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How Smart Money Trades Dealing Ranges (Simplified) — Transcript

by Ali Khan · 2,964 words · 429 segments · language en · Watch on YouTube

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0:00The market moves in four different ways.
0:03Consolidation, expansion, retracement,
0:06and reversal. Now, we can identify these
0:09different types of market profile
0:11through three different types of dealing
0:14ranges. In this video, I'm going to
0:16break down the three different types
0:18that I use in dealing range theory or
0:21DRT for short. So, let's jump into what
0:24a type one dealing range is. Now
0:27firstly, I've discussed each of these
0:29types of dealing range a lot more
0:31extensively in the DRT series which you
0:33can find for free right here on this
0:35YouTube channel. Well, this is going to
0:36be more of a foundation lesson and what
0:39each type of dealing range looks like
0:40visually. So firstly, type one as we can
0:43see here this is going to be an
0:45expansion or a retracement type dealing
0:47range and generally this is going to be
0:49a continuation profile. Now this will be
0:52your classic higher high lower low type
0:55trend continuation. So in this example,
0:57say we're going lower, we retrace
1:00higher, we drop lower again, retrace
1:02higher, and drop lower each time making
1:05lower lows and lower highs. It's the
1:08easiest type of dealing range, which is
1:10why I've labeled it a type one dealing
1:12range. The type two dealing range. Now,
1:15this is going to be a reversal profile.
1:18Ideally, we want to anticipate type 2
1:21dealing ranges forming and we should
1:23have already established the higher time
1:25frame draw on liquidity and what the
1:28underlying market narrative currently
1:30is. But as a rule of thumb, you're
1:32looking for equal highs or relative
1:35equal highs above the market and equal
1:37lows or relative equal lows below the
1:40market. In this example, I'm going to
1:42use a bullish type two dealing range
1:44where we have relative equal highs that
1:48reside above the market. We see the
1:51market drop lower and then we have a
1:54sharp reversal to the upside and then a
1:56market retraces higher back to the equal
2:00highs or relative equal highs residing
2:02above the market. For those of you
2:04familiar with algorithmic price action
2:06concepts, you will see this as a market
2:08maker buy model. I'm going to do a whole
2:10lot of teachings on the market maker
2:12models on this very YouTube channel and
2:14how we can combine this with dealing
2:16range theory. But for now, I'm giving
2:18you the basics and the foundations in
2:21this video. Now, the final type of
2:23dealing range is our type three dealing
2:25range. This type of dealing range is our
2:29consolidation profile where the market
2:31will stay inside of a tight range.
2:34Notoriously, they are harder to trade.
2:36Although I do have students who prefer
2:38type 3 dealing ranges. Personally,
2:39they're not for me. But understanding
2:41where they form, how they form, and
2:43being able to identify a type three
2:45dealing range is extremely important to
2:48understand things like directional bias
2:50and draw on liquidity. Now, obviously,
2:53these are very crude diagrams. I have
2:56here actual price charts which depict
3:00each of the different type of dealing
3:02ranges. As you can see, a type one
3:04dealing range here where we have lower
3:06lows and lower highs in a downward
3:09trend. The type two dealing range here,
3:12we have the relative equal lows resting
3:14above the market. Price turns around
3:17over here and then reprices higher back
3:20for the buy side liquidity above those
3:22relative equal highs. Did I say relative
3:24equal lows? I meant relative equal
3:27highs. And then the final type of
3:29dealing range, the type three. You can
3:31clearly see here that price is being
3:33held inside of a consolidation market.
