How New Students Should Start Part 5 \ Back Testing Properly transcript

Welcome back, folks. All right, so this is part five and I want to make this as short as I possibly can. Part four, I gave you three pillars to my smart money concepts. That way you can start with just those three and build on that as you go through the compendium that's on this YouTube channel. But every single one of those individual conceptual ideas you can make a model off of. You don't need to go beyond that. That's how simple and simplistic I've made it for you.

So, all the the chronic complainers that say this is overcomplication, it's not complicated. You're just lazy. And if you don't like that, then go up the river. I could care less. This idea of backtesting, I spent lots of time over the last few years thinking about how I could make it as streamline, as simple, as direct, right to the point, and not complicate things, but also give you the freedom to be able to bring your personality into it.

And to answer the question that folks always ask me, you know, can I pay for their real-time data feed so watch real-time price action. It's $7 on TradingView, folks. If you ain't got $7, you ain't got money to trade. If you ain't got money to trade, then you need to just study past old data. Simple, okay? Me paying for you to do what is going to be useless to you is a needless expense on my part. And you may hear that and say, "Well, you're being greedy." No, I'm being practical.

You're being unrealistic. When you finally learn to do this, you'll find a way to to get money. Cuz if you ain't got $7, you ain't got money to trade. If you ain't got money to trade, you can't trade. If you can't trade cuz you ain't got any money, then you cannot expect other people to hand that to you. You'll find a way. Trust me. Guaranteed. You know how to do this and you're able to do it well, you'll find a way.

By asking other people, whether it be me or the one else, you know, I delete people when they post that stuff begging for people to be and buy me a challenge, buy me this. No. As soon as I see that stuff, I ban you. I don't want to see your face. I don't want to see you complaining about nothing. If you're broke right now and you can't do it, then work harder to get out of that situation. And that's just the that's just the facts.

I did that. I had to do it. Everybody that wants to trade, they have to have money. If you ain't got money, you can't trade. And that's the real that's reality, okay? So, you don't need $7 to spend on TradingView's real-time data. I'm going to say one statement here and then we'll move on. I'm going to do my best to discourage you from ever using market replay cuz it's absolutely useless. It's useless. Seeing a candlestick open and then immediately how it closed, where its highest high and lowest low formed, that is not the same thing as watching the breath and lifespan of every individual candlestick.

Whether you're going to be trading swing trading, long-term position trading, 4-hour charts, 1-hour charts, weekly charts if that's the time you're going to be trading on, the logic is still the same. We're not using a different methodology because we're going up in a different time frame. It's the same thing. You're watching how these candlesticks book price. And when you use market replay, you don't get that. You get two ticks, the opening and initial flurry of whatever it did, and then it gives you the close.

And then it may create a higher high or a lower low, and then it settles. You didn't watch the entire lifespan of that candlestick, and you need to be able to do that. Now, for folks that are going to take this up a level in terms of their commitment to wanting to learn how to read price better, if you're a Windows user, you can use what I'm using right here to make this video. In Windows, if you tap the alt button down and the Windows button down, and then tap the letter R, in the upper right-hand corner, you can't see mine, but mine's right now saying I've been talking for 4 minutes and 20 seconds.

Make sure your microphone is turned on, and you can actually do a video backtesting, where you're logging everything and recording your observations in your own voice, which I think is superior. Okay? But, you you do what you want to do. I'm saying that by watching recorded price action, even if the data is delayed, they're not changing the way the candlestick opens and makes its high and the low and trades slightly higher, slightly lower in the same 1-minute candle, and then finally settles.

You're seeing the entire lifespan, the birth and death of every individual candlestick, whether you're looking at live price feed or a delayed price feed. It doesn't make a difference. You're studying price movement that's already happened anyway. What difference does it make? What difference does it really make? Cuz you're backtesting. You're going through the logic of what you would have implemented with the least of experience, going back and seeing how many times these things work.

When does it meet its hardships? Where does it fail? Recording your observations, that way you're conditioning yourself to see things by repetition, and by repetition, you will you record it in your subconscious, and your subconscious will carry that into real-time price feeding of data that's live. So, you'll be able to read the tape live because you've conditioned yourself looking for these patterns, these characteristics, these subtle nuances that your job and your task is to record on a day-by-day basis.

Now, I suggested that you do 6 weeks before and then go 6 weeks in the in the future with it, minimum. And I promise you if you do that, your ability to see price action and interpret price action will be so far ahead as what it is right now. You'll be shocked to see how much you glean from doing it. But, recording your 1-minute chart and then coming back after work, coming back after university, or whenever you get to it, it's better to be able to see it like that because you can pause.

