A Simple 3-Step Trading Model (Full Breakdown) – Transcript

00:06How's it going everyone and welcome back to another video. This week we are joined by AM Trades who's going to be talking about daily bias and 7-hour daily profile confirmation. Once he's done with that, I will join in to talk about fractal model entries that align with that daily bias and with that daily profile. I hope you guys enjoy, so let's get into the video.

00:26>> Getting right into this, the first part of any trade is framing the idea off the higher time frame so that you're not caught chasing price intraday small reactions back and forth. We want to keep our logic rooted in the higher time frame and supported by this framework that we're going to be following. And this is not something that has to be over complicated at all. We're only going to be using highs and lows off the daily chart, something called relevant swings, which are extremes of the

00:52current range in price, so that when price reacts there, we know without a doubt that reaction holds a weight for what should happen next. And that's going to be our bias backing every single trade idea that we have. The first part of understanding relevant swings and honestly the most important is knowing what a failure swing is. That is the entire premise of what we're doing here and you'll see why. What we're looking at in this chart would be a daily time frame and this is just a general example, this could form in multiple different ways, but the idea

01:20that we're seeing here is that price is trading lower. It forms an initial low and then trades away from that point inside of this daily candle. That could be a potential reversal because we've run on a low, manipulated, closed back up into the range, but then we see the following day here make a deep run back down into that initial point, that low, and then without taking it out, it makes that deep run and then starts to trade

01:47back away from it. This deep run, whether it was one day after or multiple days after, into this initial point of reversal without taking it out is a failure swing. What we see this as is an unestablished point of reversal. So, when the market reverses, true reversals are going to turn and then we will not see deeper retracements back on that initial area. We will reverse, then expand. Shallow retracements along that

02:13way. Deep runs back into that initial area, creating that failure swing, is an area that we will not trade away from. That is the one rule with failure swings. If we form failure swing lows, like in this example, and we start to trade higher, we will not trade that move away because we view this as an unestablished point of reversal. It would be the same with highs. If we see failure swing highs and prices trading down off of it, we are not going to trade the downside. We are filtering that out completely. So, that's a rule

02:42around failure swings, but this also plays into how we're identifying relevant swings on the daily chart. This low, the initial one that was formed, the deep run which follows, creating that failure swing, is how we identify which low is a relevant low. This is where we note out that initial low before that deep run was made back into it as the extreme. That is your relevant low inside of this daily chart. And the only way we're going to trade this

03:08higher is if the following day or days returns back down into that relevant low, engages it to manipulate, and then expands back into the range. We know a manipulation at this low, without any doubt, holds weight in the market because it is the current extreme of this range in price. Unlike if price were to come back down, only take out this failure swing low, again fail to take out the extreme, and then trade higher, that is an unestablished

03:36reversal. It didn't trade into the extreme of price where the reaction has weight. This is that scenario where price would come back down into the relevant low where we had an unestablished reversal, but at the point where it manipulates it, closes back up into the range, because that occurred at a relevant low, this reaction matters.

03:56It's going to lead us to assume this is the true reversal and we can trade the continuation to the upside. This is the final layer of understanding relevant swings and just being able to identify them because now you know where to look for failure swings on the daily time frame and we're not going to trade away from them. So for example, here we have a deep run into this initial high which is the extreme of that current range.

04:18Off the low, we have a deep run into this initial low and the next piece here is knowing separation between one potential relevant swing to the next. This example here is showing valid separation where we've engaged this extreme low, that relevant swing, and then traded higher off of it. The reason why this is valid is because the low of this manipulation did not create another

04:44failure swing to a daily low to the left of it. That is making it valid separation and something that we can trade to the upside. Versus, let's take this similar piece of price action and imagine that we have these same lows to the left but with less separation between them. In the case that this daily candle comes down to engage this low that seems to be an extreme, that low of the manipulation is just making a failure swing to these daily lows to the

05:12left because there is a deep run because the separation between them is not enough. And if there's failure swings off the lows, although it looks like a manipulation here, leaving failure swings off the lows is not something we could trade higher leaving this to be an invalid manipulation and ultimately this would become your relevant low. Now let's take that very simple logic of understanding what a failure swing is leading us to focus on the relevant highs and lows in the market alongside

05:38our idea of valid separation. This here is a daily chart from NQ. So we're just going to walk through this and how you would actually apply it. Starting in this area of price, we opened up a new week here. This is where we'll start. This is a Monday daily candle and we look to the left and we have failure swings off the highs because we had a deep run into this initial daily high.

