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Smart Money Concepts Explained in 41 Minutes | SMC & ICT — Transcript

by Issam Kassas · 6,006 words · 791 segments · language en · Watch on YouTube

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0:00Look at this chart.
0:00Price moves below a clear low.
0:03You sell the breakout.
0:04A moment later, price comes straight back, takes your stop, and
0:08moves higher.
0:09After it happens, the explanation looks obvious.
0:12The useful question is what you could have seen before the
0:16next candle appeared.
0:18All right, that is what we are going to work on.
0:20In this Smart Money Concepts masterclass, I will explain market structure,
0:25liquidity, order blocks, fair value gaps, and the main ICT ideas
0:31that connect them.
0:32Then we will build one clear trading model and walk through
0:35a win, a loss, and a situation where we do nothing.
0:40I am Issam from Issam Algo.
0:42Keep a chart open if you can.
0:44You will have a few chances to make the decision yourself
0:47before I reveal the answer.
0:50Here is the basic idea.
0:51Start with context.
0:52Identify the relevant price levels.
0:55Wait for a specific sequence.
0:57Decide where the idea becomes invalid.
1:00Only then think about an entry.
1:01You can write those five steps beside your screen.
1:04Context, level, confirmation, invalidation, entry.
1:08The order matters.
1:09If you start with the entry, every attractive candle becomes a
1:13reason to click.
1:14We will use simple charts first, so you can see each
1:17concept clearly.
1:18The numbers are invented for teaching.
1:21They are not a backtest, and they do not show what
1:25a real account would have earned.
1:27When we later walk through a setup, the future candles will
1:30remain hidden until we reach them.
1:32This is educational, and trading involves risk.
1:36More specifically, nothing in the shape of a candle guarantees the
1:40next move.
1:41What we are building is a set of rules you can
1:43test, including rules for when to stay out.
1:46By the end, you should be able to explain your decision
1:49in a few sentences.
1:50If a setup needs a completely different story every time, the
1:54rules still need work.
1:56Smart Money Concepts, or SMC, is a collection of ways traders
2:02interpret price action.
2:04The vocabulary usually includes structure, liquidity, displacement,
2:08order blocks, and imbalances.
2:11ICT stands for Inner Circle Trader.
2:14It refers to the teaching approach associated with Michael Huddleston.
2:19There is considerable overlap, although different educators use some
2:23labels differently.
2:24That matters because two people can look at the same chart
2:28and disagree about the name of a move.
2:31We will choose our definitions at the beginning and use them
2:35consistently.
2:36You can compare other definitions later without changing your rules
2:40halfway through a trade.
2:42There is also a distinction between a chart observation and an
2:46explanation for it.
2:48We can observe that price moved above yesterday's high and then
2:51closed below it.
2:53We usually cannot tell from that candle which institution traded, how
2:57much it traded, or what its intention was.
3:01So when I say liquidity above a high, I mean a
3:05location where traders may have orders clustered.
3:09I am not claiming that we can see everyone's stop losses.
3:13When I mark an order block, I am marking a price
3:15pattern.
3:16I am not reading a bank's order book.
3:19This keeps the lesson useful.
3:21We can define patterns, measure them, and test decisions.
3:25We do not need to invent a hidden story to explain
3:28every candle that appears.
3:31Let us start with market structure.
3:33An uptrend forms a sequence of higher swing highs and higher
3:37swing lows.
3:38A downtrend forms lower swing highs and lower swing lows.
3:42A range moves between boundaries without a sustained sequence in either
3:46direction.
3:47Look at our first diagram.
3:49Price rises from one hundred to one hundred and ten.
3:52It pulls back to one hundred and five, then rises to
3:55one hundred and sixteen.
3:57The new high is higher, and the pullback low is higher.
4:01That is a simple bullish sequence.
4:04Now compare the second diagram.
4:05Price falls, recovers without reaching the previous high, and falls
4:09to a new low.
4:10That is the bearish version.
4:12You should be able to read both without an indicator or
4:15a list of abbreviations.
4:17A single green candle does not create an uptrend.
4:20A single red candle does not end one.
4:22The relationship between swings gives the candle its context.
4:27Here is where people make this harder than necessary.
4:30They mark every small fluctuation
4:34as a major swing.
4:35The screen fills with labels, and the labels start contradicting each
4:38other.