3:36Now, let me get a little bit deeper into
3:38this and help you understand where each
3:41of these different types of dealing
3:43ranges sit inside of a buy or sell
3:45program. Essentially, that's how the
3:48market moves. Buy and sell programs from
3:51a higher time frame down to a lower time
3:53frame. But everything starts with
3:57consolidation or a type three dealing
4:00range. And this is very important to
4:02understand. The main reason for this is
4:04because a type three dealing range is
4:06designed for one specific thing is to
4:10engineer buy side liquidity above the
4:13consolidation and sellside liquidity
4:17below the consolidation. I have a whole
4:19separate video on type three dealing
4:21ranges right here on this YouTube
4:23channel where I go into more detail on
4:25how we can trade them. But in this case,
4:27what we must understand that the market
4:30needs liquidity and therefore every buy
4:32and sell program is going to start with
4:35a type three consolidation dealing range
4:37in order to engineer this liquidity in
4:40the market. Breakout traders are going
4:42to place stops above the market when
4:45price breaks to the upside and stops in
4:47the form of obviously sell stops below
4:49the market when price breaks to the
4:52downside. Now generally what will happen
4:54is we will see the market manipulate
4:57usually higher and then go lower first
5:00or it will manipulate lower clearing
5:04sell stops run higher clearing buy stops
5:08and then continue the move down. In some
5:11instances, it will stay inside of a
5:13range where we have a defined high and a
5:16defined low and it will consolidate
5:19inside of the range moving from extreme
5:21premium down to extreme discount. Again,
5:24I explain all of this in that type 3
5:26dealing range video. Now, once we have
5:28identified a type three dealing range,
5:30again, it will help if we understand
5:33where the market is obviously likely to
5:36repric to. For example, if we have a
5:38sellside liquidity pool below the market
5:41and we anticipate price to drop lower,
5:44we're waiting for something specific to
5:46happen here and that's going to be when
5:50price drops lower. Closing below the
5:53consolidation or the type three dealing
5:55range low. Now, a close below this gives
5:57us the green light. It indicates that
5:59the algorithm wants to spool price lower
6:02to an inefficiency below the market or
6:04like I said a sellside liquidity pool
6:06once price moves out of this type three
6:09dealing range. Here we can anticipate a
6:12type one dealing range forming where we
6:14have price retrace higher often back
6:17into the consolidation around the
6:19midpoint. We then see the market repric
6:22lower again in the direction of the draw
6:26on liquidity. We'll then see another
6:29type one dealing range form. Again,
6:31these type one dealing ranges, these are
6:34all dealing ranges that are moving with
6:37expansion and retracement where the
6:39algorithm is spooling price to a
6:41particular target. And like I said, in
6:43this case, we're going to use an example
6:45of a sellside liquidity pool below the
6:48market. Now, the missing element here is
6:51time. When time aligns with price, and
6:54I'm going to do a whole lot of studies
6:56on time. So, make sure you like,
6:58subscribe, and follow this channel.
7:02That's probably not right. When we have
7:04time and price aligning, and we see the
7:07market change directions over here and
7:11sweep above a shortterm high, this is
7:15significant. This is a breaking
7:17structure where we have been inside of a
7:20sell program lower. Now when this event
7:23occurs after we have raided a pool of
7:26sellside liquidity below the market, it
7:29indicates that the market is no longer
7:31inside of a sell program. We then
7:33anticipate a buy program to unfold. In
7:36this case, we can clearly see the equal
7:39highs above that type 3 dealing range.
7:42And again, we're going to have buy stops
7:45in the form of retail liquidity above
7:47those highs. When we see this
7:49turnaround, we can now anticipate price
7:52running higher and this is what would be
7:54our type two dealing range. If we see a
7:57type three dealing range form and then
7:59we see the market reprice lower, we can
8:02trade in a counter trend direction, but
8:04that requires a little bit more
8:06experience. In my opinion, if the higher
8:09time frame draw is higher and then we
8:12have equal highs, it's better for us to
8:14wait for this to occur where we raid
8:17sellside liquidity and or an
8:19inefficiency below the market and then
8:21see the market turnaround like we do
8:23here. Now, I have a whole model here on
8:25the DRT model again for free on this
8:27YouTube channel which gives you all my
8:29rules for entry and how I actually use
8:32type two dealing ranges. Now when this
8:34occurs and we've seen now a clear type
8:36two dealing range form, we can
8:39anticipate
8:41another type one dealing range where we
8:43have an expansion towards those equal or
8:47relative equal highs and that type two
8:49dealing range high. We can trade inside
8:52of the retracements here. So as the
8:55market retraces back inside of that type
8:58one dealing range, we can enter
9:00positions. And I prefer this over the
9:03type one dealing ranges inside of the
9:04sell program. Although I will still
9:06trade it, I will reduce my risk in half
9:08because it's a counter trend trade. And
9:10I will reserve my maximum risk for the
9:12buy side or the buy program which is
9:15aiming for our type 2 dealing range
9:18highs. Now eventually I would offload my
9:21positions above these highs. And this is
9:24exactly what Smart Money is doing.