05:57So, this here is a relevant high, but we opened up the week gaps down into this low, which is an extreme of the current market because it is not a failure swing to anything else to the left. So, this is a relevant low. Now, if we judge the reaction that occurs here, this is something that we'll get into. We made a small wick to then develop and show a manipulation intraday to expand higher into our opposing target being failure

06:24swings. This is where we want the market to draw into. Then, on the close of that day, we get an opposing reaction. The most recent reaction at this relevant high matters because this is an extreme of the market. We ran into it and closed back into the range to create this wick.

06:40That means that this is a valid manipulation and we could look to trade away from that. The next day remains very neutral and is creating this new range in price. When we think about this day, both sides of this daily candle have valid separation to this daily high and this low to this daily low. So, a reaction off either side, this is acting as a relevant swing. So, when this following day trades up into this high

07:07as a manipulation closing back down into the range, we see that as valid because this high is not a failure swing to this high here. So, we can use this reaction to assume price should trade lower. Price ranges, creates a new relevant high, manipulates in this previous day, and then the following day, we can look for price to respect that reversal and expand to the downside. That's the reaction that we're having and our bias inside of this day here. We can view

07:34this and say that we're in the continuation. We have an opposing relevant low as a target and price again continues from that previous day, breaks down into this open area. Monday opens up here and remains pretty neutral. It doesn't have a reaction off of this low, which was previously a relevant low, that's previous week low, but it didn't have a clear manipulation back up into the range. So, we can't trade this to the upside internally on this next day.

08:01I can also understand that there's a small wick off this low. So, for price to go into this next day, we would expect it to run out this low, and that is your relevant swing. Intraday, we have a small opposing run framing it back up into the range, and we expand higher in the other direction.

08:19Now, once price has this valid reversal, this is a day that could be traded to the upside. We could also look for the following day to be another continuation day where we see that fall through higher. Now, inside of this day, it fails to continue and instead makes a deep opposing run into this daily low, and because there's a lot of separation from this low to this previous daily low, this is a relevant swing. And the reaction that occurs there holds weight, and it

08:46matters. And we look off the highs at that same time, we're opening up this next day here, failure swings at the high, manipulation at the low, we are going to have a bias to trade up into the failure swings because this is an unestablished reversal, and that becomes your target. Now, this day also forms that large wick. We'll get into why we wouldn't be trading that day, but we see off the lows it appears like there are failure swings, and that's a very fair

09:10assumption. This specific scenario, ES has a lower low to this same low where NQ is making a higher low. So, these are failure swings that appear like it on one pair, but on the other pair is a divergence, so there would be a higher low on NQ, a lower low on ES, and we can view this as a bullish scenario because we have a manipulation on ES of this relevant low because there is separation

09:37to this next daily low and we return back up into the range and we have this framework where we are looking for a continuation away from these lows into our opposing relevant high as an initial target. We see a valid manipulation in the previous day because we have that divergence with ES. That's a tip for you. Anytime you see potential failure swings on one pair, your first instinct is to go to that correlated pair and see if you find a divergence in that area

10:03because that divergence means it's now something that we couldn't initially trade away from thinking it's failure swings, but a divergence we can trade away from. So this here frames the upside bias as a continuation on this following day. As we hold the continuation, we can again trade that day in the same direction and then Friday lacks a follow through in either direction here. Now we go into this new week and Monday gaps down from the

10:30previous week close. What does it do there? Do we have any engagement of a relevant low? Well, this is a daily low that has separation to this next daily low. So this here is a relevant swing.

10:43In intraday, the development was showing a small development of this and that is a valid manipulation to trade up into the opposing relevant high. Now on the following days, we've already had a continuation day, a valid reversal.

10:58We are looking at this as a continuation. We failed to manipulate this high, so we can expect price will continue through upside bias continuation and upside bias continuation. You can see how a very simple logic like this on the daily chart is really all you need to gauge a bias. We're filtering out a lot of the noise by focusing on the extremes of the current range by just ignoring failure swings and saying if there is a failure swing in the market, that is a false

11:25reversal and we will not be trading away from that area. We're looking for price to hit the extremes of the market, these ones that we've noted out here in this sequence of price, and the reactions that happen there, because they are extremes and because of that valid separation that we're talking about, the reaction that happens there actually matters and we're going to trade the follow-through of that. With what you understand now for relevant swings, there's only two types of daily candles that you should be trading if you want

11:52to make this as simple as possible for you. A small wick reversal or a daily continuation. The only two that we're looking for. We can anticipate the potential for a small wick reversal to take place when we open a daily candle near a relevant swing. So, this example, we have a relevant low. This day opened near that point, so we only need to make a shallow run to trade into that relevant swing and then close back into the range through the development of