4:39Begin with the clearest turning points on the timeframe you selected.
4:43Take a few seconds with the third chart.
4:46Decide whether the visible sequence is trending or ranging.
4:55If the answer is unclear, write unclear.
4:59That is a perfectly useful observation, and it can keep you
5:03out of an unnecessary trade.
5:05We need a repeatable way to
5:08identify a swing.
5:10For this lesson, a small confirmed swing high has a higher
5:13high than the two completed candles on each side.
5:17A swing low has a lower low than the two completed
5:20candles on each side.
5:21Equal values do not qualify under this particular rule.
5:25Notice the delay.
5:26You need the two candles on the right to close before
5:29the swing becomes confirmed.
5:32On a finished chart, the turning point looks obvious.
5:34At the turning point itself, that confirmation did not exist yet.
5:38That is why our replay has two moments: the candle where
5:42the swing occurs, and the later candle where we are allowed
5:46to label it.
5:47The label appears at the second moment.
5:49We will not pretend that information was available earlier.
5:52This five-candle definition is a teaching convention, not the only
5:57valid definition.
5:59A higher timeframe can help you separate a meaningful swing from
6:03a small fluctuation.
6:04The important thing is to choose the rule before examining the
6:08result.
6:09Try this example.
6:11The middle candle has the highest high, but only one candle
6:14has closed on its right.
6:16Can we call it a confirmed swing under our rule?
6:19Not yet.
6:24One more completed candle is required, and that candle could invalidate
6:28the candidate.
6:29This small detail affects entries, structure breaks, and backtests.
6:34Getting it right now saves a great deal of confusion later.
6:38A break of structure, or BOS, is a break in the
6:40direction of the structure we are tracking.
6:43In our bullish example, price closes above the previous confirmed swing
6:48high.
6:49In the bearish example, it closes below the previous confirmed swing
6:54low.
6:54For this course, we require a candle close beyond the level.
6:59A wick through the level is recorded separately.
7:02Some traders use different rules.
7:04That is fine, but mixing a wick rule on losing trades
7:10with a close rule on winning trades makes your results meaningless.
7:15Look at the two examples side by side.
7:18In the first, price trades above the high and closes back
7:22underneath.
7:23In the second, the candle closes above it.
7:26Only the second qualifies as a bullish structure break under the
7:31rule we just chose.
7:32Does that mean the second example must continue higher?
7:39No.
7:39It tells us that one condition has occurred.
7:43A breakout can still fail.
7:45We need the rest of the plan before making a trading
7:49decision.
7:50Once a bullish break is confirmed, the pullback low that preceded
7:54that break becomes an important reference.
7:57We will call it the protected low for the bullish sequence.
8:01If that low later breaks, we have a reason to reassess
8:05the sequence.
8:06Mark the level before the candle crosses it.
8:08Then wait for the close.
8:10That gives you a decision you can reproduce.
8:12Now price is making higher highs and higher lows.
8:16Then it closes below the protected low.
8:18That is our first break against the bullish sequence.
8:22We will call that a change of character, or CHoCH.
8:25It is an early warning that the structure we were following
8:29has changed.
8:30It is not proof that a large downtrend has started.
8:33Price might reverse, enter a range, or recover and continue higher.
8:38You will also hear market structure shift, usually shortened to MSS.
8:43In this course, we reserve that term for a counter-trend structure
8:48break accompanied by clear displacement.
8:51Later, we will give displacement a specific definition for the example
8:55model.
8:56This is a course convention.
8:58Across SMC and ICT material, CHoCH and MSS are not always
9:04used in exactly the same way.
9:06Focus on the conditions behind the label: which level broke, whether
9:10the candle closed beyond it, and whether the move met your
9:13displacement rule.
9:14Watch the comparison.
9:16The first break barely closes below the low.
9:18The second moves decisively through it with a large candle body.
9:22They share a direction, but they do not meet the same
9:25conditions
9:27in our model.
9:28Pause here and identify the protected low on the chart.
9:37Then identify the first candle that closes below it.
9:41If you marked a low that only formed later, move your
9:44label back to the information that was available at the time.
9:49An hourly chart can be bullish while a five-minute chart is
9:52moving down.
9:53That does not automatically mean one of them is wrong.
9:56The smaller move may be a pullback inside the larger move.
