THE VAGA METHOD CONTENTS STRUCTURE 01 MARKET Understanding the flow of the market CONCEPTS 02 Key characteristics of price action TRADE SETUPS 03 How we get involved EXCEPTIONS 04 Underlying parameters 01 MARKET STRUCTURE Understanding the flow of the market MAJOR STRUCTURE MAJOR HIGH MAJOR HIGH MAJOR HIGH MAJOR HIGH MAJOR LOW MAJOR LOW MAJOR LOW MAJOR LOW MAJOR STRUCTURE HH Major structure are highs and lows on the current time frame and they determine medium term orderflow HH LH LL HL RDE R LISH BUL B U OW FL LL I SH ER HL MAJ OR O M A D OR JO R O OR RD AJ ER HM FL O W IS AR LH FLO W BE HH LL New major highs/lows are formed every time the market breaks a previous major high/low. LL LL MAJOR ORDERFLOW BULLISH MAJOR ORDERFLOW BEARISH MAJOR ORDERFLOW HH HH HH LH LH HH HL HH LH LL HH LH HH LH HL LL LH LL LH LL HL HL HL LL LL LL HL SWING STRUCTURE Swing structure are highs and lows on the higher time frame and they determine long term orderflow SWING HIGH SWING STRUCTURE DEFINES OUR BIAS Swing points occur whenever there is a major order flow reversal SWING LOW SWING LOW SWING ORDERFLOW POSITIVE MOMENTUM PRINTING HIGHER SWING HIGHS AND SWING LOWS SWING HIGH BOS SWING HIGH BOS BOS BOS SWING LOW BOS SWING LOW SWING LOW BULLISH BIAS SWING ORDERFLOW NEGATIVE MOMENTUM SWING HIGH PRINTING LOWER SWING HIGHS AND SWING LOWS SWING HIGH BOS BOS (BOS means break of structure) SWING LOW BEARISH BIAS MINOR STRUCTURE Minor structure are highs and lows on sub time frame and they determine short term orderflow MAJOR HIGH MAJOR HIGH MINOR HIGH MINOR LOW MAJOR LOW MAJOR LOW MINOR STRUCTURE APPEARS INTERNAL OF MAJOR STRUCTURE RANGES MINOR STRUCTURE MAJOR HIGH MAJOR HIGH MINOR HIGH MINOR LOW MAJOR LOW MAJOR LOW MINOR SWING STRUCTURE MINOR SWING Minor swing structure occurs whenever there is a reversal of minor structure MINOR SWING STRUCTURE MAJOR MINOR SWING MINOR MINOR MAJOR ALL TOGETHER SWING HIGH SWING HIGH = SWH SWING LOW = SWL MINOR SWING HIGH = mSWH MINOR SWING LOW = mSWL MAJOR HIGH MAJOR HIGH MINOR HIGH MAJOR HIGH MAJOR HIGH MINOR LOW MAJOR LOW MINOR SWING MAJOR LOW MAJOR LOW SWING LOW SWING LOW 02 CONCEPTS Key characteristics of price action 02.1 IMBALANCE IMBALANCE Imbalances appear as “gaps” in price where the wicks don’t cover the range of the body. IMBALANCE Efficient markets often pull back into these areas to rebalance the market. EURUSD USDJPY USDCHF are amongst the most efficient pairs in the foreign exchange market MITIGATED IMBALANCE FILLED MITIGATED MITIGATED Imbalance becomes mitigated when price comes back into it and fills the entire range of the imbalance FILLED BACK UNMITIGATED IMBALANCE Unmitigated imbalance is imbalance that has yet to be filled by the market UNMITIGATED UNMITIGATED UNMITIGATED BACK 02.2 ORDER BLOCKS ORDER BLOCKS Whenever the market makes an impulsive move, a significant amount of orders are left at the source of the move which often causes the market to draw back to that level before continuing the current order flow. UNFULFILLED ORDERS ORDERBLOCKS