9:26They're pairing long positions over here
9:30with the retail sellside liquidity and
9:32they're offloading those positions back
9:35above equal or relative equal highs in
9:37the form of a type 2 dealing range and
9:40selling back to the willing buyers above
9:42the market. So they buy at a lower price
9:44and sell it back at a higher price. And
9:46essentially this is how we want to
9:48trade. We want to trade the way smart
9:50money are trading. Now, let's get into a
9:53few actual chart examples over here. So,
9:57here we have a type three dealing range.
10:00You can clearly see that we're here
10:02inside of a consolidated profile. And we
10:05have our highest high inside of the
10:07range over here and our lowest low
10:10inside of all of this range right here.
10:13All of this price action is contained
10:16inside of that type three dealing range
10:18from the high down to the low. So we can
10:22here define our dealing range high and
10:25our dealing range low. The midpoint of
10:27this dealing range is something known as
10:30equilibrium or I call the 50 DRT level.
10:35Now this is the fair price between the
10:38highest price and the lowest price
10:41inside of a type 3 dealing range. Notice
10:44how price will consolidate around this
10:47fair price. And generally inside of type
10:49three dealing ranges, we will see it
10:51move from the extreme of the range down
10:54to the low of the range. And again,
10:56often it can sweep the high and sweep
10:58the low, but still stay inside of this
11:01tight range. Now, it won't leave until
11:04it's time to leave the range. And
11:06generally, that will happen by the way
11:08of a high or medium impact news economic
11:11driver. Again, I explained this in my
11:13type 3 dealing range video. Now, price
11:15here is fractal. So what we see here on
11:19this higher time frame dealing range, we
11:21can see here closer on a lower time
11:23frame dealing range. And if we zoom into
11:26this, we can again see another type
11:28three consolidation on a lower time
11:30frame dealing range. The point is this
11:32whole process here is fractal from the
11:33higher time frame down to the lower time
11:36frame. Now what we're waiting for here
11:38is for price to close below that type
11:41three dealing range low. Once we get
11:43this close here, this confirms that
11:46price is ready to leave this
11:49consolidated market and enter a type one
11:52dealing range where we are anticipating
11:54price to expand lower after making a new
11:58dealing range low. We then see the
12:00retracement higher. In this case, we
12:03have this fair value gap. Have to
12:06include that small volume imbalance
12:08there as well. And then we see price
12:11again trade lower expanding below the
12:14market to form a new dealing range low.
12:17Now here we have again another smaller
12:20minor dealing range from this swing high
12:22down to this swing low. Now note what
12:25happens here. Price consolidates and
12:28stays here inside of that smaller
12:30dealing range and it's consolidating
12:34below this type three dealing range low.
12:37Now already here you can see that above
12:39the market we have the initial
12:42consolidation which is our type two
12:46dealing range and above the market we
12:48have all of these highs in close
12:51proximity with that type three dealing
12:52range high. So we have something here
12:54known as layered buyside liquidity. So
12:57inside of all of this consolidation
13:00again this is going to be another type
13:01three dealing range which can occur when
13:04we have traded below an old swing low
13:06and the underlying market narrative is
13:08bullish. What's happening here is smart
13:11money are accumulating long positions
13:14using all of the retail sellside
13:16liquidity below that type 3 dealing
13:18range low and they're going to offset
13:20those positions to the willing buyers
13:23above the type 2 dealing range high and
13:26that type three dealing range high.