10:00We will call the larger selected structure external and the smaller
10:05swings inside it internal.
10:07These terms are relative to the structure you selected.
10:10They do not refer to two permanently fixed timeframes.
10:14Look at the large upward move.
10:16Inside its pullback, several small lower highs form.
10:21A break above one of those small highs changes the internal
10:25sequence.
10:25It does not necessarily break the external high at the top
10:29of the hourly range.
10:31This distinction prevents an easy mistake: calling every small reversal
10:36a change in the entire market.
10:38Always say which timeframe and which swing you mean.
10:41For the worked examples, our context chart is one hour and
10:45our execution chart is five minutes.
10:47This pairing is a teaching choice, not a claim that it
10:50is best for every instrument.
10:51Both views use completed candles.
10:54Write down the context before you open the smaller chart.
10:58If the smaller chart persuades you to change that context every
11:02few minutes, step back.
11:03The point of using two timeframes is to organize the decision,
11:07not to create more opportunities to disagree with yourself.
11:11In ordinary market language, liquidity concerns how readily an asset
11:15can be traded without a large price impact.
11:19In SMC discussions, the word is also used for locations where
11:23certain orders are expected to cluster.
11:26Consider an obvious high.
11:28A trader holding a short position may place a protective buy
11:32stop above it.
11:34Another trader may place a buy stop there to enter a
11:38breakout.
11:39Both can create buying when their trigger conditions are reached.
11:43Below an obvious low, traders may place protective sell stops or
11:48sell-stop breakout entries.
11:50Those orders can create selling when triggered.
11:54This is why SMC traders often refer to buy-side liquidity above
11:58highs and sell-side liquidity below lows.
12:02We do not know the exact quantity of those orders from
12:05the candles.
12:06Some orders may be elsewhere, cancelled, or handled differently by
12:11a particular broker or venue.
12:14These areas are hypotheses about potential activity.
12:18The levels worth examining include previous day highs and lows, clear
12:23swing extremes, and repeated highs or lows.
12:27A session high can also matter, provided you have defined the
12:30session and timezone.
12:32Look at the diagram with two similar lows.
12:35Mark the area beneath them.
12:37Then leave the next candles hidden.
12:40You have
12:41identified a location to observe.
12:44You have not yet identified a trade.
12:47Also remember that a stop trigger does not guarantee the final
12:50execution price.
12:52Fast movement and gaps can produce a worse fill than expected.
12:56We will account for that when discussing risk.
12:59A liquidity sweep describes price moving beyond a marked level and
13:04returning back through it.
13:06A liquidity run describes price moving through the level and continuing
13:10away.
13:11These descriptions become clearer as more candles appear.
13:15The same initial candle can belong to either story.
13:18That is the part a finished chart hides.
13:21When price first crosses the low, you do not yet know
13:24whether it will reclaim the level or keep falling.
13:27For our example model, a sell-side sweep requires price to trade
13:32below a pre-marked low and close back above that low on
13:36the same five-minute candle.
13:38We use the opposite rule for a buy-side sweep.
13:40A different model might allow several candles to reclaim the level,
13:45but ours does not.
13:46Even after that reclaim, we still do not enter.
13:49We wait for a qualifying structure shift.
13:52This will filter out some trades, including some that would have
13:55won.
13:56Every filter has a cost as well as a potential benefit.
14:00Now watch the two paths.
14:01On the left, price returns above the low.
14:04On the right, it keeps closing below the low.
14:07We do not label the right-hand path a failed buy opportunity.
14:11Our sweep condition never completed there.
14:14And we do not need to say that a bank deliberately
14:17hunted an individual trader.
14:19The observable sequence is enough: level crossed, reclaim completed
14:24or absent, confirmation completed or absent.
14:27Let us test your understanding.
14:29The first chart shows two similar lows.
14:32The next candle trades below them and closes above.
14:36What do we have so far?
14:37We have a sweep under our chosen definition.
14:45We do not yet have the complete entry model.
14:48The internal high is still intact, and there has been no
14:51qualifying bullish displacement through it.
14:54The second chart shows a candle that closes below the lows,
14:58followed by another candle that stays below.
15:01That does not meet our same-candle reclaim rule.
15:05We keep observing or move on.
15:07The third chart shows a sweep, but the higher timeframe context
15:11is unclear.
15:12Again, the sweep alone does not complete the plan.
