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I’ve Studied Hundreds of Smart Money Concepts. These 12 Stand Out. — Transcript

by Fractal Flow - Pro Trading Strategies · 3,856 words · 590 segments · language en · Watch on YouTube

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0:00There are probably hundreds of concepts
0:02you can study in trading. This is not
0:04supposed to be a definitive list. These
0:07are simply 12 ideas that I consider to
0:09be highly useful. Concepts that can give
0:11you a completely different way of
0:12looking at what the market is doing. And
0:14chances are, even if you've been trading
0:16for years, there are a few on this list
0:18you've either never studied properly or
0:20never considered using this way. So,
0:23without further ado, let's begin. The
0:25first concept we'll talk about is the
0:27double shift. At this point, everyone is
0:30familiar with the market structure shift
0:31pattern that usually anticipates a trend
0:34change. A higher high followed by a
0:36lower low before a downtrend and a lower
0:38low followed by a higher high before an
0:40uptrend.
0:42However, we can take this one step
0:44further and increase the reliability of
0:46the pattern. The double shift occurs
0:48when two consecutive market structure
0:50shifts happen separated by a piece of
0:53meandering price action. It can be
0:55complex or as simple as a pullback
0:57dividing the two patterns. The first
1:00shift is an early sign of reversal and
1:02the second serves as a confirmation.
1:05For example, here we have the gold
1:07futures 4hour chart. At a first glance,
1:10this is just an accumulation followed by
1:12an uptrend, but the chaotic accumulation
1:14hides a double shift pattern. The first
1:17one signals an uptrend, but price
1:19doesn't confirm the pattern. A few
1:22candles later, we see a second market
1:24structure shift pointing up again,
1:26roughly in the same region of the first.
1:28On the third leg of the second shift,
1:30price makes an obvious gap, which serves
1:33as the last zone before price indeed
1:35goes up. Notice that as soon as the
1:38double shift pattern occurs, the
1:40accumulation is over. If you enter the
1:43first shift and placed your stop
1:44correctly below the lowest low, you
1:46would not be stopped out, but you would
1:48spend a lot of time waiting for price to
1:50go up. The appearance of the second
1:52shift acts as a confirmation in a more
1:55precise and efficient entry. The second
1:58concept is the implicit fair value zone.
2:01This one is a type of supply and demand
2:03zone that combines price action and
2:05orderflow elements in a simple detection
2:08mechanism. More specifically, it
2:10combines the swing point, which is a
2:12foundational market structure idea, with
2:14the inference of fair value areas
2:16through price action, assuming that
2:18areas of price overlap are areas of fair
2:21value. To identify an implicit fair
2:24value zone, you need to identify a swing
2:26point first. Once that's done, you
2:28identify the range of price action that
2:30is common amongst the three candles that
2:32form the swing point. The overlapping
2:35price action in a swing high will form a
2:37supply zone and in a swing low it will
2:40form a demand zone. The advantage is
2:42that this is a very specific zone that
2:44most traders cannot see and it is
2:46perfectly objective. There is no guess
2:49work involved. Although it takes some
2:51practice to see the overlapping price
2:52action in the swing points. Here we have
2:55an example of this in the pound dollar
2:574hour chart. The first step is
2:59recognizing a swing point. In this case,
3:02we are looking at the swing low. The
3:05second step is to determine the range of
3:07price action that is common among the
3:09three candles that form the swing low.
3:11Once again, this is not a rough
3:12estimation. It's perfectly objective. By
3:15extending this zone to the right, we see
3:17how the next pullback ends precisely
3:19after touching the zone. This pullback
3:22itself repeats the same pattern a little
3:24bit later. By identifying the range of
3:27price action that is common among the
3:29three candles that form the swing point,
3:31we get this. Extending it to the right
3:33shows how the next pullback ends when
3:36price meets the zone. You get the idea.
3:39This is among the best supply and demand
3:41zone techniques I've ever encountered
3:43and it's remarkably simple and
3:45objective.
3:47The third concept is a rebranding of one
3:49of the foundational ideas in auction
3:51market theory and it's called the
3:53balanced price range. Nowadays, the
3:55balanced price range is also a price
3:57action concept that implies a rough
3:59estimation of order flow. The idea is to
4:02detect two opposing and overlapping fair
4:04value gaps separated by a swing point.
