Change in State of Delivery (CISD) - Understanding Reversals

Summary

This video explains the concept of price reversals in trading, focusing on identifying change in state of delivery (CSD) through a multi-timeframe approach. It covers key concepts like bullish and bearish reversals, retracements, and consolidations, providing clear examples from daily to intraday charts. The method emphasizes waiting for confirmations through specific price actions such as the closing of candles. By using these techniques, traders can pinpoint entries for intermediate-term expansions and manage risk more effectively. The video is designed to provide traders with a solid foundation for understanding and executing reversal strategies.

Takeaways

• 😀 A change in state of delivery (CSD) is a confirmation tool, not a price pattern, that helps identify reversals and continuation of trends in the market.
• 😀 A bullish CSD occurs when price reaches a level with previous lows, and a down closed candle with the lowest body is used to mark the reversal point.
• 😀 A bearish CSD happens when price reaches a level with previous highs, and an up closed candle with the highest body is used to mark the reversal point.
• 😀 A CSD can be identified using higher time frame analysis (e.g., daily chart) to understand the market framework before applying intermediate and low time frame confirmations.
• 😀 For a daily reversal setup, look for price to trade into a premium area, with liquidity draw from equal lows or highs, and anticipate a reversal at these key levels.
• 😀 The intermediate time frame (e.g., 1-hour chart) confirms the CSD with a close below/above the identified price level, indicating a shift in the price delivery state.
• 😀 Intraday entries should be taken after 8:30 AM, once price reaches the point of interest and a CSD is confirmed on lower time frames (e.g., 5-minute to 1-minute charts).
• 😀 Large wicks in price charts often indicate a shift in delivery state on a lower time frame, as wicks are bodies on smaller time frames.
• 😀 When analyzing a daily retracement, be cautious and wait for confirmation; once confirmed, look for intermediate reversals and intraday setups for confirmation.
• 😀 In daily consolidations, the price manipulation of external highs or lows provides a clear signal for anticipated price movement, which is then confirmed through changes in state of delivery on lower time frames.

Q & A

What is a 'change in state of delivery' in trading?

A 'change in state of delivery' refers to a shift in the price movement, signaling a potential reversal or continuation. It's used as a confirmation tool, helping traders validate whether a price move is genuine, rather than speculative.

How do you identify a bullish change in state of delivery?

To identify a bullish change, look for price trading lower into a level of interest. You should find a down closed candle with the lowest body within that level, extend the opening price of that candle, and wait for price to close above it. This closing above the opening price signifies a bullish change in state of delivery.

What is the difference between using the lowest down closed candle and the highest down closed candle?

When price trades lower into a level where you're anticipating a reversal, you can either use the lowest down closed candle (for a simple reversal) or the highest down closed candle (when there are consecutive down closed candles). The highest down closed candle is used to find the stronger level of resistance before the reversal happens.

How does a bearish change in state of delivery differ from a bullish one?

A bearish change in state of delivery focuses on up closed candles. Look for price trading higher into a resistance zone, and then identify the highest up closed candle within that zone. Once price closes below the opening price of that candle, it confirms a bearish change in state of delivery, signaling potential downward movement.

Why is the concept of time frame alignment important in identifying reversals?

Time frame alignment is important because it helps confirm the overall market structure. For example, a reversal on a higher time frame (like daily) should align with reversal signals on lower time frames (like hourly or minute charts). This increases the reliability of the trade setup and ensures consistency in the market's behavior.

What are the three phases of price delivery used to identify potential reversals?

The three phases of price delivery are: consolidation, retracement, and expansion. These phases help determine whether the price is likely to reverse, continue in its current direction, or remain in a range. Identifying the phase gives traders the context to better interpret price action.

How do you differentiate between a daily reversal, retracement, and consolidation?

A daily reversal occurs when price returns into a range and begins to reverse direction. A daily retracement happens when price briefly moves against the prevailing trend before continuing in the same direction. A consolidation involves price moving within a tight range, often indicating indecision in the market.

What is the significance of liquidity draws and how do they affect price movement?

Liquidity draws occur when the market leaves behind significant price levels (such as equal lows or highs) that attract future price movement. These areas tend to act as magnets, with price often returning to these levels before continuing in the direction of the prevailing trend.

What is the process for entering a trade on lower time frames after identifying a reversal on a higher time frame?

Once a reversal is confirmed on a higher time frame, such as the daily chart, you move to lower time frames (like the 1-hour or 5-minute chart) to find a change in state of delivery. Look for confirmation of the reversal (e.g., closing below the opening price of an up closed candle) and then wait for an intraday point of interest before entering the trade.

Why is it recommended to wait until after 8:30 to take intraday trades?

Waiting until after 8:30 helps avoid the volatility and noise typically present in the markets during the opening hours. By this time, the market has generally settled into its trend for the day, providing a clearer context for reversals and price action setups.