49:39
I Finally Revealed My Entire Trading Strategy (For Free)
Lewis Kelly
Overview
This video details a comprehensive trading strategy focused on 'smart money concepts.' It begins by establishing the foundational importance of understanding market structure to determine price direction. The strategy then incorporates liquidity concepts to identify potential price targets and areas of interest. Finally, it explains how to use order blocks and fair value gaps for precise entry points, culminating in a step-by-step walkthrough of a live trade execution that integrates all these elements. The presenter emphasizes practical application and the elimination of human error through a custom indicator.
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Chapters
- Market structure is crucial for understanding price direction, with uptrends characterized by higher highs and higher lows, and downtrends by lower highs and lower lows.
- Identifying breaks of structure (BOS) confirms the continuation of a trend, while a change of character (CHoCH) signifies a potential trend reversal.
- External structure refers to significant swing points that define the overall trend, whereas internal structure occurs within price legs and should not be used for primary trend analysis.
- Accurate mapping of swing structure is essential; swing lows are the lowest points before a break of structure, and swing highs are the highest points before a break of structure.
Understanding market structure allows traders to align their positions with the prevailing trend, significantly increasing the probability of successful trades.
An uptrend is confirmed by a sequence of higher lows and higher highs, with each new high breaking the previous one (break of structure). A downtrend is confirmed by lower highs and lower lows, with each new low breaking the previous one.
- Liquidity represents orders waiting to be filled in the market and acts as a magnet, drawing price towards specific areas.
- Key areas of liquidity include session highs and lows (Asia, London, New York) and previous day's/week's highs and lows.
- Session liquidity often involves one session's high or low being taken (swept) before price moves in the opposite direction, a common pattern for intraday traders.
- Previous day's low, when price is bearish, has a high probability of being targeted, serving as a logical profit target for traders.
Identifying liquidity zones helps traders set realistic profit targets and understand where price is likely to be drawn, preventing them from entering trades against strong directional liquidity grabs.
In a bearish market, if the previous day's low has not been reached, it becomes a strong target for price to move towards, especially after a bearish close below it, indicating a high probability of further downside.
- Order blocks (supply or demand zones) are areas where significant orders were potentially placed, identified by the last candle before an aggressive move.
- Fair value gaps (FVGs) are inefficiencies in price, often appearing as a three-candle pattern with a gap between the first and third candle's wicks, indicating a lack of balanced transactions.
- Price tends to rebalance or fill these gaps and respect order blocks when it returns to these levels.
- These concepts are most powerful when combined with market structure and liquidity to form high-probability trading setups.
Order blocks and fair value gaps provide specific price levels for precise entries, allowing traders to enter trades with defined risk and potential for high reward.
A bullish fair value gap occurs when price rapidly moves up, leaving a gap between the high of the first candle and the low of the third candle; price is expected to return to fill this gap.
- The strategy integrates direction (market structure bias), liquidity (targets), and location (order blocks/FVGs) to frame trade ideas.
- Confirmation is sought on a lower timeframe (e.g., 1-minute) for trend reversals within the larger trend, indicating a shift in control from buyers to sellers or vice versa.
- A specific trade example demonstrates selling after London session liquidity (London highs) was taken, targeting Asia session low and previous day's low.
- The trade entry utilized a bearish order block and a fair value gap, with profit targets set at identified liquidity levels, not arbitrary risk-reward ratios.
Combining these elements creates a robust trading plan that moves beyond simple pattern recognition to a systematic approach for identifying high-probability opportunities and managing trades effectively.
In a bearish 15-minute trend, after London session liquidity (highs) was taken, the trader waited for the 1-minute timeframe to show a change of character to bearish before entering a short trade from a bearish order block/supply zone, targeting previous day's low.
Key takeaways
- Market structure dictates the overall direction of price, and trading with the trend significantly increases success rates.
- Liquidity zones act as magnets for price, providing crucial targets for profit-taking and areas to avoid for entries.
- Internal structure should be ignored for trend determination; focus solely on external swing structure.
- A change of character signifies a potential trend reversal, while a break of structure confirms trend continuation.
- Order blocks and fair value gaps are not magic patterns but represent areas of inefficiency and potential order fulfillment, best used in conjunction with other concepts.
- The most effective trading strategies combine direction, liquidity targets, precise entry locations, and lower timeframe confirmation.
- Setting logical profit targets based on liquidity is more effective than using fixed, arbitrary risk-reward ratios.
Key terms
Market StructureUptrendDowntrendHigher HighHigher LowLower HighLower LowBreak of Structure (BOS)Change of Character (CHoCH)External StructureInternal StructureSwing HighSwing LowLiquiditySession LiquidityPrevious Day High/LowOrder BlockSupply ZoneDemand ZoneFair Value Gap (FVG)ImbalanceBalance
Test your understanding
- How does understanding market structure help a trader determine the primary direction for their trades?
- What are the key differences between external and internal market structure, and why is this distinction important?
- Explain how liquidity zones, such as session highs and lows, act as magnets for price.
- What is the significance of a fair value gap, and how does it relate to market inefficiency?
- Describe the process of combining market structure, liquidity, and order blocks/FVGs to form a high-probability trading setup.