4:07For example, a bullish fair value gap
4:09followed by a swing high and then a
4:11bearish fair value gap will often form a
4:13zone where both gaps overlap. That's the
4:16balance price range and it often serves
4:18as a supply zone in this case. The same
4:21rationale, of course, applies to a
4:23demand zone, but with everything
4:24inverted. In this chart of the 1 hour
4:27Australian dollar, we have an extremely
4:29interesting example of this. Here we
4:32have a prominent swing high. To the
4:34right, we find a relatively narrow fair
4:36value gap pointing down and before the
4:38swing high, we find a wide fair value
4:40gap to the upside. The main point is
4:42that these two ranges overlap into a
4:44very narrow zone. In this case, if we
4:47extend the zone to the right, we get the
4:49main idea of the balanced price range.
4:51Price action reverses after touching the
4:53zone. And it does so in a suggestive
4:56way, meaning that the upper candle
4:57shadows clearly react to the zone.
5:00Recall once again that this is not
5:01really an ICT concept. It doesn't matter
5:04what you call it. It's a natural
5:06conclusion from Style Meers auction
5:08market theory from the 80s.
5:11The first concept is what is called the
5:13core value zone in the volume profile.
5:15As a standard, the volume profile has a
5:17value area comprising 70% of the total
5:20volume. However, the 70% setting is
5:23usually too wide to provide a precise
5:25zone for price reversal in certain
5:27trading models. For this reason, traders
5:30sometimes adjust the setting to 40% and
5:33use that as a supply or demand zone. The
5:3640% value area is what is called core
5:38value zone in the volume profile. One
5:41way of doing this is to plot the fixed
5:43range volume profile with a value area
5:46of 40% over a range and the established
5:49value area will then form a probable
5:51supply or demand zone for the pullback
5:53to end. For example, here we have the
5:554hour chart of gold. We can see an
5:58upward price movement forming in the
6:00range like so. By plotting the fixed
6:02range volume profile with the core value
6:04area, we establish a narrower zone that
6:07serves as a projection for the
6:08subsequent pullback to end. If we extend
6:11the value area extremes and the point of
6:13control to the right, we can spot a few
6:15interesting details about how price
6:18action interacts with these areas. Once
6:20price encounters the point of control,
6:22it moves up, breaking one previous high
6:24and forming a market structure shift
6:26like we can see here. That represents an
6:29amazing opportunity because now we have
6:31the pullback from the shift happening
6:33roughly in the larger zone provided by
6:35the volume profile. One additional
6:37confirmation here would be the Andrew's
6:39pitchfork plotted in the market
6:41structure shift to catch the end of the
6:43pullback like so. The fork projects the
6:46price level where the market is likely
6:48to run out of energy so to speak. After
6:50that confluence, we see price finally
6:52taking off. The fifth concept is a
6:56rather uncommon one among retail
6:57traders, but a very common one among
7:00institutional traders, which is the
7:01value area reversal in Style Meer's
7:03market profile. Imagine that instead of
7:06trying to determine trend reversals
7:08simply by looking at price action, there
7:10was a way of detecting the invisible
7:12forces that lead price. That is possible
7:14with the market profile method, which
7:16reveals the time brace structure that
7:18hides behind price and indicates value.
7:21I have a free market profile course here
7:23in the channel if you want to know more
7:25about it. The market profile shows among
7:28many other things the evolution of value
7:30areas based on time and that can be
7:32helpful in determining trend reversals.
7:35Instead of looking at the progression of
7:36highs and lows in price action, you can
7:38look at the progression of value areas
7:40in the market profile to determine when
7:42the trend will reverse. For example,
7:45here we have the 1 hour NASDAQ market
7:47profile chart. Each one of these
7:49profiles represent one trading session.
7:52The brighter squares within the white
7:54dash lines represent the value areas
7:56which in this method is the range of
7:58prices where the market spends 70% of
8:01the time in that session. Notice how the
8:03value areas progress over time in an
8:05organized way either going up, down,
8:08contracting, or expanding. The red
8:10arrows show progressions where the value
8:12area gets lower indicating a bearish
8:14continuation. The yellow arrows show
8:17progressions where the value area
8:19expands or contracts, showing a more
8:21neutral bias. However, notice that just
8:24right at the center of the chart, we see
8:26a unique event so far, which is a value
8:29area progression to the upside. That is
8:31one type of trend reversal signal in
8:33this method. And notice that an uptrend
8:35is what immediately follows. The point
8:38is that this type of information is not
8:40easily detectable just by looking at
8:42price action. But once you have the
8:44information from the market profile, it
8:46can be the difference between being on
8:47the right side of the trend or not. If
8:50you like the content of this video so
8:52far, please click the like, subscribe,
8:54and share the video if you haven't
8:56already.