You can pause it just like when you see these guys that are teaching as mentors with market replay, which is shameful. They're pausing it and they'll they'll describe something, okay, where they should be telling you what it's doing as the candlestick is building and being born and how it's going up and down and then where it closes, how's that impact the next candlestick. So, I tossed it in there as an encouragement, not to talk down to them, but you don't need market replay and you should stay away from it because it's literally toxic.

It's not realistic. It's not fluid. You want to see real price open, close, how create the highest high and lowest low in every individual candlestick on a 1-minute chart. That same logic, you're going to transpose that same thing to whether you trade an hourly chart, a 4-hour chart, a daily chart, a weekly chart, a monthly chart. It doesn't change. It's the same thing. Just because you go up in the higher time frames, it doesn't mean you're trading against a a bigger final boss. 1-minute chart's not moving any faster than the weekly chart is.

I promise you, put them side by side. The weekly and the 1-minute chart, they're all showing the same price at the same time. The illusion of speed is just that, an illusion. Price is price. It's going to do whatever it's going to do. But, you need to do certain things to allow you to interpret price action in a way that's conducive for you to increase in your understanding and your knowledge. So, I gave three primary pillars to my smart money concepts.

I gave the pre-market session hours, 7:00 to 9:00 a.m. Eastern time. And then, relative equal highs and lows inside that range and it's high and low. And determine what was its phase. Did it consolidate? Did it have a trending or expansion type move? And how that usually impacts the morning session. Then I gave the opening range for regular trading hours and its consequent encouragement. And then I gave the silver bullet for 10:00.

The first incentive everybody got. So, I'm going to be able to teach a little bit more on that third one, the silver bullet, today. So, that way it gives you a greater depth of understanding. But here, we're looking at a a plain naked chart. This is today's price action on a 1-minute basis for Nasdaq September delivery contract for 2026. And when you want to go back testing, what you're doing is is you're looking for pattern recognition, characteristic observations.

You want to record things that look similar, but may slightly be a small deviation for what you think it should have done or what it should look like all the time cuz they don't look the same all the time. All setups are not equal. They're just very close to one another. They rhyme. Okay? They don't They don't have an identical fingerprint, but they have very very important characteristics that are collectively the same.

And you'll see what I mean as you go every single day doing these types of things. But now we're going to add the lipstick. This is what your charts should look like when you log them. If it's in static form, don't worry about doing the the naked chart. Just do everything with the annotations. All right? So, things that you want to include, obviously, when we're looking at the pre-market session, that's 7:00 in the morning over here to 9:00 a.m.

Eastern time. You obviously want to get the highest high and the lowest low. And you want to draw your fib across that. So, that way you're grading it out. And what I like to do is teach my son to take them and just stop the lines right at 9:00 a.m. Cuz what that'll do is then if you're going to grade the opening range, which is 9:30 to 10:00 a.m. Eastern time, that first 30 minutes, you'll be able to see if there's any lines that agree with these, and that makes those levels even stronger as key levels for our PD array in a form.

Here, we can see the highest high and the lowest low here and here. And what we want to do is you want to project them into the day. By doing so, we can see at 9:30 we rallied away off of the high of pre-market session hours, 7:00 to 9:00 a.m. Eastern time. And then it started to project higher. Then, the market after creating some high, you don't need to know why it created that high. Now, as your experience goes further, you'll be able to record these things in your chart as to why it did this and did that.

But here, what we're just observing how the NQ was clearly able to sell off from this premium bearish fair value gap for an easy price run of over 100 handles. Fair value gap, this is for like brand new students, okay? You're looking for it where it's obvious in the in the past. It's hindsight. You're going to benefit from that, okay? But you when I talk in your annotations confidently. You don't want to write things that you were second-guessing something or you were mad about how it did or didn't do this.

It you're only recording the sweet sugary love letter stuff to yourself. Because your subconscious loves that. It wants to It wants comfort. So, if you see something in the chart visually and you write down constructive praise of your observation skills. It tricks your subconscious into shunning all fearful thoughts and toxicity and it makes this become a pleasurable thing. Especially when you watch or look at your charts on the weekend when the market's not trading and you review your observations and you look at what price action did.

It's it's reassuring. It's comforting. It builds confidence even though you don't have it, even though you didn't have the experience. You're creating the atmosphere on how you can speed that very thing up, which is experience. You're pantomiming that you knew it was going to do this in your observations and your annotations. It's tricking your subconscious. It's no different than when you go to a motivational coach and you have problems with anxiety or you have problems with, you know, setting goals and sticking to them.

