DTI 2.0. | 6.14 Break of Low (BOL) 2.0

Summary

In this video, the presenter explains a trading setup called 'Break of the Low' (Bo). The strategy involves using 5 or 15-minute time frames to identify market structure where price forms lower lows and highs. Traders wait for price to close below the low and then enter the trade, placing stop losses above the previous candle's high. The goal is to achieve a 2:1 risk-reward ratio while ensuring sufficient market volume. The presenter also covers the importance of proper stop-loss placement and provides examples to illustrate the approach.

Takeaways

• 📉 The setup discussed is called 'Break of the Low' (Bo), focusing on market structure and not support/resistance.
• ⏱️ The Bo setup uses 5-minute and 15-minute time frames for trading opportunities.
• 📊 Traders should analyze lower lows and lower highs to identify potential trade entries after a break of the low.
• 🔐 The ideal entry point is after the price closes below the low of a candle, with the stop-loss above the high of that same candle.
• 💡 Aim for a 2:1 risk-reward ratio and close the position when that target is met.
• 📈 It's important that price is trading under the moving average and during a bearish trend for a sell setup.
• 🛑 Stop-loss placement should be strategic, either above the current candle or a previous one for more safety.
• 🔄 A retest after a break of the low can be another entry opportunity if the initial move doesn’t offer a good entry.
• 📉 The setup should be used only during high-volume trading sessions for better chances of success.
• ✅ Always back-test and adapt stop-loss and risk-reward strategies based on personal trading style and historical performance.

Q & A

What does 'Bo' stand for in the video?

'Bo' stands for 'Break of the Low,' which is a trading setup where the price breaks a previous low point, and traders look for opportunities to take a position as the price moves lower.

What time frames are typically used for the 'Break of the Low' setup?

The 'Break of the Low' setup is usually done on the 5-minute or 15-minute time frames.

What is the key principle behind the 'Break of the Low' trading strategy?

The key principle is to trade based on market structure. Once the price breaks a low, the goal is to enter a position expecting the price to make a new low, following a bearish trend.

What are the entry and stop-loss placements in this strategy?

The entry is typically placed right after the price breaks and closes below the low. The stop-loss is set slightly above the high of the candlestick that broke the low, or above the high of the previous candlestick if a safer stop is preferred.

Why is it important to wait for a candlestick to close below the low in this strategy?

Waiting for the candlestick to close below the low helps confirm the breakout and avoid false signals or 'chop,' where the price might briefly break the low and then reverse.

What is the target for the 'Break of the Low' setup?

The typical target is a 2:1 risk-reward ratio, meaning the potential reward is twice the risk taken. The goal is to get in and out of the market with a clear profit target.

How do moving averages influence the 'Break of the Low' strategy?

In this strategy, it’s recommended that the price should be trading below the 21-period simple moving average (SMA) to confirm a bearish trend before executing the trade.

What are the pros and cons of this strategy?

Pros include the simplicity of the setup and the clear structure-based rules. Cons involve potential false breakouts and the need for volume in the market to support the price movement.

How can traders avoid getting stopped out frequently in this setup?

To avoid frequent stop-outs, traders can place the stop-loss above the previous high, giving the price more room to breathe. Additionally, waiting for a candlestick to close under the low before entering can help filter out false breakouts.

What should traders do if the breakout candlestick is too large?

If the breakout candlestick is too large, it's recommended to wait for a retest of the low before entering, to ensure a more favorable risk-reward ratio.

Outlines

00:00

📈 Introduction to Break of the Low (Bo) Setup

The video introduces the concept of the 'Break of the Low' (Bo) setup used in trading. This strategy revolves around identifying market structure, particularly the formation of lower lows and lower highs, and executing trades when the price breaks these lows. The setup is primarily used on 5- and 15-minute time frames, and the speaker highlights the importance of reviewing trades in a journal to evaluate the profitability of setups. Additionally, this strategy is not based on support or resistance, but purely on market structure, using examples of live market conditions to explain how to identify break of lows and execute trades accordingly.