ORDERBLOCKS DRAWN AT THE LAST COUNTER-TREND CANDLE BEFORE THE UNMITIGATED IMBALANCE OF AN IMPULSIVE MOVE ORDERBLOCK IMBALANCE ORDER BLOCKS UNFULFILLED ORDERS BULLISH STANDARD ORDER BLOCKS Standard orderblocks occur at major highs and lows MAJOR HIGH MAJOR HIGH MINOR HIGH MINOR HIGH IMBALANCE STANDARD IMBALANCE STANDARD MODERATE VOLUME WORKS BETTER ON HIGHER TIMEFRAMES BEARISH STANDARD ORDER BLOCKS MODERATE VOLUME WORKS BETTER ON HIGHER TIMEFRAMES STANDARD IMBALANCE STANDARD IMBALANCE MINOR LOW MINOR LOW MAJOR LOW MAJOR LOW STANDARD ORDER BLOCKS STANDARD STANDARD STANDARD BULLISH EXTREME ORDER BLOCKS Extreme orderblocks occur at swing highs and lows. These type of orderblocks are the only kind we trade from. SWH IMBALANCE HIGHER VOLUME GOOD ON ALL TIMEFRAMES ESPECIALLY LOWER TIMEFRAMES EXTREME SWL BEARISH EXTREME ORDER BLOCKS SWH EXTREME IMBALANCE SWL HIGHER VOLUME GOOD ON ALL TIMEFRAMES ESPECIALLY LOWER TIMEFRAMES EXTREME ORDER BLOCKS EXTREME 02.3 LIQUIDITY WHAT IS LIQUIDITY? Liquidity is the ability for the market to transact orders without changing price Banks and institutions have great amounts of capital. They can't just transact all of their orders at one level as it would be way too much volume for the market. Banks need liquidity so they can get as many orders fulfilled as possible to create larger positions without influencing the market too much Liquidity can be seen on the chart as certain price structures that entice retail traders such as us to place orders around those levels Since the banks are out to fulfill as much orders as possible, these price structures often attract the market and can be used to help us create our directional bias The following slides show what the different types of liquidity look like and how to draw them on the charts EQUAL LIQUIDITY SUPPLY BUY-SIDE LIQUIDITY SELL-SIDE LIQUIDITY Price will often sweep through liquidity into a supply/demand zone to continue the order flow or use liquidity to reverse the order flow entirely. EQUAL LIQUIDITY SELL-SIDE LIQUIDITY BACK EQUAL LIQUIDITY BUY-SIDE LIQUIDITY BACK DIAGONAL LIQUIDITY SUPPLY BUY -SID E -SID LIQ L SEL ITY UID Q E LI UID ITY DEMAND THE MARKET OFTEN TARGETS LIQUIDITY SO IT CAN BE USED AS A CONFLUENCE FOR OUR SETUPS AND OUR DIRECTIONAL BIAS BACK DIAGONAL LIQUIDITY Y UIDIT Q I L E SID SELL- BACK DIAGONAL LIQUIDITY BUY-SIDE LIQUIDITY BACK DYNAMIC LIQUIDITY BU YSID UI DI -S I D E LI Q UI D IT Y TY LL IQ SE EL BACK DYNAMIC LIQUIDITY BU Y-S IDE LIQ UID ITY DYNAMIC LIQUIDITY S SELL- Y UIDIT Q I L IDE 03 TRADE SETUPS How we get involved 03.1 V-SWING V-SWING LONG (MAJOR SWING RETEST) STEP 1: IDENTIFY SWING STRUCTURE STEP 2: IDENTIFY MARKET MOMENTUM V-SWINGS ALIGN WITH SWING ORDER FLOW IN ORDER TO LONG, THE MARKET MUST HAVE BULLISH MOMENTUM SWH SWH SWL SWL RECAP V-SWING LONG (MAJOR SWING RETEST) STEP 3: IDENTIFY ORDERBLOCK BEFORE UNMITIGATED IMBALANCE SWH SWH SWH IMBALANCE SWL SWL RECAP V-SWING LONG CASE STUDY IMBALANCE SWING LOW SWING LOW RECAP V-SWING SHORT (MAJOR SWING RETEST) SWH SWH V-SWINGS