They're going to talk to you in a positive way and they're going to tell you to talk positively about yourself and reinforce when you do something right. Really cheerlead yourself about that. And don't dwell on the negative. So, those mind games that you you trick your brain with will help shorten your learning curve. Plus, it's your trading book that you're writing that nobody gets to see, no one gets to judge, no one's critiquing it.

It's not subpar, you don't have to compete with somebody else's. It's yours, it's unique. You can be honest in this. Okay? When you see something for the first time, you can share your excitement in here and not worry about, "Oh, I've been studying ICT for this many years and you should have known that by now." That's why you don't share that kind of stuff. Okay? I have students that are overzealous and they want to sound like they know everything and they don't know everything.

Okay? So, by having the fair value gap here, you want to annotate the high, key highs, and there's a little tab in TradingView where you can do price note. Just take click on it and then go to the high or low you want annotate or open high or close. Open high, low, or close, those four reference points. Any key data point like that, you want to anchor like this that way you can see the actual price. You don't want to just say, "Well, it's probably around 560-ish." You want to know what the actual high is because this is your business.

You care about it. If you were running a cash business and we're talking about, "Well, it looks like it's 560." But in reality, it's 562 and a quarter. Are you going to take that $2.25 loss if someone says, "Well, I don't really want to count everything and you know, I deserve a tip today. I'll just take $2.25 out of the register." You're going to miss that money cuz it's your business. So, in trading in in an analysis concept, you want to be precise.

Cuz if you're not trying to be precise about your logging and your backtesting, your trades will never achieve precision. It won't happen. If you're sloppy and lazy doing this, you'll never find consistency. I promise you, go do something else. Go follow somebody else that knows how to trade and wants to sell you signals. You'll probably do better there. Okay? If you're lazy, that's where you belong. But for those that want to carve out their own career, their own future with their own steam and their own effort and not have to thank anybody for it because they earned it themselves.

This is the way you do it and there's no shortcuts around it. It draws back down into that premium high which now is acting as a discount because up here to go down there, this is a discount. But it started as a premium level. So pre-market session buys out liquidity. It pulls right back down into that and then it trades lower and it comes right back up and trades into this fair value gap and annotate things like I was pleased.

Now listen to the words I'm using. I was pleased to see how the pre-market session high was used for a qualifying a key level for the 11 09 a.m. Eastern Time CB, which is this right here. Right there. Which is a bearish fair value gap. Price retraced higher to only retest the CB consequent encroachment and the pre-market session high. That's the middle of the fair value gap, the dotted line and that blue line. You see how it retraced from here all the way up into that.

You're annotating something like that, an observation like that. And then price moved so nicely lower to clear the relative equal lows that formed at 29,370.50 during the pre-market session hours. So there's your relative equal lows as I taught in part four. Look for relative equal lows and relative equal highs inside of this range between 7:00 and 9:00 because the algorithm will absolutely refer back to that. And here we had the market trading right down into it there brilliantly.

Okay? And you want to mark that low with your little price note little doohickey inside of TradingView. That way you want to see the the information and increase the font size so that way it's not small and tiny like it does by default. And NQ dropped lower from a pre-market key level for 94 handles. Now, this is the part I didn't include because this is where you you are going to be judged on what you're going to do because I will say pause the video and some of you won't do it.

I will say back test like I'm going to teach you for 6 weeks and most of you majority of you will not do this. But you'll still be in my comments saying, "Can you talk about relative equal lows? Can you talk more about event horizon? Could you talk a little bit about opening range gaps?" When I'm doing it every single day. It's like you're unteachable. So, when you look at points of reference that would constitute a hypothetical entry so you can gauge reward to risk if you're so inclined to think that way.

I don't think that way because my conceptual ideas are already built in 3:1, 5:1. It just my setups generally create that by default because of what we're looking for, what we're looking at. And I'll give you examples as we go. But here we have fair value gap here. We have the market creating relative equal highs here. It went up into that. And then you want to use the most realistic You don't want to say, "I know I would have sold short right here at 29,562.25.

I'm awesome." >> [laughter] >> That's not That's not what I'm telling you to do, okay? It is reasonable for you to say that you could hypothetically use consequent encroachment as your entry or a one tick below it. Why? Because the characteristic of a fair value gap if order flow is bearish the body should stay below the high. Wicks can occur outside of it because it can do the damage. But entering in the lower half that's where premium sensitivity is going to exist.

And if it goes higher, you can then say, "I would have had a wonderful opportunity to add and pyramid one more contract in the upper half because it afforded me the opportunity to do so." And anytime it wicked above the stop loss, you would record whatever that candlestick's high is. And then the target would be here, coming back down into pre-market by-side liquidities premium high. Right there at that point, that would be it.

