Video Transcript:
All right, good day. This is David from Trader Dale, and today I am going to show you an example of a trade we took about a week ago, well, a couple of weeks ago. What I like about this type of trade is that it is very simple to understand. It is something that newer traders can grasp right away. You are not going to get five or six trades a day with this type of setup. You are basically looking for one good setup, and it is usually going to be within the first hour, about 60 to 90 minutes of the market open. You are looking for a few basic things.
If you look at this area right here, this is the opening of the market. I am going to put the Initial Balance tool on here just so you can see it. The Initial Balance is the first hour of trading of each trading day. Just to highlight it a little easier, we are going to look at this trading day. So what are the few things that we are looking for?
Number one, we need a liquidity sweep. If you look down here, we have multiple areas where price sweeps liquidity. We have this low right here and this low right here. Two easy lows that get taken out, sweeping liquidity, and to boot, we deliver from a previous 15-minute fair value gap. So that is the first thing we look for. We have a liquidity sweep.
Now we have to have a clear CISD, meaning we have to be able to identify where this move clearly started, where this manipulation leg began. If price moves back above and regains that area, it will signal a change in order flow. In this case, that area is right here.
We are going to mark that CISD, meaning if price regains this area right here, we will consider that a change in the state of delivery. But first we need a liquidity sweep. A liquidity sweep is a move that takes out key areas, clearly identifying a CISD. Then we need displacement, meaning a fair value gap in the direction of the liquidity sweep, which we have right there. Step four is that we need to inverse that fair value gap and close above the CISD.
So those are the four main things. Again, liquidity sweep — we sweep liquidity here and we sweep liquidity here. We create a clear CISD. This is the area where price started the move that took out those levels. This bar took out the first level and continued, so we have a clear CISD. If we do not have a clear CISD, there is no trade. We have displacement and a fair value gap created through taking those liquidity levels. Then we have a clear inverse and a close above the CISD, as you can see.
The entry is going to be on the retest of the CISD. As you can see, we get a really nice retest of the CISD. Typically what we will do is take a long position off that CISD.
Now where is the stop? The stop is typically going to be placed based on the CISD leg. The way I usually do it, and I think it is pretty reasonable, is you take the top to the bottom of that move, and your stop will be just below the 50% of the CISD leg. Then you are going to target at least a 2:1 risk-to-reward.
When can you target higher than a 2:1? You can target higher than a 2:1 when you have clear targets above that price can easily reach. In this case, a 2:1 target takes out the London highs here and the London highs from the previous day. But we still have one more area of liquidity to grab. So this 2:1 trade can be moved up to that area, and it now becomes about a 2.7:1 risk-to-reward trade.
These trades occur multiple times during the week. You usually get one good setup per day. I like to trade it from the 15-minute chart because it is not a high time frame where it is too slow for day trading, and it is not too low where there is a lot of noise. It is the perfect time frame for this type of setup.
So that is the criteria. Write it down if you want. Go into the market and backtest it. Look for exactly this type of scenario and you will be surprised how many times you see it. What I like about this is that it is a very simple rules-based trading strategy that newer traders can use, or really anybody can use. It gets you away from overthinking during the day and from overcomplicating concepts.
There is a very clear directive and a very clear checklist that must be followed. If any one of these things does not exist, there is no trade. If they all exist, then there is a trade and you go for a simple 2:1 target, maybe a little bit more if the trade warrants it.
Hey everyone, it is Dale here. I hope you enjoyed the video. If you would 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 look forward to trading with you.
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