15:15You should now be getting comfortable with an answer that traders
15:19sometimes avoid: there is not enough information yet.
15:22Take a moment and say the missing condition out loud for
15:26each chart.
15:32This is how you turn a word you recognize into a
15:35decision you can actually make.
15:37The objective is not to explain every move.
15:40It is to recognize the sequence you chose to trade, and
15:44to recognize when that sequence has not happened.
15:47Displacement usually describes a strong directional move.
15:52Visually, it often contains a relatively large candle body, limited
15:57overlap, and a close near the candle's extreme.
16:01But relatively large is too vague for a reproducible test.
16:06For our constructed model, the displacement candle must have a body
16:10at least one and a half times the median body of
16:14the preceding twenty completed five-minute candles.
16:17For a bullish candle, its close must also be in the
16:21top quarter of its full high-to-low range.
16:24For a bearish candle, it must close in the bottom quarter.
16:28These numbers are illustrative rules, not optimized parameters or a
16:33proven edge.
16:35We chose them to make the example measurable.
16:38Testing may later show that a different definition behaves differently.
16:43A large candle by itself is still insufficient.
16:47In the entry model, it must close through the relevant pre-marked
16:51internal swing after the sweep.
16:54If it is large but does not break that level, the
16:56required shift has not occurred.
16:59Be especially careful around major announcements.
17:02A dramatic candle may come with a wide spread and poor
17:06execution.
17:07An impressive screenshot can hide a difficult trade.
17:10We now have a level, a sweep, and a measurable confirmation.
17:15Next, we need to understand where a retracement might give us
17:18an entry location.
17:20A fair value gap, or FVG, is commonly identified with a
17:25three-candle pattern.
17:26In the bullish version, the high of candle one is below
17:30the low of candle three.
17:32The interval between those two prices is the gap we mark.
17:36Candle two usually contains the strong upward movement.
17:40Notice that the gap is defined using the outer candles' wicks.
17:44It is not simply any space between candle bodies.
17:48Here is the numerical example.
17:50Candle one's high is one hundred and four.
17:53Candle three's low is one hundred and six.
17:56The bullish fair value gap runs from one hundred and four
17:59to one hundred and six.
18:01Its midpoint is one hundred and five.
18:03In the bearish version, candle one's low is above candle three's
18:07high.
18:08If those prices are one hundred and ten and one hundred
18:11and eight, the bearish gap runs from one hundred and eight
18:15to one hundred and ten.
18:17The word gap can be misleading.
18:19Trades may have occurred inside that interval during the middle candle.
18:23We are describing a particular three-candle relationship, not proving
18:28that no transactions happened there.
18:31The pattern is only confirmed after candle three closes.
18:35You cannot place an order using its final low while that
18:38candle is still forming and later pretend the level was fixed.
18:43Now compare the valid example with the second diagram.
18:47The outer wicks overlap in the second one, so our gap
18:50condition is absent.
18:52Before you draw the rectangle, check the two prices that define
18:56it.
18:56Price does not have an obligation to return to a fair
19:00value gap.
19:01It can move away without touching it, partly enter it, cross
19:04it completely, or react and then fail later.
19:08That gives us several distinct outcomes to record.
19:11Untouched means our limit order may never fill.
19:15A touch means only that price reached the zone.
19:17A reaction means price moved away afterwards.
19:20None of those descriptions, on its own, proves a profitable strategy.
19:25You will also hear inverse fair value gap, or IFVG.
19:30Traders use that term when a gap fails in its original
19:33direction and is subsequently treated as a potential zone in the
19:37opposite direction.
19:38Definitions of failure and retest vary.
19:41For this lesson, the illustration requires a completed close through
19:45the far side of the original gap before discussing an inverse
19:49candidate.
19:50That candidate still needs its own entry and invalidation rules.
19:54We do not automatically reverse our position when a gap fails.
19:58Look at the two continuation paths.
20:00One leaves the gap behind.
20:01The other trades straight through it.
20:03Both are possible, and neither requires us
20:06to redraw the original gap to improve the picture.
20:10Keep the original markings in your journal.
20:12If the zone failed, record that it failed.
20:14That is useful information for improving a model.
20:17An order block is another area of interest.
20:20A common bullish definition begins with the last bearish candle before
20:25an upward displacement that breaks a relevant structure level.