The point where you calculate the return hypothetically. And then you can record that something in here like entering at whatever that price is here minus one tick consequent encroachment. And then risking a a stop loss up to this high plus one tick. And then have these little price notes on those key levels like that. And then next to it say, "Hypothetical stop loss." I don't want to say it's hypothetical there. You want to In recording it in your in your journal, you want to record it like you did it.

Like it was your real hard stop. And then your entry was here. And then one tick above this level or at that level is permissible. Okay? Because you're trading down to it. You're looking for guaranteed that you're going to get filled. If it's going to come close to that that high, you want to be getting out like one tick before it. I don't want to do that, ICT. What if I want to go down down here? You have to start somewhere.

Okay? You have to start somewhere. And be practical and realistic in the beginning. And then let your experience grow and dictate when you want to include broader brush ideas about holding for more position. And then we can talk about how it created this area here where it came right back up and used it as again, a premium array. There. And then was it going to seek the relative equal lows here. And it did not take out the pre-market session sell side liquidity.

So, the smooth that just is made rough by going down and tearing it up and then going back up. Okay? And by recording that like this, you have a wonderful opportunity to encapsulate a moment that you really didn't trade, but you're going to dress it up on the chart as if you did. And then when you get to the weekend, you're going to just go go through your every day annotations, whether be still pictures that you collect and you save in your journal, or electronically, whatever you're using.

I don't know what it is, okay? I'm a I'm asking all of you as a community to suggest things that you do when you save old data, when you save chart formations and you back test. This is how I consider back testing. You're looking at a hypothetical entry, hypothetical stop, and how price delivered. You don't just take a picture cuz it's after the fact. You want to look at every individual candlestick. And you want to trace over what every single candlestick did.

Like this here, we opened and traded right back up to that candlestick's low. That's an immediate rebalance. You want to annotate things like that because it helps you observe them. And then when you watch it happen in real time, you'll know, oh, I've seen this so many times where it just comes right back up there and then it goes down sharply. And the next candle here, we create this low, we open here, we trade down, we close, the next candle we trade up, immediate rebalance.

Comes down, small little consolidation, and comes right back up, and where does it stop? Shy of the close. So, it's only respecting the wick. And drops down. All of these little things, you use the open space over here to annotate that. Or if you need more space, put a little like an A or a B or a C and then over here where you got more room, next to A, where you need to more have more time over here, more space, describe something, make a little reference point on your chart as a legend, and then go over here where there's more space and then write out a thorough explanation as what you observed.

Use the space and real estate that your chart has and you want to size up your chart to allow for those sorts of things. Make every bit of use of the real estate that empty spaces on the chart permit you. Let them be full of details because the more details you incur, the more you're creating pseudo experience and that pseudo experience will translate into usable experience that you'll tap into because you've sweet-talked yourself with love letters to yourself in these charts every single day for weeks and weeks and weeks and you make it a practice to do it every single day.

Even if you do let's say you start trading real money and you have a losing day, record it like this. I promise you it will soothe, it won't feel like it at first, it'll soothe the burn of doing it wrong because you're replacing negative dwelling on the worst outcome that happened for you, that you took a loss on, you're replacing it with something positive. And what you should see and what you should have seen, but you record it as if you did it that way.

You don't go into your journal and say, "I lost $25,000 today." or I blew the account because, you know, I tried to do this this this. I'm never going to get this, blah blah blah. That's never going in your journal. Remember, you're writing letters to your future self and you're encouraging yourself along the way. You have to parent that inner child that eventually will grow up to be an adult trader. And if you are toxic to this future self of you, you will be toxic throughout the entire process and you'll probably give up.

You need to encourage yourself. You can't rely on me. You got to do it yourself. So, next one. We have the opening range gap and its consequent encouragement delivery. So, here's our gap here where the trading hours you'll see that down here in the lower right hand corner. And here's the annotations. Real simple. Okay, you're recording in regular trading hours chart form. Not electronic trading hours. You're recording the closing price on the previous day at regular trading hours session.

That's the final print at 4:14 p.m. Eastern time. Excuse me, 4:14 p.m. Eastern time. And then when we opened up at 9:30 Eastern time the next day. So, between those two reference points that is the opening range gap for regular trading hours. This is a discount opening range gap because where we open at 9:30 is lower than where we settled at 4:30, I'm sorry, 4:14 p.m. Eastern time. So, 4:14 p.m. Eastern time's closing price.

