liquidity level was right here at 80,000, a little over 80,000. The main target was the external liquidity level down at 74,000. We had a lot of high volume traded there, so anything below that was more of a runner, but we expected price to find some support around that area. Therefore, we were only looking to take the move from the monthly Fair Value Gap down into those liquidity lows. If we go to the daily chart, we can see the setup more clearly. Price tapped into the monthly Fair Value Gap, we were already bearish, and that was already confirmed. We just needed the tap in and short-term order flow on the daily time frame to invert a Fair Value Gap, which showed us that short-term order flow turned bearish, which is exactly what we wanted.
We then targeted the first external liquidity, which was the low made before the Fair Value Gap, and then the next low in price, which was the main target for our trade. The short entry was here, and the target was that low. Typically, we put our stops right above that Fair Value Gap to give the trade some room. This resulted in about a 7:1 risk-to-reward trade. It all started from a monthly view with a change in order flow and a bearish Fair Value Gap created on the monthly chart. Then on the daily chart, we used the daily time frame to identify an accumulation, manipulation, distribution move that confirmed the monthly Fair Value Gap was bearish and being defended by sellers.
Our entry model is exactly this: we inverse a Fair Value Gap, close below it, create another bearish Fair Value Gap on the daily, use that for a pullback entry, and then target the external lows for a 7:1 risk-to-reward trade. We use this model for both day trading and swing trading. This example was a swing trade, but in day trading it is very similar. We just add more confluence, like previous day’s highs and lows, daily highs and lows, and session liquidity. For swing trading, the higher-time-frame charts show us everything. We judge order flow by how price reacts to Fair Value Gaps and external highs and lows during price discovery. Then we use order flow across multiple time frames to construct a trade narrative that we can execute and target external lows in the proper direction.
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, click the link below the video and hop aboard. We’re looking forward to trading with you.
Comments
Post a Comment