20:29The bearish version begins with the last bullish candle before the
20:32downward displacement.
20:33That definition has several parts.
20:35Last opposite candle is not enough.
20:38We also need the displacement and the specified structure break.
20:42If you mark every red candle as a bullish order block,
20:46you will cover the whole chart.
20:48For our illustrations, the zone uses the full high-to-low range of
20:52the selected candle.
20:53Some educators use the body or a narrower boundary.
20:57Those are different rules, and you should label them as such
21:00when comparing results.
21:02Look at the first chart.
21:03A bearish candle forms, then price accelerates upward and closes beyond
21:08the pre-marked high.
21:09Only after that confirmation do we mark the earlier candle as
21:12an order-block candidate.
21:14The second chart has a bearish candle followed by a small
21:17bounce that never breaks structure.
21:19Under our definition, it does not qualify.
21:22The color sequence looks similar, but the required event is missing.
21:25An order block also does not guarantee that a large institution
21:29has an unfilled order sitting there.
21:31We cannot establish that from an ordinary price chart.
21:35The rectangle is a way to organize a testable price-action idea.
21:39In our main trading model, the fair value gap supplies the
21:43entry location.
21:44Order blocks are context.
21:46Keeping those roles separate prevents us from changing the entry method
21:50after seeing which zone happened to work.
21:53Now imagine a bullish order-block candidate that fails.
21:57Price closes through its lower boundary.
22:00Later, price returns to that area from below.
22:04Some ICT models consider a qualifying failed block as a breaker
22:09and examine the retest for resistance.
22:12The bearish-to-bullish version is the mirror image.
22:16But a breaker is not simply any rectangle after price crosses
22:21it.
22:22More detailed ICT definitions include additional structure and liquidity
22:27conditions.
22:28The diagram here introduces the idea; it is not a separate
22:32complete trading system.
22:34Mitigation is another term you will hear around a return to
22:40a previously marked area.
22:42Different educators describe mitigation blocks and the required swing
22:46patterns differently.
22:48We are covering the vocabulary so that it stops sounding
22:52mysterious, while leaving those specialized entry models out of our
22:57main rule set.
22:58Look at the sequence in three stages.
23:01First, the original bullish candidate.
23:03Second, the confirmed failure.
23:06Third, a return from below.
23:09The return can reject, consolidate, or pass straight through.
23:14The name does not decide the outcome.
23:16If you later want to trade breakers, write a separate specification.
23:22State
23:23what qualifies the original block, what constitutes failure,
23:29which retest is eligible, and where the new idea becomes invalid.
23:35For now, you do not need to add another entry trigger.
23:38Understanding a concept does not mean you must trade it immediately.
23:43Take a selected range from a low to a high.
23:47Its midpoint divides the range into two halves.
23:50The upper half is called premium, and the lower half is
23:53called discount in this vocabulary.
23:56Our example range is ninety to one hundred and ten.
24:00The midpoint is one hundred.
24:02Below one hundred is discount relative to this range.
24:06Above it is premium relative to this range.
24:09The final words matter: relative to this range.
24:12Change the endpoints and you change the classification.
24:16Discount does not mean an asset is fundamentally cheap, and premium
24:21does not mean it must fall.
24:23For the long example, we freeze the hourly swing range before
24:27the setup begins.
24:28A sweep in its lower half gives us a location condition.
24:33We do not redraw the range later
24:36to make the trade qualify.
24:38ICT traders also discuss
24:41optimal trade entry, or OTE, commonly around a sixty-two to seventy-nine
24:46percent retracement of a selected impulse.
24:50It is a retracement convention.
24:52The name does not establish an optimal result, and it does
24:56not prove a trading edge.
24:58Our core model does not require OTE.
25:02It uses the midpoint of the qualifying fair value gap for
25:06the entry.
25:07This keeps our first test focused.
25:10Pause and mark the midpoint yourself.
25:18Then move the upper endpoint and observe how the premium and
25:22discount areas change.
25:24That exercise explains why choosing and freezing the range is part
25:28of the rule.
25:29Time of day adds another layer of context.
25:34London and New York sessions can behave differently from quieter periods,
25:38and scheduled announcements can change conditions quickly.
25:42ICT material often refers to kill zones: defined time windows in
25:46which a particular model looks for setups.