13:27Again, we're going to have buy stops in
13:30the form of retail liquidity above those
13:32highs where smart money will buy low and
13:35sell high. And essentially, this is
13:37exactly how we want to trade. We want to
13:39trade in the same way as smart money. As
13:41we move along here, we can see how
13:43prices ran higher and traded through the
13:46short-term low. So, we have clearly a
13:48break in market structure. And when this
13:51happens, we should anticipate a type
13:53three dealing range forming where price
13:56retraces lower back inside of the range
13:59low to the range high. Now in this case
14:02we have traded through and closed above
14:05the equilibrium of this dealing range or
14:07that 50 DRT level and it's really done
14:09it in a very explosive manner. So when
14:11this happens we really do not expect or
14:13anticipate a deep retracement back
14:15inside of the range. Furthermore, we
14:17have a balanced price range here where
14:20we've had sellside delivery here and buy
14:23side delivery here. And you can clearly
14:25see here how the wick drops into that
14:28balanced price range, but the body is
14:31failing to close any lower. Again,
14:33indicates that we want to see higher
14:35prices. And again, this would be in line
14:36since we have a type 2 dealing range
14:39with layered buyside liquidity above the
14:41market. Again, price now runs higher for
14:46that buy side liquidity. We form another
14:48dealing range here. We can use this as a
14:50dealing range low and we have this as a
14:53dealing range high. Now, this is a minor
14:55dealing range inside of the parent
14:57dealing range from the swing low down
14:59here to the swing high up here. Now, the
15:01reason we can use that as a dealing
15:02range low is because we've already eaten
15:04into that buy side imbalance below the
15:07market and we've moved away from a
15:09balanced price range. Right? So, this is
15:11indicating that price doesn't want to
15:13drop any lower. We then see the market
15:15retrace back inside of that dealing
15:18range
15:19again. Here we drop below around that
15:22equilibrium level. And if you look to
15:24the left over here, we have our first
15:26presented fair value gap after raiding
15:29by side and turning around. So this fair
15:33value gap here is going to be a very
15:35important fair value gap. And we
15:37anticipate it offering us support.
15:40Again, you can see here how the body of
15:43that candle didn't want to close any
15:45lower. And then we see the market again
15:48expand higher back above that initial
15:51high that was made above those type
15:53three and type two dealing ranges. So
15:55what we have here is a type three
15:58dealing range where we undergo
16:01accumulation.
16:03We have a type one dealing range that
16:05expands lower where we have our
16:07manipulation back below the lows and
16:10then we have a reversal with our type
16:13two dealing range over here. And then we
16:15have our distribution back above those
16:18highs after smart money has accumulated
16:21longs inside of that type three
16:23consolidation below the market. This is
16:25essentially how the market operates.
16:28Accumulation in the form of a type
16:30three, expansion in the form of a type
16:32one and distribution in the form of a
16:34type two. The market is very limited in
16:37terms of what it can do. consolidation,
16:39expansion, retracement, and reversal.
16:41And they all fit within the narrative of
16:44the three different types of dealing
16:45range. When you can understand where
16:47they form, how they form, anticipate
16:50what price is likely to do next. And
16:52understanding higher time frame market
16:54narrative and algorithmic order flow, it
16:57makes it very, very easy. It really does
16:59take out a lot of the guesswork,
17:00especially when you combine DRT levels
17:02and dealing range theory with these
17:04types of dealing ranges. I have a whole
17:06video again, a whole video series
17:08actually on this YouTube channel called
17:10the DRT series. I highly recommend you
17:12check that out if you haven't done so
17:14already. If you want more information
17:16about algorithmic price action, then
17:18download the free ebook, uh you can
17:21click the link below called Market Maker
17:22Secrets, and I'll also send you a free
17:25webinar where I break this down in a
17:27little bit more detail with a few more
17:28timing elements and really give you a
17:31master class in algorithmic price
17:32action. If you found this video useful,
17:35please like, subscribe, leave a comment,
17:37and let me know what you want me to
17:38teach in the next video. And I'll see
17:41you soon.

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