SMC Valid Pullback & Inducement: The ONLY Rule You Need to Know 📈 – Transcript

00:11Welcome to 4x Minions. Today's topic is pullbacks and valid endorsements. In the last lecture, we discussed trend mapping, liquidity, and endorsements. But here we will study the rules for valid endorsements.

00:28To confirm this, it's crucial to have knowledge of pullbacks. Basically, a pullback occurs when an impulse is generated in a market, and the market moves from one point to another, taking small breaks in between. This is also called a 4x correction, meaning the price is correcting itself.

00:47Right? But this pullback is temporary. It happens over time. As you've seen, whenever the market is trending, it corrects for a short period and then resumes its original direction. So, this phenomenon is called a pullback.

01:02In a bullish market, a pullback happens like this. For example, the price started swinging from here. First, it created an impulse, then it corrected and continued in the direction of its impulse. So, we call this a pullback. Similarly, this is also a pullback. This is also a pullback.

01:18And in a bearish market, a pullback happens like this. The market started to decline, corrected itself against the trend, and moved back in the original direction. Now, when is a pullback valid? When is it not? Now, the question arises.

01:34When we study the validity of a pullback, we will know when an endorsement is valid. Right? So, when is a pullback valid? So, only one factor plays a role. Whether a pullback is valid or not is what we call liquidity.

01:51What is the difference between liquidity and a liquidity sweep? Basically, liquidity builds in the market when orders are piling up, and a liquidity sweep is about which sides orders the market takes first. Okay, we'll go further into this in the next slide, and this will become clear to you.

02:06Now, what is a liquidity sweep? Basically, the smart money in the forex market is what we call institutional traders and banks. They account for the major volume. Retail traders account for less than 1% to 2% of their volume.

02:23So, obviously, when a bank or institutional investor wants to buy or sell large orders in the forex market, they need more or less liquidity accordingly. So, obviously, if their number of orders is very high, they also need a lot of liquidity. Wherever a liquidity sweep occurs, it will be very quick and efficient.

02:40What does quick and efficient mean? Wherever the market sweeps, the movement will be so fast that a retail trader cannot easily catch it unless they have the knowledge. Secondarily efficient because smart money will leave its footprint wherever it sweeps liquidity.

02:58A liquidity sweep will give us an idea of the market's performance. An example is the market forming a range. While the market is ranging, it has established its highs and lows. What do many breakout traders do when they observe this range?

03:16They will place buy stops on the upper side and sell stocks on the lower side. Now, as I mentioned, for a liquidity sweep, banks need large orders to execute their orders. So, on which side are the large orders placed? Obviously, on the sell side. If banks want to execute their orders, they will target this large liquidity pool.

03:35Smart money will move in a similar way. We call this a low sweep or a sell side sweep, meaning the market has swept the low, swept the sell side, and then moved back in its original direction. And this one on the right side is what we call a high sweep or buy side liquidity sweep.

03:51So now you have an idea of what a liquidity sweep is and why the market performs a liquidity sweep. To understand the main concept of liquidity, watch the last lecture. In it, I explained what liquidity basically is, pending orders. Okay, and if you watch the last lecture, the multiple things will become clear to you, God willing.

04:06Now let's look at this in the form of a candlestick diagram. The way the market moved, this point was the market open. The market opened from here and closed at this point. Now, let's draw this as the body of a candlestick. From open to close, the body will look something like this.

04:24Okay, but look here, the market made a high and this low. Now, when we project this high onto the candlestick, the wick of the high will look something like this because the market went up as much as it went down at all three points. So, as the market rises and falls, the overall effect is that the wick shows instead of the body, which is the candle.

04:44Similarly, when we project the low, the candle on the low side will form like this. Now, let's talk about when the market ranges like this. As mentioned last, pending orders will pile up, liquidity will pile up, and what institutions need is liquidity. Now, the number of orders has piled up.

05:00Now, when we project all these dots onto our candlestick, the candlestick will form something like this. This was its open, this was its body, this was its close. I'm talking about a bearish candle, this is its open, this is its high, and this is its low, and its buy-stop is 100 at the top and 10,000 on the sell side.

05:18This is just a forecast. This is imaginary, just to explain that the number of orders on the sell side is higher. When the market sees such a situation, I've shown you this same data in candlestick form, and when the market sees this situation, what will it do?

05:34It will move something like this. Because for a liquidity sweep, banks will always target large liquidity pools, and that was on the sell side. Okay, so what did the market do? It sold and swept the side and went back in the other direction. Now, when we project this into candlestick form, what will the market become as it fell from the top?

05:54The weak of this bullish candle, and then what will it become as it rose from this point? The body. And after making a high here, where it came back and closed, this will be its high. Okay?

06:10So, hopefully, now you understand that the liquidity sweep we're seeing in this schematic diagram looks something like this in candlestick form. When the market trades the low of a bearish candle and goes back, it means it has swept its liquidity to this side.

06:27Okay? Now, how do we interpret this? Just for understanding, we place a cross on the side where the market has swept to indicate that the market has worked out its work. So, what is this? Basically, a sell side liquidity sweep. Now, hopefully, you understand the concept of a liquidity sweep.

06:44This is very important. Knowledge of liquidity sweeps is crucial for the validity of anything. Whatever we study next, whether it's related to our investments or order blocks, right? Or Fibonacci, corrections, market setups, entry edge, and everything else, it's crucial for you to have knowledge of liquidity sweeps.

07:05Now, let's talk about pullbacks, because I told you that to confirm a pullback is valid, you need to know one thing, the liquidity sweep. Now, let's see what rules determine whether a pullback is valid. So, let's study its definition.

07:21I'd say it's very easy to see. But the trick to understanding this is that whenever the market trades above the low or high of its previous candle, we call it a valid pullback. This means that a pullback requires breaking the low or high.

07:41What happens in a bullish market? It's a bullish market because the market moves from low to high, then down, and then up again. When the market moves from high to low, a bearish candle will form on the lower side, meaning the lowest candle will form on the lower side. That's why it's written that in a bullish market, the low of the highest candle must be broken.

07:59Right? And what happens in a bearish market? The high of the lowest candle must be broken. Right now, these definitions seem tricky to you. Perhaps you don't understand enough. But as soon as I draw this in candlestick form, see what happens in a bullish market. It's necessary to break the low of our lowest candle.

08:17So, that would be our valid pullback. Similarly, in a bearish market, it's necessary to break the high of the highest candle. Without that, our pullback wouldn't be valid. Now, this is in the form of a weak candle. Okay?

08:32That's why Vakas trades it. But what if the candle's body closes higher? Okay? Even then, our pullback would be valid. Okay? An example of this is something like this. Here, the body closed lower. It also swept and closed. So, it's still a valid pullback.