Welcome back. This is Module 2 of Month 2 of the ICT Mentorship. We're going to be specifically teaching on how to frame low-risk trade setups. Now, before we actually consider doing this, we have to consider what makes a setup worth taking. And ideally, selecting trade setups on higher time frame charts is ideal.
That's the primary function of a high odds probability trade. You have to look at a higher time frame chart. to give you the directional bias, to give you the institutional order flow, the support or resistance ideas that would be framing the buy or sell idea that you're looking to do.
And the reason why we do that is because large institutions and banks analyze markets on daily, weekly, and monthly basis. Now when we do these things, we're locating price levels that align with institutional order flow. This is key because if you don't have the understanding of institutional order flow on a monthly, weekly, and daily time frame, it's going to limit your exposure to high probability setups. Higher time frame setups form slow and provide ample time to plan accordingly.
Folks that can't day trade, folks that can't be inside of the short-term intervals in terms of charts, they have businesses, they have jobs, they have life. barriers that keep them from being able to be an intraday trader. You don't necessarily need to be a day trader. You can be using these higher time frame charts and they'll be able to frame out really low risk high-end probability setups. It doesn't require being intraday.
What can we do to lower the risk in a trade? The higher time frame has more influence on price. So we focus there. The conditions that lend to a trade setup on a higher timeframe can be refined to a lower timeframe. Transposing the higher timeframe levels to lower timeframe charts is important because that way we can start to reduce the overall exposure in terms of pips for our stops.
And then finally refining higher timeframe levels to lower timeframe charts allows for smaller stop loss placement and by default lower risk. Okay, sticking to our model, we used the Aussie dollar daily chart the last time. We're going to look at this same setup, and we're going to look at it in terms of refining it with lower risk. Now, I want you to look at this chart carefully because this is exactly the same chart you saw in the previous teaching. Now, I'm going to amplify on this, but it's important to understand the way the framework is here.
you're going to see it's exactly the same thing, just brought down to a lower time frame chart. And we're actually going to do it in two scales lower. I want you to look at the fact that we have the higher time frame, 7512 level relative to the daily chart. That's what this line is here, delineating the daily bullish order block.
Notice we have an old low here and price goes through that down into that higher time frame level. It's really important you see that. Because not only is it just because we're going below old lows not enough to expect a reversal. Okay, we're not looking for that just because that's the case.
We're looking for a higher time frame premise. Why should we expect there to be buying down below an old low? Because this daily chart level, 7512, is an old bullish order block because banks have bought there before.
So if we trade into that level again, okay, look at the framework here. We have a hourly chart. with a low being violated down into a key support level relative to a daily time frame. We've noted obviously the buy stops above here just like we did in the first teaching and obviously the second area of buy stop.
So we have upper level objectives framed on this trade. It's not a scalp. It's not a day trade. It's something that's going to give us a little bit more magnitude for objectives for hauling in pips. Now, obviously, we framed in the first teaching in this month's delivery of content, we looked at this down candle as the bullish order block, and we were looking at 75.42 as a long entry.
And obviously, by doing that, we framed it with a 20 pip stop. This is where our stop loss would be, which would be below the mean threshold of this. which is a bullish order block. So what if you want to get a smaller stop in relative terms to 20 pips?
And here's a more important thing. What if you want to be buying lower and offering yourself a lot less in terms of risk exposure? Well, that's going to require us going down into a 15 minute time frame.
Everything here. Look very closely. This is very close to what you saw on an hourly chart.
We have an old low, price trades down below that old low right into that key level, 7512 level. Now this up here is the buy order that would be needed on an hourly chart, way up here. But what if we focus our attention down into this area here? What can we do with this information?
Well, obviously the same thing's there. We have sell stops below an old low where buy orders can be paired up on the smart money side. And you see the market trades down into that level.
7512 so we do have a turtle soup long setup But we don't require the price to come all the way up here before we start buying So how can we do this and reduce risk? Well, we can take the bullish order block here the down candle right off of that level And why is this a bullish order block that's it's valuable and it's worth taking Because this candle trades through it right here and now we can focus on the midpoint of that candle up to its high in That area we could be a buyer So we could be a buyer down here at 7520, okay, and have a stop loss down here at 7507. It should not go down to 7507. If it's going to go higher, it should go up higher from where it's at now. By doing so, now we have a 17 pip stop loss.
And look how much lower we are in relative terms to what we saw on the setup in the hourly chart. Way closer to the key level of 7512. And we're using a 15-minute time frame to do it. So looking at it in terms of even further reducing the risk, we can take this small little area in here and refine that same sample size of data.
OK, I'm going to take a closer look into it. OK, so we're zoomed in now on a five minute chart. All we're doing is looking at same 7512 level. OK, and we're refining the entry from 7520. What can we do differently here?
Well, let's take a look at what's going on inside this yellow area. OK, we have price with another down candle as it hits that bullish order block 7512 on the daily chart. This down candle gets violated right here.
So now we can start looking at this down candle from its open or high down to the midpoint. And we can be a buyer there or we can just simply say, OK, well, that's basically the 7512 level. We'll just add the spread to it.
in terms of buying. That puts us in around 75.15. Our stop loss could still be down here at 75.07. That's less than 10 pips. Less than 10 pips on a buy.
Now you can refine this where your risk is 8 pips here and in first profit of 8 pips above here, second and third. So we have a multiple of 3R before we even take out. the buy stops above this old high on a five minute chart.
Now notice this is not even the buy stops that was framed on an hourly chart. All we're doing is using price action on the time frame we've executed on and looking at where price is going to be reaching for it. So we have a multiple of 3 R, or in other words we've made 3 for every $1 we risked. So the price has already moved 24 pips up from our entry in here and our stop is only 8 pips below.
where you would enter at at this old low here. Notice also by refining our risk like this, we're actually getting multiple of 3R reward for our one dollar risk. As we hit the entry that would be assumed on the hourly chart at that 7542 level, we're hitting that level here with lower risk and we're getting a three to one reward ratio.
Think about that. The risk to reward is $1 for $3 to be made. Or in terms of reward to risk, we're looking at $3 made for every $1 risk.
So it's amazing how you can take this and refine it down to smaller time frames. You don't have to have big, super wide stops, but it does require you to understand what you're doing and why you're doing it. You just can't get in there with these ultra short stop loss orders if you don't understand price action and why it should be responding on these levels.