Trading Against Order Flow Using MMSM (Trade Breakdown)

Summary

In this detailed lecture, the trader breaks down their NASDAQ market trade, focusing on a short position taken against bullish order flow. They explain their three-step trading protocol, which includes analyzing higher time frame order flow, identifying drawn liquidity, and executing trades based on lower time frame confirmations. The speaker emphasizes the importance of understanding the narrative from point A to point B, using tools like smart money reversals and time-based windows for accurate execution. By following this method, traders can successfully navigate complex market dynamics, even when trading against prevailing order flow.

Takeaways

• 😀 The trading strategy involves three main protocols: higher time frame, lower time frame, and execution protocols.
• 😀 In the higher time frame protocol, identifying order flow is the first step, which defines whether the market is bullish or bearish.
• 😀 The second step in the higher time frame protocol is identifying drawn liquidity, where price is likely to move towards.
• 😀 The third step in the higher time frame protocol involves determining the point of interest (Point A), which is where price is expected to move from towards the drawn liquidity.
• 😀 The lower time frame protocol helps confirm if a reversal is likely, using tools like Change in State Delivery (CSD) and Smart Money Trap (SMT).
• 😀 The Change in State Delivery (CSD) indicates a shift in market sentiment, such as from a buy program to a sell program.
• 😀 SMT confirmation, specifically identifying the London SMT, helps validate the reversal by showing divergence between NASDAQ and ES.
• 😀 Timing is essential, with specific macro windows (e.g., 9:45–10:15) used to confirm that price aligns with the anticipated reversal.
• 😀 In the execution protocol, entries are made based on invalidation points, stop-losses are set above previous stages of distribution, and targets are defined based on key liquidity levels.
• 😀 Trade management involves trailing stop-losses as price moves, ensuring protection of profits as the trade progresses towards target levels.
• 😀 Trading against order flow requires advanced knowledge, and should only be attempted after understanding how to identify order flow, liquidity, and points of interest.

Q & A

What is the main purpose of the lecture?

The main purpose of the lecture is to break down a market sample trade on NASDAQ, specifically focusing on shorting against order flow. The speaker explains the step-by-step process, including higher time frame analysis, lower time frame analysis, and execution protocol.

Why is the speaker using the replay function in the video?

The speaker uses the replay function to replay exactly what has occurred in the market, focusing on Thursday's price action, rather than the most recent Friday's data. This allows for a clearer breakdown of the trade setup.

What are the three protocols outlined in the lecture for trading?

The three protocols are the higher time frame protocol, the lower time frame protocol, and the execution protocol. Each protocol serves a different purpose: the higher time frame protocol identifies the narrative (price movement from point A to point B), the lower time frame protocol confirms reversals (smart money reversal), and the execution protocol handles the actual trade entry, management, and exit.

What is the primary focus of the higher time frame protocol?

The primary focus of the higher time frame protocol is to identify the order flow, which helps frame market maker models. This analysis sets up a narrative for price movement, either bullish or bearish, based on the market’s expansion and retracement behavior.

How does the speaker define bullish and bearish order flow?

Bullish order flow is defined by price expanding higher, retracing lower, and continuing this pattern, while bearish order flow involves price expanding lower, retracing higher, and continuing this pattern.

What is the role of drawn liquidity in the higher time frame protocol?

Drawn liquidity refers to the price level where the speaker anticipates the price will move towards. It is identified by observing imbalances or specific price levels like 23,550 in the example, which serve as a target or point B in the trade setup.

What does the speaker mean by 'point A' and 'point B' in the context of trading?

Point A is the point where the price begins its move, identified as a point of interest, and point B is the drawn liquidity level where price is expected to reach. The goal is to trade from point A to point B, following the market narrative.

What are the key steps in the lower time frame protocol?

The lower time frame protocol consists of three steps: CST (change in state delivery), SMT (smart money reversal), and TOI (time meets price). These steps confirm the reversal and prepare the trader for the execution of the trade.

What is a bearish breaker and how does it confirm a change in the market’s direction?

A bearish breaker is formed when the price expands higher, retraces lower, then expands higher again, but ultimately reverses. This creates a shift from a buy program to a sell program, indicating a bearish change in market behavior.

How does the speaker manage trade entries and stop losses?

Entries are made based on the invalidation level for the current delivery program, such as the bearish breaker acting as resistance for a short. Stop losses are placed above the previous stage of distribution for shorts, ensuring they are positioned to protect against false moves.

Why is time alignment with price important in the lower time frame protocol?

Time alignment with price is crucial because certain macro windows (e.g., 9:45 to 10:15) are considered optimal for identifying reversals or expansions. This ensures that the trade setup coincides with the right time for a potential move, increasing the probability of success.

How does the speaker manage the trade after entering it?

After entering the trade, the speaker trails the stop loss as price moves in the expected direction. This is done by observing key imbalances and adjusting the stop to the previous high after each consecutive imbalance is reached. The target is set at the original consolidation level and the drawn liquidity point.

What is the significance of the smart money reversal (SMR) in confirming the trade?

The smart money reversal (SMR) confirms that the market is shifting from a buy program to a sell program, or vice versa. This reversal is essential to validate that a change in market direction is happening and aligns with the overall trade setup.