05:01

📊 Stop-Loss Placement and Entry Techniques

This section explains the details of entering a Bo setup trade, focusing on the importance of stop-loss placement. Two entry strategies are discussed: entering immediately after the break of the low or waiting for the candlestick to close below the low for more confirmation. The video emphasizes using a stop-loss above the previous structure or candlestick high, depending on how aggressive the trader wants to be. The goal of this strategy is to achieve a 2:1 risk-reward ratio, and the speaker stresses backtesting the system to determine the most effective stop-loss strategy.

Keywords

💡Break of the low (Bo)

The 'Break of the low' refers to a trading setup where a trader enters a position after the price of a security breaks below a previously established low point. This concept is central to the video, as it is the main strategy being discussed. Traders use this setup in market conditions where price is making lower lows, aiming to capitalize on further downward momentum. The speaker emphasizes identifying the correct 'low' before entering a trade and setting appropriate stop-loss levels.

💡Market structure

Market structure refers to the behavior of price movements, including trends like higher highs, lower lows, and consolidations. In the video, market structure is crucial to deciding when to use the 'Break of the low' setup. By analyzing the overall direction of price movements (e.g., bearish trends), the trader can make informed decisions about when to enter and exit trades.

💡Stop loss

A stop loss is a risk management tool that automatically exits a trade when the price reaches a predetermined level to limit potential losses. In the video, stop-loss placement is heavily discussed, particularly with the 'Break of the low' strategy. The speaker advises placing the stop loss above the high of the candlestick that triggered the entry or the previous candlestick to prevent premature exit during normal price fluctuations.

💡Candlestick

A candlestick is a graphical representation of price movement in trading charts, showing the high, low, opening, and closing prices for a specific time period. The speaker frequently refers to candlestick patterns in the video when explaining how to enter trades after a 'Break of the low.' They recommend placing the stop loss above the high of the candlestick that breaks the low, or the previous one, depending on risk tolerance.

💡Risk-reward ratio

The risk-reward ratio is a measure of potential profit versus potential loss on a trade. In the video, the speaker advocates aiming for a 2:1 risk-reward ratio, meaning the potential profit should be at least twice the amount risked. This ratio helps traders set realistic expectations and manage risk effectively, especially when using the 'Break of the low' strategy.

💡Price action

Price action refers to the movement of a security's price over time, which traders use to make decisions without relying on technical indicators. In the video, price action is the primary method used to identify when a 'Break of the low' occurs. The speaker discusses how to analyze price action, such as looking for price to close below the previous low before entering a trade.

💡21 SMA (Simple Moving Average)

The 21 SMA is a technical indicator that shows the average price of a security over the last 21 periods, smoothing out short-term fluctuations. The speaker mentions the importance of the 21 SMA when trading with the 'Break of the low' setup, explaining that price should be trading below this moving average to confirm a bearish trend and increase the likelihood of a successful trade.

💡Bearish trend

A bearish trend occurs when the price of a security is consistently falling over time, creating lower lows and lower highs. The video is focused on trading during bearish trends using the 'Break of the low' strategy. The speaker explains that this strategy is effective when the market is in a clear downward trend, as traders aim to catch further drops in price.

💡Support and resistance

Support refers to a price level where a security tends to stop falling, while resistance refers to a level where it tends to stop rising. The video emphasizes that the 'Break of the low' strategy is not based on trading around support or resistance levels but rather on overall market structure. However, identifying areas of support is crucial for setting the correct stop-loss and ensuring the trade setup is valid.

💡Backtesting

Backtesting involves applying a trading strategy to historical market data to evaluate its effectiveness. The speaker encourages viewers to backtest the 'Break of the low' strategy to see how it performs in various market conditions and refine their approach. This helps traders build confidence in the strategy and understand how it works in different scenarios before applying it in live markets.

Highlights

Introduction to the setup called 'Break of the Low' (Bo), which is focused on market structure rather than support or resistance levels.

Bo setup uses either a 5-minute or 15-minute time frame to identify trades based on lower lows and lower highs in market structure.

Key principle of Bo: Price breaks the low of a previous candlestick, and the goal is to take price into a new low.

When entering a Bo trade, wait for price to close under the low to avoid being stopped out too early.

The preferred entry method: place a stop loss slightly above the high of the candlestick that broke and closed under the low.

Stop loss placement is critical—best to place it above the previous candlestick's high for safety and allow the price room to breathe.

