Time & Price Algorithmic Trading: Point of Interest

Summary

In this lecture, we explore the final step of the higher time frame trading protocol: identifying the Point of Interest (POI). The POI serves as the invalidation level where price action either confirms or invalidates the current order flow. By identifying the POI and drawn liquidity, traders can drop to lower time frames to find market maker models and execute trades effectively. The lecture covers how to use POIs, understand order flow (bullish or bearish), and apply lower time frame protocols to frame and manage trades. This approach simplifies analysis and execution for traders aiming to follow market trends and make informed decisions.

Takeaways

• 😀 Point of Interest (POI) is the final step in the higher time frame protocol. It serves as the price level where the price will reverse, triggering a lower time frame trade setup.
• 😀 Identifying the POI is crucial for framing lower time frame market maker models. Without it, there’s no clear narrative for price movement.
• 😀 In a bullish order flow, the price will expand higher and retrace lower. The drawn liquidity must be higher than current price for the bullish trend to continue towards that liquidity.
• 😀 For a bearish order flow, price will expand lower and retrace higher. The drawn liquidity must be below current price for the bearish trend to continue downwards.
• 😀 The 'narrative' refers to the journey of price from POI to drawn liquidity. Without knowing the POI or drawn liquidity, framing a trade idea on lower time frames is impossible.
• 😀 Invalidation levels, which are key to the POI, represent the price level that must act as support in a bullish scenario or resistance in a bearish scenario. If the price displaces below or above it, the setup is invalidated.
• 😀 POI is derived from the invalidation level. Once this level is identified, traders wait for price to return to this level before confirming a reversal and entering a trade.
• 😀 POI serves as the support or resistance level for the continuation of the order flow towards the drawn liquidity. It helps traders to anticipate potential reversals at key price levels.
• 😀 The method of identifying POI is grounded in understanding market flow, with focus on price displacement, order blocks, and imbalances.
• 😀 Trading setups based on POI involve waiting for price to hit the POI, then dropping to lower time frames to confirm a reversal, followed by trading towards the drawn liquidity. This forms the backbone of a successful trade strategy.

Q & A

What is a Point of Interest (POI) in the context of the higher time frame protocol?

A Point of Interest (POI) is the final step in the higher time frame protocol. Once price reaches the POI, traders drop to a lower time frame to look for a reversal or continuation setup before trading towards the drawn liquidity. It represents a price level where a reversal is anticipated.

How does order flow help in identifying potential trade setups?

Order flow is identified through expansions and retracements. Bullish order flow consists of price expanding higher and retracing lower, while bearish order flow involves price expanding lower and retracing higher. Recognizing these patterns allows traders to anticipate whether the trend will continue and where to look for potential reversal points.

Why is identifying drawn liquidity important in trading?

Identifying drawn liquidity is important because it shows where the market is likely to head. If drawn liquidity is higher (for a bullish order flow) or lower (for a bearish order flow), the market is likely to continue expanding towards these levels, allowing traders to frame their trades effectively.

What is meant by 'narrative' in trading, and why is it important?

In trading, the narrative refers to the expected movement of price from a point of interest (POI) to drawn liquidity. It’s important because it helps traders understand the direction of price movement and frames the trade setup, ensuring they are trading with the expected market flow.

How can traders use POI to frame lower time frame setups?

Traders use the POI as a reference to identify where price is likely to reverse or continue. Once the POI is reached, they drop to a lower time frame and apply the lower time frame protocol to confirm a reversal or continuation, then trade towards the drawn liquidity.

What role does the invalidation level play in the trading strategy?

The invalidation level marks the point where the current market flow is considered invalid. In a bullish order flow, this is typically a discount array that acts as support. In a bearish order flow, it acts as resistance. The invalidation level is crucial because it helps define the POI and determines the boundaries of the market flow.

How do you determine the POI when there is no clear previous price action?

When there’s no clear price action on the left side of the curve, traders will look to the right side and identify arrays or imbalances that can act as the POI. These levels must be used as support or resistance for the market to continue in the expected direction.

What is the significance of a market maker buy or sell model?

Market maker buy or sell models help identify potential reversal points in the market. These models are framed using retracements and expansions within the order flow. Identifying these models correctly allows traders to enter trades at optimal points, maximizing their chances of success.

How can imbalance be used to identify potential POIs?

An imbalance occurs when price moves away from a range with unequal buy and sell orders. This imbalance creates a price level that may act as support or resistance, becoming a POI. When price retraces into this imbalance, it signals a potential reversal or continuation setup.

What is the importance of session of interest when applying the lower time frame protocol?

The session of interest refers to the specific market hours during which a trader is focused on executing their strategy. It’s important because once the POI is reached within the session of interest, the trader can drop to a lower time frame to apply the protocol and look for confirmation of a trade setup.