ALWAYS ALIGN WITH SWING ORDER FLOW IN ORDER TO SHORT, THE MARKET MUST HAVE BEARISH MOMENTUM SWL SWL STEP 1: IDENTIFY SWING STRUCTURE STEP 2: IDENTIFY MARKET MOMENTUM RECAP V-SWING SHORT (MAJOR SWING RETEST) SWH SWH IMBALANCE SWL SWL SWL STEP 3: IDENTIFY ORDERBLOCK BEFORE UNMITIGATED IMBALANCE RECAP V-SWING SHORT CASE STUDY RECAP 03.2 X-SWING X-SWING LONG (MINOR SWING REVERSAL) SWH BU YSI DE MINOR SWING MUST BE DISCOUNTED SWL LI QU ● ● ● COUNTER MOMENTUM WEAKENING ORDER FLOW MINOR SWING BREAK ○ ID IT Y MINOR SWING MUST BE FORMED IN THE DISCOUNTED HALF OF THE RANGE mSWH WEAKENING ORDER FLOW SWL RECAP X-SWING LONG (MINOR SWING REVERSAL) SUPPLY PARTIAL IMBALANCE RECAP X-SWING LONG CASE STUDY RECAP X-SWING SHORT (MINOR SWING REVERSAL) MINOR SWING MUST BE PREMIUM WEAKENING ORDER FLOW SWH mSWL SWH E ID S LEL S LI TY DI I QU ● ● ● COUNTER MOMENTUM WEAKENING ORDER FLOW MINOR SWING BREAK ○ MINOR SWING MUST BE FORMED IN THE PREMIUM HALF OF THE RANGE SWL RECAP X-SWING SHORT (MINOR SWING REVERSAL) IMBALANCE PARTIAL DEMAND RECAP X-SWING SHORT CASE STUDY DEMAND RECAP 03.3 Z-SWING Z-SWING LONG (DISCOUNT CONFIRMATION) ● ● PRO MOMENTUM MINOR/MAJOR SWING CONFIRMATION ○ MINOR SWING FORMED IN THE DISCOUNTED HALF OF THE RANGE SWH mSWL *NOTE TO SELF* SWL Minor swing in first half = Z swing Minor swing in second half = X swing RECAP Z-SWING LONG (DISCOUNT CONFIRMATION) SWH SWH Z-SWING mSWL IMBALANCE V-SWING Z-SWING SWL RECAP Z-SWING LONG CASE STUDY SWING LOW V-SWING Z-SWING RECAP Z-SWING SHORT (DISCOUNT CONFIRMATION) SWH mSWL SWL ● ● PRO MOMENTUM MINOR/MAJOR SWING CONFIRMATION ○ MINOR SWING FORMED IN THE PREMIUM HALF OF THE RANGE RECAP Z-SWING SHORT (DISCOUNT CONFIRMATION) SWH V-SWING IMBALANCE Z-SWING Z-SWING SWL SWL RECAP Z-SWING SHORT CASE STUDY RECAP 03.4 RECAP LONG TRADE SETUPS V X Z SHORT TRADE SETUPS V X Z 04 EXCEPTIONS Underlying parameters INTERNAL SWING TRADING SWH When the market forms large swings, we can look to get involved internally through the minor swing points After 3+ days of trading inside of a major swing range, we completely disregard the major swing orderblock and instead trade internal swing points as if they were major INTERNAL SWING = iSWL/iSWH SWL INTERNAL SWING TRADING SWH iSWH iSWH iSWL iSWL iSWL SWL VOLUME INVALID ORDERBLOCK Volume is a key confluence that can either validate or invalidate a setup. Avoid trading orderblocks with low volume as they tend to get swept. LOW VOL UME Instead, trade these orderblocks with confirmation entries (Z - SWING) VOLUME EX. 2 VALID ORDERBLOCK Orderblocks that cause spikes of high volume have an increased probability of rejecting the market These orderblocks can be traded aggressively HIGH VOLU ME SESSIONS SPREAD HOURS: 9PM - 11PM GMT ASIA SESSION: 11PM - 8AM GMT SWH ASIA SESSION S UR D HO EA SPR iSWH VALID INVALID The foreign exchange market consists of 3 key daily sessions: First Asia, then London, and last comes New York The Asia session typically has low volume and its main purpose is to build liquidity The London and New York sessions