The goal of a Bo setup is a 2:1 risk-reward ratio, where traders aim to exit the position quickly for maximum efficiency.

It's important to ensure that the price is trading under the 21-SMA moving average to confirm the trend direction before entering a Bo trade.

Examples show that if the candlestick closes under the low, a stop loss should be set above the previous high to avoid false breakouts.

Sometimes, it's necessary to wait for a retest of the low to avoid entering a position too early.

Another important aspect is managing trade risks by setting the stop loss realistically based on market structure.

Example: If price closes under the low and the stop loss is above the wick of the previous high, you can avoid getting stopped out prematurely.

The Bo strategy works best when price is trending bearish; if the market is bullish, a 'break of the high' setup would be used instead.

Price often consolidates before making new lows, reinforcing the need for patience when executing Bo trades.

Stop loss strategy: For safer entries, place the stop loss above the second candlestick high to avoid false signals from price fluctuations.

Transcripts

welcome back to another video so in this

video what we're going to be doing is

we're going we're going to be going over

a setup called basically a break of the

low or what I'm going to be referring to

as Bo so we like to abbreviate our

setups so when we go back into our

trading journal and we can look at all

of our winning trades all of our losing

trades we can see what trades won the

most we could see what trades won US the

most money we could see overall what

trading setups are most profitable and

in this situation basically what we're

going to be doing is going over a setup

called a break of the low which is

literally as self-explanatory as it

actually is so on this setup basically

what we do is we use a five and a 15

minute time frame or a 5 minute time

frame or a 15minute time frame to be

able to take these trades now these

trades aren't trades at areas of support

or resistance but these trades are all

based off of Market structure and I'm

going to be giving you guys a few

examples of these types of

setups so in a situation where you're

actually trading and you're in live

market conditions and you see price

actually gave you Market structure where

price is forming lower lows lower highs

lower lows essentially what you're

trying to do is basically take a break

of the low and you're looking to take

price into a new low so in this

situation here right once price formed

this area of support and notice the

actual struggle of this area of support

you have to identify what the low action

is because you could have taken a trade

of a break of a low right here and

possibly gotten stopped out but the low

is actually going to be right here

notice this is the low before price

actually pulled up and came back down so

what we're basically going to be looking

at is one of two options now I'm going

to give you guys obviously the positives

and the negatives so in a situation like

this where this is the actual low of

price right what we actually have is

price actually come down form a low over

here and then price attempted to go down

and form lower which essentially that's

when you would have potentially looked

at taking an entry but in this entry

depending on your stop-loss placement

you would have actually gotten stopped

out you have two different types of

Entry placements and stop-loss

placements with these types of Trades

essentially your entry could be right

after the break of the low itself with

your stop loss above structure your

targets being your next structure point

which ultimately that's not the way I

would look at trading it right to give

you guys a clear-cut example the best

entry method with this is to wait for

price to actually close under the low

itself but you could also look for price

to kind of just break under the low and

take a move off of the fluctuation of

the Candlestick itself so right once

price broke under the low essentially

what you would want to do is look at the

highs and the lows of the candlesticks

themselves right once price broke under

the low which this is going to be the

Candlestick that broke and closed under

the low then you would want to place

your stop loss slightly above the high

of that actual Candlestick itself so in

this situation if you take a trade here

your stop- loss placement is going to be

slightly above the Candlestick itself

and obviously price needs to be trading

under the moving average fore to sell

and our goal here isn't to look for a

massive move our goal here is just to

Simply look for a 2 to1 risk reward

ratio and then we're closing the

position that is going to be the goal

with a break of the low and if you want

from there you can continue to trade

stop loss to look for a bigger move so

that is going to be one example right

once price closed under then you would

have actually looked to take a position

there and that's where your uh price

would have actually played out price

closed under stop loss goes above the

high of the previous candle or if you

want to be safer goes above the high of

the last previous candle because price

could come and actually test the high of

the previous candle and then you would

look for a 2:1 risk reward ratio nothing

more nothing less obviously you guys can

to back test this system and see what

works best for you stop loss P etc etc

this is kind of just what I do as of

right now so you can also do this with

different support trades but ultimately

you would actually want to do it based

off of Market structure and trade this

system simply solely all based off of

Market structure more importantly though

