Lecture on Splits and Imbalances in Trading

Key Concepts

• Split: The difference between an imbalance and the price action that follows, often identified using candlestick wicks.
• Imbalance: An area with no price action, often marked by consecutive candles in one direction without opposing candles.

Time Frame

• Always use a 5-minute time frame to find splits.

Identifying Splits

1. Look for candles falling down with no intervening opposing candles (imbalances).
2. Identify wicks that act as potential splits.
3. Notice areas where buyers stall, causing a split in the price action.

Example Analysis

• Downward movement: Candles fall with no price action indicating imbalance.
• Wick acts as a split: When a green candle forms after a series of red candles, creating a split.
• Buyers stall at a level: Recognizing when buyers are struggling to break above a certain level.

Trading Strategy

Entry Points

• Find entries close to splits to minimize stop-loss distances.
• Use split to guide entry and exit points.
• Momentum and volume are crucial in deciding when to enter a trade.

Managing Risk

• Keep stop-loss tight, around 50-60 ticks, depending on the entry distance.
• Aggressive but careful: Be willing to switch positions if necessary (from long to short or vice versa).

Trade Execution

• Look for momentum breaking through splits to take either long or short positions.
• If price bounces at splits, it might be a signal to take a long or short position, depending on the trend.
• Stop-loss positioning: Ideal to resist high ticks unless necessary.

Strategy Application

• Use replay mode and analyze past trades to understand and see splits.
• Recognize that some splits are stronger with more imbalances than others.
• Choppy markets might result in losses; adapt and adjust accordingly.

Important Notes

• Understand that imbalances do not always get filled completely; take profits when opportunities arise.
• Unlimited trades are possible with careful analysis of splits and imbalances.
• Consistency and adherence to rules are key to successful trading with this strategy.

Final Thoughts

• Focus on momentum, volume, and market conditions to guide decision-making.
• This lesson on splits aims to enhance your understanding and application in real trading scenarios.
• Questions are encouraged for further clarification and understanding.