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I have a 3 step formula that I
ve backtested 1000 s of times
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And every single month that I tested
it, it was profitable in the long term.
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No indicators, no patterns,
just pure price action baby.
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And by the end of this video,
you too will know this strategy.
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And will be able to take calculated trades just
like this one and make insane amounts of money.
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To jump right into it, the first
step involves market structure.
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Now, this is arguably one of
the most important steps.
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Because if you even slightly just slightly fk
this part up. It will ruin the whole strategy.
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*meme*
One of the very first things you
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learn as a trader is uptrends and downtrends.
Its almost the sippy cup of trading.
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A chart that makes higher highs
and higher lows is an uptrend.
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A chart that makes lower lows
and lower highs is a downtrend.
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Simple enough. Everybody know this.
Now you may be thinking.
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Why are we even going over this?
I already know all of this.
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Well, what if I told you, you re probably
doing all of this completely wrong?
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Let me explain.
So going back to our example.
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The chart does this, making
higher highs and higher lows.
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And as we already stated, its an uptrend. Okay..
But then something interesting happens.
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The chart starts heading downwards.
Which in the process, price makes
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this low, and breaks right through it.
And this exact point, is where I see the
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majority of traders make the mistake.
Since price broke this low,
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a lot of traders think we are now in a
reversal and price is in a downtrend.
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So they start looking for short trades because
they now think price is going to head lower.
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But what if I told you this chart is
actually still fundamentally bullish.
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*crowd gasp*
You see, sure price made this low.
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But this low is actually not a low
at all, or at least a valid one.
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Why?
Because price never broke
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the valid low which is right here.
*switch up*
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You see, the only way you can get a valid
low is by breaking the previous high.
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If price did something like this, where
price didn t break the previous high.
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This would not be a valid low.
I want to make this clear
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In order for a low to be validated.
It needs to break the previous high.
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If you do not understand this part of the
strategy. The strategy will not work.,
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So say if price does breaks this high, we
now know this is the valid low. Okay good.
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So now price is in an uptrend. Which means,
we should only look for bullish trades.
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The only time we should start looking for
short trades is if price breaks this low.
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It can do anything right here.
It can go up, down, sideways.
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Literally anything as long as it doesn
t break this low. We are in an uptrend.
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So if price did this.
What are we in?
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Well a lot of people would say downtrend,
because we broke this low right here.
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But like I said before, a low is only
validated if it breaks the previous high.
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Which this low did not break the
previous high. So its not validated.
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So we are still looking at our
previous low. Which price hasn t broke,
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so we are still in an uptrend.
Now say if instead of doing this,
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price did end up breaking upwards.
Since price did break our previous high.
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Our new low will be transferred
from this point, to this one.
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I know it can be slightly confusing
But the main thing you have to remember
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is the only way a low is validated
is if it breaks the previous high.
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If you remember that one simple rule,
you will easily be able to identify
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if we are bullish trend or a bearish one.
So that s the first step. Identifying if we
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are in an uptrend or a downtrend.
So whats next?
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That would be step 2 in the formula.
Step 2 is identifying supply
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and demand in the markets.
Demand zones take place in uptrends.
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Supply zones take place in downtrends.
A good style of thinking is you want to buy from
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demand zones and sell from supply zones.
The reason why you want to
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buy from demand zones is this.
Here if we look closely. The market is going up.
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Since we saw a large push from
the beginning of this move.
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It simply shows us that a lot people
wanted to buy from this point onwards.
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So we can assume, if price
comes back down to this area.
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Traders will have the same style of thinking
and want to buy in this same area again.
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A supply zone is the exact opposite.
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Since we saw a large downwards
move from this point on.
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It shows us that a lot people
want to sell at this area.
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So if price ever retests this zone we can assume
price will again move downwards from this point.
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This supply and demand theory
is the core of our strategy
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But We still have one more
step in our 3 step formula
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But lets put all that we learned so far
to the test on a real life chart example.
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So looking at a real chart.
We see price moved upwards
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Came down, and then broke this previous high.
Which means we have higher highs and higher lows.
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Meaning we are in a . uptrend.
Since we are in an uptrend.
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We only look for long trades.
WE DO NOT look for any sell positions
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As shorting in a uptrend is just silly.
*meme*
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Since this low broke the previous high,
this is our valid low and price will only
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be in a downtrend if it breaks this point.
So now that we know we are in an uptrend,
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we want to look for demand zone opportunities.
We can find our demand zones by finding an area
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of consolidation or a point where price moved
sideways before having a sharp move upwards.
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As you can see from this chart
we had some consolidation right
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here. The price shot straight upwards.
How I like to mark my demand zones is marking
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the candle right before the impulse move.
So grab your rectangle tool on the side.
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Find the area of consolidation
before the big move.
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Then mark from the low to the high of
the previous candle before the big move.
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This is our area of demand.
Again, we are not even considering areas
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of supply because we are in an uptrend.
So we don t need to worry about that.
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We wait for price to re-enter into this
zone and this is where we would enter.
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Set your stop loss right below the demand zone
and set your take profit at the recent highs.
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Boom we got an easy trade.
So that s an example of one winning trade.
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But I want to show you just how
accurate this strategy really is.
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So lets break it down with a real chart example.
Here we get an uptrend, because price is making
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higher highs and higher lows.
As we can this low is what
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broke the previous high.
So, this is where price need to
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break in order to be in a downtrend.
Which is exactly what happens.
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So now we are in a downtrend and we only
look for areas of supply or short trades.
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So we mark our areas of supply.
Price comes back up this area of supply. We
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enter. Set our stop loss above the area of supply.
And set our take profit at the recent lows.
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Boom easy winning trade
But wait! we re not done
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Price created another area of supply up
here and we re still in a downtrend.
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So we wait for price to come up to this supply
Enter
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Set our stop loss above the area
of supply and target recent lows.
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Another winning trade.
But again, we re still not done.
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Price created another area of supply.
Wait for price to come up to it.
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Set stop loss above the area of supply.
Set take profit at recent lows.
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And again we got another winning trade
But wait theres more
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We got ANOTHER area of supply
Wait for price to come up here again
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Set you stop loss and take profit.
And we got another winning trade.
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That s the power of this strategy.
Its extremely accurate for one.
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And two, you are only trading
in the direction of the trend
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Which raises the probability of
you winning a trade by a lot.
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So now that you know just how
powerful this strategy really is.
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Lets go to the third and final step on
how to improve this strategy even more.
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Our last step involves risk to reward.
Sometimes while using this strategy,
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you ll get a trade that checks all of the boxes.
But when you setup your stop loss and
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take profit.
Its has a low
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risk to reward like in this example.
We only want to take trades if the
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risk to reward is above 2.5:1
Mean for every $250 we re
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getting back we re only risking $100.
So even if the chart follows both step 1 and 2.
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But the risk to reward is under 2.5.
We do not take this trade.
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This one rule increases the profit
rate of the strategy by a ton.
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So for our final example we have price
making higher highs and higher lows.
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Meaning we are in an uptrend so
we only mark our areas of demand.
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Price consolidated right here before
shooting upwars. So we mark this area.
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We wait for to come to this area again.
Enter.
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Set our stop loss below the demand zone.
Set our take profit at the recent high.
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Last step is to check our risk to
reward and make sure its over 2.5.
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Which in this example its 3.
So we re good to go there.
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If its anything under 2.5,
we do not take the trade.
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Wait for price to play out and we
get a beautiful winning trade.
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Then we just repeat the process
Forever ..
