5 min Bull Flag,
Daily Bearish Orderblock,
Another Important Observation*** We backtested an interesting correlation between the 1st deviation moving average, which is the day to day median on price, and there was 100 percent correlation for both premarket and session open prints, where the 1st deviation moving average acted as a MAGNET for price to attract to, before a move was to be made. So this moving average difference between both premarket and session open prints, can be a good gauge to whether price will go up or down for the session. And in this particular case, because we were trading off of weekly levels, and trying to gauge the week candle, it appears that the 1st deviation moving average, served as a draw on liquidity for a wider macro range, rather than a day to day trend following moving average, because the contradiction of daily bias is what actually presented the higher range trades to begin with. (Mostly from H12 Bearish Orderblocks) from what we observed, which can align quite well with a theoretical 3 screen system approach of H12, Daily, Weekly, with H12 being the execution screen, daily as the trade management screen, and weekly as the wave from which the trade is flowing. But overall, we will have to apply this moving average and open print correlation in the future to try to understand the daily draw on liquidity in the most simplistic form.
RULES FOR OPEN PRINT & DAILY MOVING AVERAGE CORRELATION:
- 1st Deviation Moving Average as a Magnet: There’s a 100% correlation observed between the 1st deviation moving average and price action during both premarket and session open. This moving average acts as a magnet for price, especially before significant moves, making it a critical indicator for gauging session direction.
- Weekly Levels and Daily Bias Contradiction: Trading off weekly levels, the 1st deviation moving average served more as a draw on liquidity within a broader macro range rather than a trend-following tool. The contradiction in daily bias was a key factor in presenting higher-range trades, particularly aligned with H12 Bearish Orderblocks.
- Three-Screen System Insight: Observations suggest that a theoretical three-screen system could be effective: using the H12 for execution, the daily chart for trade management, and the weekly chart as the guiding wave for trade direction.
Insights:
- The 1st deviation moving average can be used to predict whether price will go up or down for the session by monitoring its relationship with premarket and session open prints.
- When dealing with weekly levels, it’s crucial to consider the broader macro range and how the daily bias contradiction can impact trading opportunities.
- Aligning the H12, daily, and weekly charts can provide a structured approach to trading, with each timeframe serving a specific purpose in the trading process.
Trading Rules:
- Utilize the 1st Deviation Moving Average: Always monitor the 1st deviation moving average in relation to premarket and session open prints. Use it as a gauge to predict the session’s direction.
- Apply a Three-Screen System:
- H12 Chart: Use as the execution screen for entering trades.
- Daily Chart: Utilize for managing trades once they are open.
- Weekly Chart: Reference for understanding the broader wave or trend in which the trade is occurring.
- Consider Macro Range over Day-to-Day Trends: When trading off weekly levels, prioritize the macro range indicated by the 1st deviation moving average over the daily trend.
Overall Lesson:
The 1st deviation moving average is a powerful tool for identifying potential moves, especially when trading across different timeframes. Integrating this with a three-screen approach (H12, Daily, Weekly) can provide a robust framework for navigating both short-term and longer-term market movements.
How to Avoid Future Blowups:
- Stick to Higher Timeframes for Key Decisions: Ensure that your primary trade setups and management decisions are based on the weekly and H12 charts.
- Respect the 1st Deviation Moving Average: Don’t ignore the signals provided by the 1st deviation moving average, especially around premarket and session opens. It’s a crucial indicator of potential liquidity draws.
- Avoid Overemphasizing Daily Bias: Recognize when the daily bias might conflict with weekly levels and adjust your strategy accordingly to avoid getting caught in choppy or contradictory price action.
Key Takeaways:
- Market Shift Sensitivity: The account was successful in trending conditions but faced significant losses when the market shifted, particularly when dealing with weekly and monthly levels that disrupted the daily bias and range.
- Importance of Higher Timeframe Analysis: Consistent rejections were observed off of 12-hour bearish orderblocks, highlighting the importance of analyzing and respecting macro levels and imbalances.
- Orderblock Reliability: Bearish orderblocks, even after liquidity was swept, continued to provide reliable rejections, indicating that these areas remain valid until a full body close occurs beyond the liquidity level.
Things Done Right:
- Identification of Rejections: Correctly identified consistent rejections from higher timeframe orderblocks, particularly the 12-hour and daily charts.
- Liquidity Sweep Recognition: Noted that liquidity sweeps between 12-hour fair value gaps and imbalances were key to understanding price movements.
Things Done Wrong:
- Misjudging Orderblock Validity: Incorrectly assumed that once liquidity was swept on orderblocks, they were invalidated, leading to trades against these strong levels.
- Over-reliance on Moving Averages: Relied on daily bias via moving averages, which proved unreliable when playing off weekly levels due to the mismatch in the timeframe of analysis.
