MMC Series Video 5: Understanding Narrative in Trading

Overview

• Importance of narrative alongside price direction.
• Focus on how narrative leads to concepts like FLA and LOT.

Revisiting Direction

• Direction determined in first four videos: Targeting Price Delivery (PD) Rays.
• Understanding swing points and fair value gaps (FVGs).
• Direction alone is not enough; need narrative to trade effectively.

What is Narrative?

• Narrative explains where we are moving from to understand where we are going.
• Example: If moving higher, where are we starting from?
• We need to identify a PD Ray to trade from (e.g., a fair value gap).

Order Flow Lag

• Refers to the direction of price and determines potential continuation.
• Can identify multiple PD Rays:
  • Swing points
  • Fair value gaps
  • Fair value areas
• Not all PD Rays have the same probabilities.

Probabilities in Trading

• Focus on high-probability scenarios.
• Two fair value gaps can appear similar but have different probabilities of success.
• Higher probability trades lead to better outcomes.
• Understanding high vs low probability order flow legs is crucial.

Time Frames and Order Flow Legs

• Analyze order flow on monthly, weekly, and daily time frames.
• Higher time frames provide context and are more significant for trading decisions.
• Example: Monthly bullish candle indicates order flow direction.

Candle Science

• Focus on a single candle to analyze order flow.
• Identify order flow legs through analyzing lower time frames without losing context.
• Example: Fair value gap on lower time frames indicates continuation potential.

FLA, A, and LOT Breakdown

FLA (First Line of Defense)

• First PD Ray encountered during retracement.
• Highest probability: Fair value gap.
• Lower probability if it’s a fair value area.

A (Overlapping Defense)

• Area where two PD Rays overlap.
• Best scenario is to have a fair value area as the overlapping defense.
• Double the probability if both a fair value gap and area are present.

LOT (Last Line of Defense)

• Always a swing point.
• Best case: No fair value gap present, swing point acts as both first and last line of defense.
• If there’s a fair value gap, the last line of defense is not ideal for trading.

Practical Examples

• GBP/AUD analysis on daily time frame.
• Identifying high and low probability scenarios based on order flow legs.

Conclusion

• Importance of understanding and analyzing FLA, A, and LOT.
• Next videos will dive deeper into specific defenses and their impact on trades.
• Recommended case study to apply concepts learned.