25:49Use the timezone stated in the model.
25:52Do not assume that your broker clock, your computer clock, and
25:55New York time are identical.
25:57Daylight-saving changes can create temporary differences between regions.
26:01Record the timezone with the session rather than relying on a
26:05fixed offset all year.
26:07You may also hear Power of Three: accumulation, manipulation, and distribution.
26:12It describes a proposed sequence of consolidation, movement beyond
26:15a boundary, and expansion.
26:17It can be a useful way to organize an observation, but
26:21it is easy to label convincingly after the event.
26:25SMT divergence compares related instruments.
26:28One might take a corresponding high while the other does not.
26:32That comparison depends on the instruments, the timestamps, and the
26:36reference swings.
26:37It is not an automatic reversal signal.
26:40A balanced price range usually refers to an overlap between opposing
26:45fair value gaps.
26:46Change in state of delivery, or CISD, examines a change in
26:51directional delivery using specified candle reference levels.
26:55Detailed definitions vary, so neither is an additional trigger in today's
26:59model.
27:00There are many more ICT models.
27:03This course gives you the central vocabulary and one complete practice
27:07framework.
27:08Learning every named variation would require a much longer series,
27:12and adding them all at once would make your first test
27:15difficult to interpret.
27:17All right, let us put this together.
27:19Here is the long model, with the rules decided before the
27:23example begins.
27:25First, the completed hourly structure is bullish.
27:28Use our confirmed swing rule.
27:30Freeze the most recent confirmed hourly swing low and high as
27:34the context range.
27:36The setup must begin in its discount half.
27:39Second, identify a confirmed five-minute low inside that area.
27:44Before the sweep, mark the latest confirmed internal swing high formed
27:49after that low.
27:50If either reference is missing, there is no setup.
27:53Third, a five-minute candle trades below the marked low and closes
27:58back above it on that same candle.
28:00That completes the sweep condition.
28:03Record the sweep extreme.
28:05Fourth, within the next six completed five-minute candles, a bullish
28:09displacement candle closes above the marked internal high.
28:13It must meet the body-size and close-location rules we defined earlier.
28:18Its three-candle pattern must create a bullish fair value gap, confirmed
28:23when the third candle closes.
28:25Fifth, place the practice buy limit at the gap midpoint only
28:29after confirmation.
28:31The stop goes below the lower of the sweep low and
28:34any low printed before order placement, with the buffer specified in
28:39your test.
28:40If that makes the trade unsuitable, skip it.
28:43The target is two times the planned price risk, and it
28:47must lie before the pre-marked opposing liquidity level.
28:51Cancel an unfilled order after six further five-minute candles, at
28:56session end, if the target trades first, or if invalidation trades
29:00first.
29:01Take at most one attempt per sweep.
29:04For shorts, reverse the directions.
29:06These are proposed research rules.
29:10We have not established that they make money.
29:13Suppose a hypothetical account has ten thousand dollars, and the chosen
29:18practice risk is half a percent.
29:20The cash risk budget is fifty dollars.
29:23That is an illustration, not a personal recommendation about what you
29:27should risk.
29:28The size depends on the entry-to-stop distance and the instrument's
29:32value per point.
29:34If the stop is five points away and each unit gains
29:37or loses one dollar per point, each unit has five dollars
29:41of planned price risk.
29:42Fifty divided by five gives ten units before costs.
29:47Real contracts can be different.
29:49Gold CFD contract sizes, futures tick values, currency conversions,
29:53minimum size, and size increments all need to be checked for
29:57the actual product.
29:58Do not copy a lot size from someone else's screen.
30:02Include commission, spread, and an allowance for execution uncertainty.
30:06If the platform's minimum size would exceed the budget, skip the
30:10trade.
30:10Rounding the position upward
30:13defeats the risk limit.
30:14A stop is an exit instruction, not a promise that the
30:18loss cannot exceed the planned amount.
30:21A gap or fast market can produce slippage.
30:24Margin available is also not the same thing as money you
30:27can afford to lose.
30:30For the basic test, use one full exit at the stop
30:33or target.
30:34Break-even moves and partial exits change the outcome distribution.
30:38They can be tested later as separate variants.
30:41The order is simple: define invalidation, measure the distance, calculate
30:46the size, then decide whether the trade fits.
30:49Never tighten the stop just to make a preferred position size
30:52appear acceptable.
