V4 | Bias Testing

Summary

This video provides an in-depth look into the daily bias trading strategy, focusing on key principles like liquidity sweeps, price action at critical levels, and the importance of understanding market conditions. The speaker discusses how external and internal liquidity, fair value gaps, and traffic levels guide their trade decisions. With a focus on risk management and market timing, the speaker also emphasizes the value of practicing through simulations to refine their strategy. The insights shared aim to help traders confidently navigate the market by recognizing key trends and making well-timed entries.

Takeaways

• 😀 External liquidity sweeps are critical for understanding potential reversals or continuations in price movement, and it's important to wait for confirmation before acting.
• 😀 The concept of key levels like fair value gaps, swing points, and order blocks is essential for identifying entry and exit points in the market.
• 😀 The 50% level of wicks and ranges is a key reference for spotting potential price action reversals or continuations.
• 😀 Confidence in trading diminishes when a target is hit too early in the trading day, often leading to price fading after initial moves.
• 😀 In trending markets, higher highs and higher lows indicate bullish movement, while lower lows and lower highs suggest bearish trends.
• 😀 In consolidation markets, it's effective to buy below lows and sell above highs to capture price oscillations within the range.
• 😀 Liquidity runs through key levels, such as internal and external liquidity, are crucial for determining price direction and expected targets.
• 😀 Daily closes outside key levels, like fair value gaps or order blocks, serve as strong signals for confirming trend reversals or continuations.
• 😀 It's vital to wait for clear confirmation of a price action setup before committing to a trade, particularly when unsure about the market’s current condition.
• 😀 The process of marking ranges, key levels, and traffic points on higher timeframes helps establish a clearer view of the market's behavior and potential movements.
• 😀 The process of simulating trades and optimizing strategies is essential for refining trading decisions, and adjusting goals (e.g., aiming for 30 trades) helps prepare for real-life market conditions.

Q & A

What is the significance of liquidity sweeps in trading?

Liquidity sweeps occur when price moves to clear out stop orders or positions at significant highs or lows. These sweeps are important because they often indicate potential reversals or continuations in price movement, helping traders identify key levels to trade from.

How do you identify key levels in the market?

Key levels are identified by marking swing points, fair value gaps, and areas where significant price reactions occur. These levels often represent potential areas where price may reverse or continue. Traders also use tools like internal and external liquidity to gauge the strength of these levels.

Why is the 50% retracement considered an important level?

The 50% retracement level is often seen as a key area where price may reverse or continue its trend. This level is used to measure price corrections and serves as a key point for entering or exiting trades based on the market’s movement at this midpoint.

What role do market conditions play in deciding trading strategy?

Market conditions, such as trending versus consolidating markets, dictate how traders approach their strategy. In trending markets, traders look for continuation patterns, while in consolidating markets, they may focus on buying near lows and selling near highs. Recognizing the market environment helps in adjusting expectations and trade execution.

What is meant by ‘external liquidity’ and ‘internal liquidity’?

External liquidity refers to the price levels beyond the current range where liquidity can be targeted, often marking significant reversal points. Internal liquidity, on the other hand, is within the current price range and involves areas of consolidation or small retracements. Price moves from internal to external liquidity and vice versa based on market dynamics.

How do you determine if a price move is a continuation or reversal?

To determine whether a price move is a continuation or reversal, traders look for signs like liquidity sweeps, price closures through key levels, and the reaction to fair value gaps. If the price closes beyond a key level (like a swing high/low), it's likely a continuation; if it returns within the range, a reversal is expected.

Why does the time of day impact confidence in trade targets?

The time of day influences confidence in trade targets because if a target is reached before midnight, it often suggests a lack of follow-through, which decreases confidence in the continuation of the move. Many traders find that moves tend to fade or reverse when targets are hit too early in the trading day.

What is the significance of fair value gaps in trading?

Fair value gaps represent areas where price has moved quickly without significant retracement. These gaps are considered important because price often returns to these levels, offering a potential entry or exit point for traders. Fair value gaps can act as key reversal or continuation points depending on the market context.

How do you handle uncertainty in trading decisions?

When uncertain, it's important to wait for clear confirmation before acting. This includes waiting for price to reach a key level, seeing a valid closure beyond a specific range, or forming a significant swing point. Patience is critical when there is a lack of clarity or when price is not reacting as expected.

What is the purpose of practicing daily bias and how does it help improve trading skills?

Practicing daily bias helps traders refine their process by forcing them to mark key levels, track liquidity, and identify price movements in a structured way. This repeated practice deepens their understanding of market dynamics and improves decision-making by allowing them to analyze past patterns and optimize strategies.