New Trading Rules:
- Orderblock Validation: An orderblock is only invalidated if there is a full body close above or below the buyside or sellside liquidity area from which the orderblock originated, and this close must occur on the same timeframe as the orderblock itself.
- Weekly Level Consideration: When trading off weekly levels, incorporate a 5-day perspective and consider using a 5-deviation moving average for more accurate levels.
- Macro-Level Focus: Prioritize trading at extremes of orderblocks and liquidity levels on higher timeframes (12-hour and weekly) rather than focusing solely on daily imbalances.
Overall Lesson:
- Adaptability to Market Conditions: The key lesson is the necessity of adapting strategies based on the timeframe and current market conditions. Recognizing the ongoing validity of orderblocks and liquidity sweeps on higher timeframes can prevent premature reversals and losses.
How to Avoid Future Blowups:
- Respect Higher Timeframe Levels: Ensure that higher timeframe levels, especially those on weekly and monthly charts, are respected, and avoid trading against these levels without solid confirmation.
- Orderblock Reassessment: Before dismissing an orderblock as invalid, confirm it with a full body close on the same timeframe that created the orderblock, avoiding trades against strong rejection levels.
- Backtest and Adjust: Backtest moving averages on a 5-day deviation to align better with weekly price action, ensuring a more reliable trend perspective when trading within larger timeframes.
We completely blew our papertrading account this week, and we went from an ATM printer machine on the way up, to a complete blowup once the market shifted, and this has been a continuous pattern that we have noticed. When the market trades off of weekly and monthly levels. I think its because these levels tend to completely chop the daily range and the bias. So what tends to happen when the daily bias flips during the day, everyone gets knocked out of position because both sides get stop hunted.
So obviously its more important to play off of the macro levels. And one thing that I am noticing with a birds eye view of the entire week from the 5 Day 5 Minute perspective, there was consistent reliable rejections off of H12 Bearish Orderblocks, and the completely sweep of liquidity between 12 hour fair value gaps and imbalances. So it could be that because of the imbalance from a 12 hour persepctive, which is half the amounf of time as a full daily candle, that the imbalance between the 12 hour candles created a massive area of liquidity to be swept each day, and you would have to play the extremes and orderblocks of each 12 hour imbalance rather than day to day imbalances.
Another very important thing to note, is that the bearish orderblocks that were created, such as on the 1 day and 12 hour charts, provided consistent rejections AFTER the have already been swept. So we will have to implement a new trading rule in the future, that if we are playing weekly levels, or weekly candles, that you cannot disregard swept liquidity on orderblocks on daily and 12 hour charts, until there is a full body close above or below the stoploss area, meaning buyside or sellside liquidity on the timeframe in which the orderblock is presented.
Another important note, is that we were trying to guage where this weekly candle would bottom, and we noticed on the prior bar that there was sell side liquidity below the prior weekly low, with a liquidity imbalance to the downside at the next bullish weekly orderblock to the downside. All of the liquidity in this area was swept today from downside back to the upside. So its very important when playing a weekly candle or weekly level, where the max pain or max imbalance is on price for that week to establish where extremity points can come from.
We can also implment a new rule. If the timeframe on the orderblock, is higher than the timeframe of the draw on liquidity. These levels can predict a higher probability of the market reversing.
We also located on the weekly chart that although the weekly bearish orderblock, already had swept liquidity, it rejected a second time once retested, which was last weeks market reversal top, which came from consistent wick rejections on the 12 hour bearish orderblock, created from the 12 hour bearish orderblock on the 2nd weekly draw on liquidities wick high, and this 12 hour bearish orderblock, still provided consistent rejections after the liquidity was already swept.
So it seems alot of the reason for our losses during this week, was because we assumed since liquidity has already been swept on these orderblocks, that they were less likely to hold or provided 2nd a 3rd trade opportunites, and we would try to trade against them anticipating that the levels would break, but they never did. So we clearly need to establish new defined rules on orderblocks and swept liquidity. SO again, we will establish yet another persepctive on this new rule. The orderblock is ONLY invalidated, if there is a full body close above or below the buyside or sell side liquidity area established at the high point or low point from which the orderblock came, with the full body close coming from the same timeframe as the orderblock itself.
If we do this, we can play the right side of the V setup at the extremities of the orderblock itself, and the buy side or sell side liquidity levels, if the bar has not yet closed outside of the liquidity level, potentially providing a deep risk reward setup against any potential wick rejections.
Another important note, is that although the moving averges had a general daily bias overview, they werent reliable from a daily trend perspective while playing off of weekly levels, because obviously, a week is 5 days worth of price action, and our moving averages are only 1 and 2 deviation which means 2 days of price action, so there is an imbalance of another 3 days. So maybe we will do a backtest on a 5 deviation moving average to see if we could have found any levels.
Another thing to note, is that the 2nd day rejection on the week, came from a 61.8% retracement from the high to low after a new 5 day (week range) was established. So we can note this for the future.