typically have high volume and they usually sweep through liquidity that has been built by the Asia session. The large and most profitable market moves happen during these times iSWL iSWL Since the Asia session usually has low volume and often gets swept by the subsequent sessions, we wait until London open to place orders which is directly after Asia close (8AM GMT) Also avoid entering trades during spread hours as the banks are inactive during this time This filters out low quality setups and gets us involved higher volume trades SESSIONS SPREAD HOURS: 9PM - 11PM GMT ASIA SESSION: 11PM - 8AM GMT SWH ASIA SESSION RS OU DH A RE SP iSWH mSWL mSWL HISTORIC ORDERBLOCKS An extreme orderblock becomes historical after going 8 hours or more without being mitigated Normally limits should be set at the start of unmitigated imbalance, but on historical orderblocks, they should be set at the beginning of all imbalance unmitigated and mitigated. For mitigated imbalance to be valid, it must be mitigated only one time. If it has been mitigated more than once, we disregard it even after 8 hours LOCALIZED LIQUIDITY DIAGONAL LQ Localized liquidity is liquidity resting on the orderblock that has been built in under the last 8 hours of price action in the form of equal or diagonal highs/lows. When there is localized liquidity on an orderblock, shift your entry directly behind the orderblock to reduce your exposure to the market and avoid getting swept To avoid discretion, we do not regard dynamic liquidity as localized liquidity LOCALIZED LIQUIDITY EX. 2 EQUAL LQ HISTORICAL LIQUIDITY Historical liquidity is liquidity in the form of equal or diagonal highs/lows resting on the orderblock that has been built up by the last 8 hours or more of price action O AG DI L NA LQ Avoid trading zones with historical liquidity. Instead, wait for a reversal or a confirmation entry as seen above 2 CANDLE BOS VALID BOS INVALID BOS To ensure that a high or low has been fully broken, we use the 2 candle bos rule, meaning there must be 2 candles that close past a previous high or a low for it to be considered broken. 2 CONSECUTIVE CLOSED CANDLES PAST THE PREVIOUS HIGH CANDLE NEVER CLOSED PAST THE PREVIOUS HIGH TWICE IN A ROW 2 CANDLE BOS VALID BOS INVALID BOS CANDLE NEVER CLOSED PAST THE PREVIOUS HIGH TWICE IN A ROW MARKET AVOIDANCE DYN AM IC B UY-S IDE LIQU IDIT Y BU ILD U P SWH DI AG ON AL BU YSID EL IQ U ID ITY BU ILD UP SWL We avoid getting involved at certain swing points when it produces unfavorable price action. Unfavorable price action to us would be large build ups of liquidity that oppose our directional bias. SWL BONUS 05 RISK MANAGEMENT Protecting our capital RISK MANAGEMENT Baseline Risk Factor 1 Daily drawdown limit Limit daily loss to 2% / 2x loss Risk no more than 1% of your capital per trade If in drawdown, decrease your baseline risk factor accordingly, ½% or ¼% 2 3 Weekly drawdown limit Limit weekly loss to 5% / 5x loss News events Avoid trading FOMC, NFP, CPI, and interest rate news events 4