30:54Let us walk through the long example.
30:57Remember, these are constructed prices.
31:00The purpose is to make the rules visible, not to present
31:03a historical result.
31:05Our completed hourly chart is bullish, and its selected range is
31:10ninety to one hundred and ten.
31:12The midpoint is one hundred.
31:14On the five-minute chart, we have a confirmed low at ninety-eight
31:19and a confirmed internal high at one hundred.
31:22Both are marked before anything happens next.
31:25Price trades down to ninety-seven, then the same candle closes at
31:29ninety-nine.
31:30It has swept the ninety-eight low and reclaimed it.
31:33The sweep took place in the discount half of the hourly
31:37range.
31:37Would you buy now?
31:43Under our rules, no.
31:44The internal high has not yet been broken by a qualifying
31:48displacement candle.
31:49Keep the future hidden and point to the condition we still
31:52need.
31:57Now the next candle opens at ninety-nine and closes at one
32:01hundred and two.
32:02Its body is three points.
32:04The median body of the preceding twenty completed candles was one
32:08point.
32:09The candle closes near its high, and it closes above the
32:12marked internal high.
32:14That satisfies our displacement rule and the structure-break condition.
32:19But the three-candle gap still needs the final candle to close.
32:23On that close, candle one's high is ninety-nine point five and
32:27candle three's low is one hundred point five.
32:30The gap therefore runs from ninety-nine point five to one hundred
32:34point five.
32:35Its midpoint is one hundred.
32:38We can now consider a buy limit there.
32:40Every step had a confirmation time.
32:42We did not enter at the sweep low and later justify
32:46it with candles that had not yet formed.
32:50Our entry is one hundred.
32:52The lowest price before order placement remains the sweep low at
32:57ninety-seven.
32:59For this constructed example, the predeclared buffer is one point.
33:03That puts the stop at ninety-six.
33:05The planned price risk is four points.
33:08Two times that risk is eight points, so the target is
33:11one hundred and eight.
33:13The opposing liquidity reference was marked at one hundred and ten.
33:16Our target sits before it, which passes the location rule.
33:20The next candles retrace into the gap.
33:24Price reaches one hundred after the order exists.
33:28In this simplified example, we assume a fill at that price.
33:32A real test must use its own execution assumptions and account
33:35for the relevant bid or ask.
33:38Now stop the replay.
33:39The trade is open,
33:41and the result is unknown.
33:49The plan remains the same: stop at ninety-six, target at one
33:53hundred and eight.
33:54We do not move the target because the next candle looks
33:57exciting.
33:58In this path, price reaches one hundred and eight before ninety-six.
34:03The planned gross result is plus two R, where one R
34:07is the initial price risk.
34:09Costs would reduce the net result.
34:10Look back at the entry screenshot.
34:12That is the information you had when the decision was made.
34:16Save it separately from the outcome screenshot.
34:19Keeping both prevents a winning result from making a weak decision
34:22look stronger than it was.
34:25Now we keep the same context, sweep, displacement, confirmed gap, entry,
34:29and stop.
34:29We change only the future path.
34:32Everything up to the order placement is identical.
34:35Price fills the entry at one hundred.
34:37It moves a little higher, then falls.
34:40The stop at ninety-six is reached before the target.
34:43Under our simplified execution assumption, that is minus one R before
34:48costs.
34:49Which rule was broken?
34:50None.
34:51The setup met our proposed conditions and still lost.
34:55A trading model needs to allow for this outcome.
34:57If you explain every loss by inventing a new exception, you
35:01never get a fair test of the original rules.
35:04We record the loss and keep the chart markings.
35:07We do not move the stop, add another position, or redraw
35:10the range.
35:11Those actions would create a different strategy.
35:13Compare the winning and losing paths.
35:15Before the entry, they are the same.
35:17That is why the important question is whether a rule set
35:20behaves acceptably across many unseen examples, after costs.
35:24One selected win cannot answer it.
35:26Here is your exercise.
35:27Cover the result labels and review the two entry screenshots.
35:31Can you tell which one will win?
35:39The images do not contain that information.
35:41Your job at entry is to follow a defined process with
35:44controlled exposure, while accepting that the outcome remains uncertain.
35:48Let us reverse the model.
35:50The completed hourly structure is bearish, with a selected range from
35:55ninety to one hundred and ten.