8:57The sixth concept is the swing point
8:59adjusted anchored VWOP. The anchored
9:02VWAP is probably among the best types of
9:04dynamic support and resistance
9:06indicators because it incorporates price
9:08and volume in the same formula. And
9:10perhaps most importantly, you can choose
9:12the starting point of calculation rather
9:14than a rolling calculation period that
9:16makes no sense like you would do with a
9:18moving average, for example. Beyond
9:20that, a small modification in the
9:22anchored VWAP calculation makes it even
9:24more powerful.
9:26Resistance lines plotted on swing highs
9:28should be calculated using highs and
9:30support lines plotted on swing lows
9:32should be calculated using lows. This
9:35creates a very interesting effect and
9:36very distinct dynamic support and
9:38resistance lines that very few traders
9:41can see. Therefore, creating an edge in
9:43this 15-minute chart of Russell 2000, we
9:46have a good example of how the
9:47simplicity of this technique can
9:49generate astounding results. By plotting
9:51the anchored VWAP on a major swing low
9:54and using low as a source of
9:55calculation, we can see that the land
9:57catches three very important lows right
9:59after. This can be the difference
10:01between trusting the end of a pullback
10:03or not. We can observe a slightly more
10:05advanced use of this line by plotting
10:07the anchored view up on a major swing
10:09high like so and using highs as a source
10:11of calculation. Notice that initially
10:14the line works well as resistance. A
10:16prominent candle shadow pierces the line
10:18and goes down aggressively immediately.
10:21Price eventually comes back to this line
10:22to test it again as resistance and it
10:25creates a small bump to the downside.
10:27Price then proceeds to break the line to
10:29the upside transforming into support.
10:31Now after that we can find three
10:33instances where the former resistance
10:35line successfully captures important
10:37swing lows. Notice that the anchoring of
10:40these lines is usually obvious. In this
10:42case we are using what most traders
10:44would interpret as the major swing
10:46points in the visible price action. If
10:48you want to learn more about advanced
10:50orderflow concepts that go way beyond
10:52what you're learning here, please check
10:53out my advanced orderflow training
10:55course in the description below. The
10:58seventh concept comes from order flow.
11:00Asymmetric liquidity consumption is a
11:02specific trading technique that can only
11:04be seen using a chart type called the
11:06footprint. It relates to the ratio
11:08between buying and selling aggression
11:10within a candlestick. Once again, this
11:13is the sort of thing that is impossible
11:15to see just by looking at price action.
11:17Formally speaking, the asymmetric
11:19liquidity consumption is called stacked
11:21imbalance. It represents a small range
11:23of price action where aggression becomes
11:25too imbalanced. These small regions can
11:28be later used as nonobvious areas for
11:31price action. In a footprint chart,
11:33distract imbalances are marked by
11:35vertical dashes on the sides of candles.
11:38If you want to know more about the
11:39footprint chart and order flow in
11:40general, I have a free course in the
11:42channel too. For example, let's say you
11:44are trying to determine the reason this
11:46pullback ended here. When we look at
11:48price action, there are certain clues,
11:50but none of them are really strong to
11:52justify a movement to the upside like
11:54this. However, if we switch to a
11:56footprint chart, we'll see that there is
11:58a big stacked imbalance across seven
12:00price levels in the scandal. If we
12:02highlight the zone and switch back to
12:03the price chart, the use of this
12:05technique becomes self-evident.
12:08As soon as price enters the asymmetric
12:10liquidity consumption area provided by
12:12the stacked imbalance in the footprint
12:14chart, price reverses aggressively. This
12:17is not always the case, of course, but
12:19it's one type of powerful evidence that
12:21can give you an edge. The asymmetric
12:23liquidity consumption is nothing more
12:25than an area where aggression becomes
12:27too imbalanced and the market tends to
12:29remember and test these areas again in
12:31the future. It's all about observing
12:33whether the area still holds rather than
12:35just trading it blindly.
12:38The eighth concept is also from
12:39orderflow and it's a rather common one.
12:42CVD divergence is a powerful type of
12:44divergence that displays the
12:46accumulation of volume delta over time.
