MMC Series Video 5: Understanding Narrative in Trading

Key Concepts

• Direction vs. Narrative
  • Direction is about predicting price movement (higher/lower).
  • Narrative explains how to trade towards that direction.

Recap on Bias

• Previous focus was on determining price direction.
• Identify PD Rays to target for trading (Swing high, Fair Value Gap).

Understanding Narrative

• What is Narrative?
  • If price is going higher, identify where it is moving from.
  • Focus on how to deliver towards the targeted PD Rays.
• Trade From PD:
  • Use PD Rays as targets and points to trade from.
  • Example: Identify Fair Value Gap to continue higher towards swing point target.

Order Flow and PD Rays

• Order flow provides insights on direction and potential price movements.
• Key Components of Order Flow:
  • Swing points
  • Fair Value Gaps
  • Fair Value Areas
• Importance of probabilities in trading.
• Focus on high probability scenarios for trades.

Probability in Trading

• Different PD Rays have varying probabilities.
• Always seek the highest probability scenarios for successful trades.
• High Probability vs. Low Probability:
  • Examples of order flow legs with high and low probabilities will be discussed in future videos.

Time Frame Analysis

• Higher time frames (Monthly, Weekly, Daily) provide better context for order flow.
• Lower time frames should be confirmed against higher time frame contexts.

Candle Science and Order Flow

• Candle Science:
  • Viewing order flow through individual candles.
  • Identify disrespect candles on higher time frames.
• Example: GBP/AUD on Monthly Time Frame.
  • Identify bullish candles and potential gaps for upward movement.
• Focus on finding order flow legs to confirm direction.

Analyzing Order Flow Legs

• Order flow legs are characterized by three key components:
  1. Fair Value Gap (FLA)
  2. Fair Value Area (Overlapping Defense)
  3. Swing Point (Last Line of Defense)
• Break down order flow legs using FLA, OD, and LOT structure.

First Line of Defense (FLA)

• The first PD Ray encountered during a retracement.
• Best scenario: FLA is a Fair Value Gap.
• Lower probability scenario: FLA is Fair Value Area.

Overlapping Defense (OD)

• First area of retracement where two PD Rays overlap.
• Stronger when the Fair Value Area is above the Fair Value Gap.
• Indicates stronger bullish intent when analyzing order flow.

Last Line of Defense (LOT)

• Always a swing point; critical for determining potential price movements.
• In absence of Fair Value Gaps, the swing point may represent the only PD Ray for retracement.

Practical Examples

• GBP/AUD Daily Time Frame:
  • Identify and analyze overlapping defenses and their implications on order flow.
• Liquidity Considerations:
  • Recognize when the market is not offering fair value and instead is seeking liquidity.

Upcoming Topics

• Next videos will focus on:
  • Detailed breakdowns of FLA, OD, and LOT.
  • Case studies for practical understanding.

Conclusion

• Emphasize on practicing with case studies to solidify knowledge on high and low probability PD Rays.
• Resources for case studies will be provided.