you have to actually be in session in

price there needs to be volume for you

to actually be able to take these types

of Trades so here's another example of a

break of the low where we essentially we

see price come up come down come up come

down come back up so you can identify

that there is a low actually formed

right about here this is going to be the

low where we have structure actually

formed and we have price come all the

way down and close under notice price

closed back above and tested the actual

high of the previous Candlestick so in

this situation you know if your entry is

here that doesn't mean that your stop

loss is going to to be literally right

here you want to be realistic with your

stop losses as well like I said again

you can shoot for the previous stop-

loss High which would be all the way

over here which that would be a pretty

large stop you would aim for a 2 to1

Oris three War ratio which essentially

you would want taken out of the trade

here in a in a in a in a win or

potentially even here but again the goal

is to have your stop loss significantly

above the high of your entry Candlestick

which in this situation would be roughly

around here and price is also trading

under the 21 SMA there as well so that's

also another

example now in a situation where if you

would have taken a trade on this

Candlestick then your stop loss goes

above the high of this Candlestick over

here but then I would obviously put it

above this Candlestick right over here

so that's an example another example at

least of price breaking the lows and

actually going to attempt to try and

make new lows now I only take these

setups again when price is under the 21

smate and we're trending bearish if

price is trending bullish then we're

going to be looking for break of the

high which will go over that in a

different setup scenario now again price

is clearly trending bearish we have a

big impulse to the downside that is what

we want to see a big impulse to the

downside then we have price actually

form support here this is going to be

our low around this range here so if

price were to actually come down and

price started to go bearish now again

here's the thing pros and cons of every

system and every single setup that we

see notice how price actually tempted

multiple times to close and break under

right if you wouldn't have waited for

the Candlestick to actually close then

essentially there would have been a

trade where you may have lost money here

may have lost money here then you

possibly you know if you would have

continued a trade you may have made it

back here but again it comes down to

waiting for that Candlestick to actually

close to try and avoid all of this uh

chop that you could see but then there's

going to be times where the Candlestick

is too large and you're not going to be

able to take the actual position so in

situation like this I just simply

recommend to wait for a retest where you

could have been taken a trade later on

throughout here but now since you have

price break the low right here such as

this one then again all you're simply

doing is taking a trade right once price

closes under the low your stop loss goes

above the wick or the previous W before

that you look for a 2 to1 risk reward

ratio just to Simply get in and out of

the market as quickly as you possibly

can which this is going to be a setup

that we have right here so this is no

trade this is an example where you would

take a position there

now let's look for another example of a

break of the low you see like the thing

is this situation would have been a

little bit different so here we have the

lows over here here you have price close

under the low itself now your entry

obviously would have been over here stop

loss would have gone above this high or

typically I would like to place it above

the previous High just give price a

little bit more room to breathe 2 to one

risk reward ratio and then there you go

you have your 2 to1 risk reward ratio

quite nicely before pullback and then

then you could have potentially even got

in on another break of the low over here

price did close under there but it's

really not the strongest close under um

so there's a few things to take into

consideration here you know so if you

look at the overall median it could have

worked out in your favor but I like to

kind of look at the overall lows and the

highs of the market essentially when it

breaks a low then great we'll continue

to look for price to continue to make

new lows because again when price makes

a low it has a high probability of

continue to go down to make another low

so here's an here's actually a great

example of why stop-loss placement is so

important because we had price actually

close under so your entry signal for a

break of the low setup or a Bo setup is

going to be right here and if you would

have placed your stop loss slightly

above this High here above the

Candlestick you entered on you would

have been stopped out of that position

but if you would have placed your stop

loss above the second Candlestick High

which is over here you would have been

just fine 2 to1 risk reward ratio which

is going to be down here roughly and

then look at that price Consolidated for

a bit but then continue to go down and

actually make new lows and you got your

2 to one risk to reward ratio you can

also go for a 1: one but for me I'm

always going to go for a 2: one no

matter what stop loss I break even at a

1: one RIS reward

ratio and that is going to be it for

this video doesn't really have to be too

complicated nothing too long but I

definitely did want to cover that for

you guys and I will talk to you guys in

the next video