12:49Volume delta is the difference between
12:50buying and selling volume in a
12:52candlestick. Observing the cumulative
12:54volume delta in candlestick form
12:56relative to price action can yield very
12:58powerful signals. In this chart, I'm
13:00grounding the CVD at the start of every
13:02week as it is shown by the dashed
13:05vertical line. Here we have the 1 hour
13:07Dow Jones forming a downtrend. At the
13:10beginning of the week, price action and
13:11CVD were in sync, making lower highs and
13:14lower lows. That generally means the
13:16price action is what it seems to be.
13:19Roughly in the middle of the week,
13:20though, price starts to display some
13:22strength to the upside, breaking
13:24previous trend structure. This is the
13:26moment that a lot of traders will start
13:28looking for bullish setups. However, for
13:31those using the CVD, the warning is
13:33clear. Price just made a higher high,
13:36but the CVD made a lower high. Instead
13:38of memorizing this as a divergent
13:40signal, learn the rationale once and
13:42you'll never forget it. If price is
13:44making a higher high and the CVD is
13:46failing to do so, it means that there
13:48isn't enough volume to justify the
13:50movement. That can be classified as a
13:52buying exhaustion. In other words, we
13:55have a false break of structure that
13:57would be difficult to detect just by
13:58looking at price action. And the trend
14:01indeed continues to the downside after
14:03that. This is one of the different ways
14:05of differentiating between a market
14:07structure shift in a liquidity
14:08inducement scenario, so to speak. You
14:11need to become familiar with the subtle
14:12clues in price action and order flow. If
14:15you look carefully at this chart, you'll
14:17also find bullish divergence signals
14:19before price broke structure to the
14:21upside. However, the key here is to pay
14:23attention to the trend. As a general
14:25guideline, you should favor divergence
14:27signals that agree with the current
14:29trend.
14:30The ninth concept relates to what is
14:32known as intermarket divergence. The
14:35standard type of divergence most traders
14:37are familiar with involves a
14:39disagreement between price and an
14:41oscillator within the same market.
14:43Intermarket divergence is different. It
14:46looks for divergent signals between the
14:47price action of two highly correlated
14:49markets. Highly correlated markets share
14:52many of the same fundamental drivers. So
14:54when a market fails to confirm the
14:56other, we can assume something different
14:58is going on. That of course can help you
15:00predict important reversals or good
15:02points for continuation in the trend.
15:05For example, in this image you can see
15:07two markets with high correlations side
15:09byside in the 1 hour time frame. NASDAQ
15:11and the S&P. We have an interesting
15:14scenario here because there are
15:15different divergence signals happening
15:17in different time scales. Although we
15:19can see them in the same time frame.
15:21There are three vertical dash lines
15:23showing the market extremes that
15:24happened in both markets simultaneously.
15:27If we compare number one and number
15:29three, we'll see that while the S&P was
15:31making a higher high, NASDAQ was making
15:33a lower high. The other divergence
15:35occurs between numbers two and three.
15:38While the S&P was making a higher high,
15:40the NASDAQ was making a lower high. More
15:42interestingly, the two divergences at
15:45different time scales are nested, which
15:47increases the signal strength. One
15:49additional detail here is that these
15:51divergence signals happen while a
15:52liquidity grab occurs in the S&P. In
15:56this case, the intermarket divergence
15:57can be a source of confirmation for the
15:59liquidity grab. Once the manipulation
16:02pattern occurs within the context of the
16:04nested intermarket divergence, price
16:06starts to fall aggressively. If you
16:08truly want to understand the
16:10relationship between markets, I suggest
16:11you dive into John Murphy's books. They
16:14are the industry standard on the topic.
16:17The 10th concept is a rebranding of the
16:19good old market manipulation pattern
16:21outlined in the beginning of the 20th
16:23century by Richard Wyov. Liquidity grab
16:26is a quick probe above a swing high or
16:28below a swing low with the intention of
16:30triggering enough liquidity to feel the
16:32opposite movement. Remember that in
16:34price action, liquidity relates to stop
16:36orders above swing highs and below swing
16:38lows. In order flow, liquidity relates
16:41to limit orders. If you want to know
16:43more about why that distinction matters,
16:45you can watch the free guide I have
16:46about liquidity concepts here in the
16:48channel. The liquidity grab can take
16:50many forms. The important thing is
16:52observing the quick probe of a swing
16:54point. followed by a rejection of the
16:56movement. For example, here we have the
16:5815-minute chart of NASDAQ. We can see
17:01two major trend reversals here. And just
17:03before both of them, we can see subtle
17:05liquidity grab patterns. The first one
17:08signals an uptrend. Notice how the
17:10previous swing low is quickly probed by
17:12the lower shadow of this scandal, which
17:14turns out to be a strong bullish candle.
