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ELEMENTS TO A TRADE SETUP
When we are talking of elements, we simply mean something that can be delivered to us as developing
traders after we have submitted to time.
It is also important to put in the work by consistently practicing the knowledge that you have received.
The market is full of opportunities. Learn. Practice and stay Patient.
When we are talking about elements to a trade setup, we basically look at 2 primary Characteristics
A. Content or Framework surrounding the Idea
This is what makes the idea favorable for a trade. It the thing or thought that builds the idea to
participate in a trade. Such steps are;
1. Expansion
2. Retracements
3. Reversal
4. Consolidation
The market revolves around the 4 steps listed above.
B. Reference points in institutional Order flow
We use the above criteria for context and framework to specific reference points in institutional
order flow. The reference points include;
1. Order blocks
2. Fair value gaps & Liquidity voids
3. Liquidity pools and stop runs
4. Equilibrium
Understanding the two characteristics together will give us a greater understanding of market efficiency
paradigm.
1. How the smart money influence price
2. How the smart money influence the general public or speculative uniformed money.
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This helps you to look at the market place with an expectation of knowing what tool to apply based on
what the market is providing you right now.
It only takes a second or two to look at the market to know what characteristic we are trading in in order
to build a context or framework on how you are going to approach the market.
THE INTERBANK PRICE DELIVERY ALGORITHM
This is an algo designed by the market to deliver price to us electronically because of the digital
evolution of the market.
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All markets start from a consolidation and move to an expansion. This expansion is an impulse
swing.
After the expansion, either the market goes to consolidation again or a retracement. When the
retracement happens, the market goes to another level of expansion.
On the side, after the expansion, it can go into a reversal pattern. After the reversal, we will see
another retracement or back to a consolidation then an expansion.
These 4 conditions they interchange throughout the ups and downs in the flows of the market
place. You will only get one of these 4 conditions.
To help you better, you need to know where the market is right now, where it is likely to go and
where it came from.
The important thing to learn is that the consolidation begins everything. All impulse move in the
market have to begin with a consolidation because that is where the markets are building orders.
We always wait for the expansion from a consolidation, because that is when we get a clue as to
what the market is most likely going to be doing. From here, we wait for a retracement or another
consolidation or reversal.
The first expansion gives us all the insights that we need to make a decision
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EXPANSION
Definition
Expansion is when price moves quickly from a level of equilibrium
Importance
When price leaves a level quickly, this indicates a willingness on the part of the market makers to reveal
their intended price model.
We do not chase price. We wait for Price to return back to Order Block.
What do we look for in price?
The order block the market makers leave at or near the equilibrium.
Expansion
Order Block
The figure below shows a live example from a price chart.
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Price was in a consolidation for a long
time. After price expanded to the
downside, it returned back to an order
block
before
having
another
expansion. At the expansion, that is
where we would be selling. Study
more during your own time.
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RETRACEMENT
Definition
Is Retracement is when price moves back to inside the recently created price range. this price range is
also called a dealing range.
Importance
When price returns inside a recent price range, this indicates a willingness on the part of the market
makers to re-price to levels not efficiently traded to fair value.
What do we look for in price?
The fair value gaps and liquidity voids.
Retracement
Liquidity
Gaps &
Voids
Price had expanded to the downside.
We had to wait for a retracement for
another entry in order to ride the next
expansion to the downside.
Below is an example in a live Market.
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REVERSAL
Definition
Reversal is when price moves the opposite direction that current direction as taken it.
Importance
When price reverses direction, it indicates the market makers have ran a level of stops and a significant
move should unfold in the new direction.
What do we look for in price?
The liquidity pools just above and old price high and just below an old price low.
Reversal
Liquidity
Pools
Below is a live example from a price chart.
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CONSOLIDATION
Definition
Consolidation is when price moves inside a clear trading range and shows no willingness to move
significantly higher or lower
Importance
When price consolidates it indicates the market makers are allowing orders to build on both sides of the
market. Expect a new expansion near term.
What do we look for in price?
The impulse swing in price away from the equilibrium price level that is found exactly in the halfway
point of the consolidation range.
Consolidation
Equilibrium
Below is a live example from a price chart
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By having an understanding of the above characteristics and elements of trading a setup enables you to
build a frame work to study price action in practice before you can begin to trade in the live markets.
This will help you in consistent setup discovery through repetition and study.
HOMEWORK
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Identify what works for you
Find our four major pairs which you can study based on the characteristics we have just learnt.
Repeat until it becomes part of you.
See you in the next Session.
Sowedi Issa
Team leader
Trading with Issa
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