35:57Price is in the premium half, above one hundred.
36:00On the execution chart, the confirmed high is one hundred and
36:04two.
36:05The pre-marked internal low is one hundred.
36:07Price trades up to one hundred and three, then the same
36:10five-minute candle closes at one hundred and one.
36:14The high was swept and reclaimed from above.
36:17Next, a bearish displacement candle closes at ninety-eight, below the
36:21internal low.
36:23Its body is three points against a preceding median of one
36:28point, and it closes in the bottom quarter of its range.
36:32We still wait for candle three to close before confirming the
36:36bearish fair value gap.
36:38The outer candle references define a gap from ninety-nine point five
36:42to one hundred point five.
36:43The midpoint is one hundred.
36:45That is the practice sell-limit price.
36:47The sweep high is one hundred and three, and our example
36:51buffer is one point, so the stop is one hundred and
36:54four.
36:54The planned price risk is four points.
36:57The two-R target is ninety-two, before the opposing level at ninety.
37:02A later return fills the order.
37:04In the illustrated path, price reaches ninety-two first.
37:08The arithmetic is the mirror image of the long: four points
37:13of planned risk and eight points of planned reward.
37:16The directional symmetry helps you check the rules.
37:20If you allow conditions on a short that you would reject
37:23on the matching long, decide whether that difference is intentional
37:28before testing.
37:29Here are four situations where our model stays out.
37:32First, price sweeps a low but never produces a qualifying displacement
37:38through the internal high within the time limit.
37:42The setup expires.
37:43Second, the shift and gap appear, but the retracement never reaches
37:48the entry before expiry.
37:50There is no fill.
37:51A missed move is not a losing trade, and it is
37:54not a reason to chase.
37:56Third, the stop distance requires a two-R target beyond the pre-marked
38:01opposing liquidity level.
38:03That fails our target-location rule.
38:05We do not shrink the stop or move the liquidity line
38:09to make the numbers fit.
38:11Fourth, execution conditions fail the test plan: for example, the spread
38:16exceeds the recorded limit or a scheduled announcement falls inside
38:20the exclusion window we selected in advance.
38:23A chart pattern can qualify while the trading conditions do not.
38:28For a real research run, you must specify the instrument, session,
38:33timezone, spread limit, stop buffer, and news window before starting.
38:38These values depend on the product and are not supplied by
38:42the shape of the pattern.
38:44Put each example into one category: valid trade, no fill, expired
38:50setup, or filtered setup.
38:57Keeping these categories separate gives you a much clearer record than
39:01writing missed opportunity across everything you did not trade.
39:06The first job is to make your rules reproducible.
39:10Take a fixed sample of historical data, hide the future, and
39:15record every qualifying setup in the selected session.
39:18Include losers, unfilled orders, and skipped setups.
39:22Do not stop the sample after a good run.
39:24Record the instrument, timeframe, timezone, reference swings, confirmation
39:30times, entry, stop, target, costs, and outcome.
39:34If the same candle appears to hit both stop and target,
39:38use finer data where available or a conservative rule declared before
39:43the test.
39:44Do not assume the favorable order.
39:46Then separate a development sample from an untouched evaluation sample.
39:51If you change the rules after inspecting the evaluation results, that
39:55sample is no longer untouched.
39:57You need fresh data for the next evaluation.
40:01Track average net result in R, losing streaks, drawdown, and the
40:06number of trades.
40:08A handful of attractive charts is not enough to establish reliability.
40:12Even a larger test can fail when market conditions change.
40:17For simple arithmetic, imagine forty percent winners averaging two
40:22R and sixty percent losers averaging minus one R.
40:26The average is plus zero point two R before costs.
40:30That is an example of expectancy, not a result from this
40:34model.
40:34Costs of zero point two R per trade would remove that
40:38entire hypothetical average.
40:40All right, you now have the core map: structure gives context,
40:44liquidity marks a place to observe, displacement and a confirmed gap
40:49define a sequence, and risk determines whether the trade fits.
40:54Open one chart and practice the sequence without placing a live
40:59trade.
41:00If a step is unclear, leave a comment with the concept
41:03and the timeframe.
41:04I am Issam from Issam Algo.
41:07Keep the chart clear, keep the rules written down, and let
41:10the record tell you what deserves to stay.

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