17:16These are the two prerequisites for a
17:18successful liquidity grab. the quick
17:20violation of structure followed by a
17:22clear rejection. In the chart, it's
17:25clear that this was one of the catalysts
17:27of the upper trend. The other liquidity
17:29grab happens at the end of the uptrend,
17:32and it's more subtle than the first
17:34grab. Price probes above the previous
17:36swing high, but just barely. In the next
17:39candle, we see a strong bearish candle.
17:41So, once again, both prerequisites of a
17:43liquidity grab and the beginning of a
17:45downward movement. The liquidity grab
17:48can take slightly different forms, but
17:49this is the main gist of the pattern.
17:52The 11th concept in the list is the now
17:55popular liquidity inducement. Liquidity
17:58inducement is the intentional violation
17:59of structure with the goal of generating
18:01liquidity to the opposite side of the
18:03violation. In this sense, the liquidity
18:06grab we just saw is one type of
18:08inducement.
18:09However, there are more variations of
18:11this idea. For example, here we have the
18:144hour chart of silver. When retail
18:16traders see price breaking a swing low
18:18like we can see here, many of them
18:20assume the market is bearish and many of
18:22them sell into the signal. This is an
18:25opportunity for the smart money to
18:27absorb the sudden burst of stop orders
18:29with limit orders. For example, remember
18:31that stop orders are simply market
18:33orders waiting to be triggered and
18:35market orders only match limit orders.
18:38We can be much more precise about the
18:39definition of smart money, but that's a
18:41subject for another time. So the idea of
18:44inducement here is basically the smart
18:46money inducing sellers to think a
18:48downtrend will happen just so they can
18:50absorb them same movements and get on
18:52the opposite side. After that we see
18:55price going up. Of course one detail
18:57worth mentioning here is the prominence
18:59of larger lower shadows. That's one of
19:02the subtle fingerprints of certain
19:03market players observing the liquidity
19:06provided by sellers. The sellers here
19:08are not necessarily retail traders.
19:11Institutional traders can also be
19:12maneuvered by other institutional
19:14traders with more power and information.
19:16For example, and by the way, this
19:18inducement occurs exactly at an implicit
19:20fair value zone that was outlined
19:22previously in the video as you can see
19:24here. Meaning the overlapping price
19:26action in the swing low.
19:28The last concept is an advanced one
19:30called GEX. GEX stands for gamma
19:33exposure from market makers and dealers.
19:36This is an advanced topic that goes way
19:37beyond the scope of this video. So I
19:39have made a whole free course about it
19:41which you can check out in my channel.
19:44In very simple terms, gamma exposure
19:46tells you whether dealer hging is likely
19:48to produce a self-correcting or
19:50self-reinforcing price action. And price
19:52levels with concentrated gamma levels,
19:54also known as gamma walls, give rise to
19:56an advanced type of support and
19:58resistance that cannot be seen by
20:00looking at price charts. Once again,
20:02this is an oversimplification. If you
20:04want to go deeper into this, please
20:06watch my free guide. One very practical
20:08application for price action traders is
20:10the call resistance and put support
20:12levels that arise from concentrated
20:14gamma levels. In this chart, you can see
20:17a call resistance successfully stopping
20:19price action from going up. From the
20:21price chart perspective, this looks like
20:23a triple top, but the reality of why the
20:26triple top worked in this case goes much
20:28deeper. In the second image, we can see
20:30a put support working almost perfectly
20:32as well. This is yet another example of
20:35how the tools the smart money traders
20:37use can go way beyond the price chart.
20:40That's it for this video. If you want to
20:42enhance your trading skills and make
20:44more rational decisions, I offer a whole
20:46range of advanced trading courses with
20:48many different techniques and strategies
20:50based on scientific principles. You can
20:52learn more about them in my website
20:54fractalflowpro.com
20:56or by sending me an email at
20:57[email protected].
21:00If you enjoyed this video, please help
21:02support the channel by clicking the like
21:03button, subscribing to the channel,
21:05activating the notifications, leaving a
21:07comment, then sharing the video with
21:09your trading community. Thank you very
21:11much for watching and I hope to see you
21:13in the next videos. Take care.

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