Video Transcript:
All right. Hello there, this is David from Trader Dale, and today we’re going to go over a quick trade that we actually did on Tuesday, April 7th, just to give you an idea of when this happened. This is actually on the day that I am recording this video, so if you want to go back to your charts, you can check it out yourself. So, the framework of this trade comes from our bread and butter, which is continuation trades from internal to external liquidity. Internal liquidity means 1-hour fair value gaps or 15-minute fair value gaps, or really any fair value gaps. It just depends on whether you are day trading or swing trading. As day traders, we are looking for what is going to happen at the opening of trading.
This morning, we came in and created a 1-hour bearish fair value gap after a move lower at six o’clock this morning, following a short consolidation. Basically, what we are looking for is a push and a turtle soup into that 1-hour fair value gap, followed by a move lower to external liquidity. We had a couple of external liquidity levels today. We had this low right here, and then we had a previous day low on the downside, slightly below that. Let me show you how this sets up.
The narrative is that we want to see price tap back into the 1-hour fair value gap. That’s the first thing. The second thing is we want to see SMT divergence with the ES, meaning one makes a new high and the other one does not. As you can see, that’s exactly what happened here at the top of this candle. The ES did not break this high, and the NQ did not either. Then we go down to the lower timeframes and look for a signal.
Here is the SMT. Here is price turtle souping the morning high to create that SMT. This trade actually worked a little differently. We usually get this trade somewhere higher, but it didn’t play out that way, so we had to wait. As price came back down and then back up, it created another inverse fair value gap and another SMT with the ES. SMT shows divergence, which indicates manipulation, meaning price is likely to continue in the original direction, which is lower.
The entry after this SMT is a short at the close of that candle. Don’t hesitate just go short. The stop goes just above the inverse fair value gap and above the candle that created that low. Now, what are we targeting? We have a couple of targets. The first target is this low right here, which is the pre-market low. That alone gives us a 3.59 risk-to-reward trade.
There was more liquidity below, so typically we target external liquidity. You can also keep a runner, for example one micro out of a four or five micro position, and trail it toward the next liquidity level, which was this blue line below. As you can see, price stopped short, rallied, and then came back into it. The market often does this it tries to induce early buyers, takes them out, and then continues.
This is really our bread and butter. It comes from internal to external movement internal being the 1-hour fair value gap, and external being these liquidity levels. We use lower timeframe confirmation with SMT, displacement, and manipulation. We want to see an inverse fair value gap to the downside, momentum, and a close below. Most importantly, we need clear targets, which in this case were the early morning pre-market lows, also aligning with the low of the 8:00 to 9:00 a.m. candle.
This is something we do almost every day. If you learn this one skill internal to external liquidity and combine higher timeframe narrative with lower timeframe execution using inverse fair value gaps or change of state of delivery, you have a very powerful approach. Adding SMT on top makes it even stronger. SMT simply means one market makes a higher high or lower low while the other does not, signaling manipulation and a likely reversal or continuation.
If we are delivering from a higher timeframe fair value gap and we see inversions and bullish fair value gaps being disrespected, that is our cue to enter and target lower liquidity levels. We also had a draw-on-liquidity trade and an add-on trade when price rallied and created another inverse fair value gap. This also inverted an order block, creating a breaker block, which made it a strong continuation setup toward those lower levels.
All of this was done by 10:00 a.m. No stress, no chasing trades. Especially on a day with major news, like Trump speaking, it’s often best to take profits early and stay out of the chaos later in the day.
Hey everyone, it’s Dale here. I hope you enjoyed the video. If you’d like to trade alongside me and our team of funded prop traders every day, click the link below the video and join us. We look forward to trading with you.
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