If we open at 9:30 the next day lower, this is considered a discount opening range gap. If at in 9:30 we open higher than we settled at 4:14 p.m. Eastern time the previous day while looking at the chart through regular trading hours, not electronic trading hours then that that gap would be a premium opening range gap. Okay, so where we open at 9:30 determines what kind of gap it is. So, gap lower is discount, a gap higher is premium.

So, this idea is we're looking at how the middle of the gap or consequent encouragement is traded to once we open. So, we dilly dallied around in here. Notice they created a wick on the very first candle at 9:30. Made a slightly elongated wick there too, but didn't take out the low. And then we tried one more time in here and then finally it came right back up and traded right to consequent encouragement on the regular trading hours opening range gap.

So, mid gap. It traded there right rather quickly. And I'll just go through this recording of this here. So the NQ opened regular trading hours at 9:30 Eastern time with a discount opening range gap of 69 handles. That means from where we settled at 4:14 p.m. Eastern time previous day, while looking at regular trading hours as the final print to where we open at 9:30. There was 69 handles of price. The regular trading hours opening range gap consequent encroachment, which is the mid gap, was delivered just 5 minutes after 9:30 a.m.

Eastern time's opening price. That's right here on this candlestick. It hits it there. And you want to think record like I love how NQ regular trading hours opening range gap standard deviations and negative 1.0 projection nails the high of the AM session. That's simply by taking this opening price and where we settled at final print previous day, put your fib on that. Okay? Draw it up from here to there. And then add negative one.

You'll get this level right here. See that? It's almost like it perfect, isn't it? >> [laughter] >> Find that Wyckoff. Then the AM session low was nailed initially also at 12 minutes after 11:00 a.m. Eastern time at 29,386.25 before being swept with a lower low in the session. And that's the same thing. We're We're going to project a fib from this settlement price at 4:14 p.m. Eastern time previous day regular trading hours final print to opening price at 9:30 Eastern time.

And then same thing. Negative one on your fib. And there's the That's the low right there. That's the exact low to the tick that that price shows here. Then we retrace back up, failed to get right into the low of the open range gap, and starts to sell off. Is that bearish? Yes. So that means we're going to take out that low. It trades lower. And then we come right back up in, and now we worked later in the day inside of that gap.

And key referred to relatively high from previous market on close macro. What is that? Well, go back over here. Look how you know clear and smooth these are. We're looking at this through regular trading hours. Regular trading hours, relatively high and low, you want to be observing them because the gap's going to come back and refer to that same thing. It doesn't matter if price has done went above these things during electronic hours.

So, during London you know, during Asia, all this stuff, you know, is probably already trade through that. It doesn't matter. Because regular trading hours is what matters. If this is showing in regular trading hours by looking your chart like this with RTH showing not electronic trading hours you'll find these little smooth areas. And it's key because it's during the last 15-20 minutes of trading the previous day. And then by having this relatively high it ran it during electronic, I'm sorry, during the regular trading hours here.

Then we went back up to it here one more time in 11:00. And then we go into lunch macro. Where it's going to pull down into a low during the 10:00 hour. And it pulls through here, here relatively equal lows there. And then eventually gets down below there and then delivers to a perfect standard deviation of whatever this range is, 69 handles. Okay? The same thing duplicated down and that's what you get right there to a tick.

Again, find that Mike off. You want to obviously sure code everything you would see and observe. And while this was a rather small opening range gap it didn't take very long for price to get up in there. And you want to record, you you what were the what was the range from the low to that? What did it offer? And you want to assume that you took something there as a trade idea. And it trains you to do turtle soup. Cuz you're you're teaching yourself to see these things by pattern recognition over and over and over again.

All right, finally the last one. Blank chart here except for this guy's mug. Look at him. He's always watching. And he's a creepy guy, ain't he? He probably talks too much, too. You can just look at this guy right here. Look at Look at his eyes. You can just tell he talks too much. He probably loves the sound of his own voice. If I If I've ever met this guy, I would give him a piece of my mind. Trust me on that. All right, so here is the silver bullet 10:00 hour.

Okay, so obviously we have 10:00 denoted. Always have that on your chart. You can do it any way you want. Just don't do it as a vertical line that covers the entire scope of the chart because that will lay over top of your candlestick and you want to be able to see if 10:00's candle is a imbalance. I gave that rule so that way you can have it. And there it is. So here at 10:00 go straight on up. We have here at 10:01.

We have a fair value gap. This is candlestick number two that makes the fair value gap. And then trades higher, then goes lower, then comes higher, and then settles off, and then comes right back up, and hits it here. Now this week I gave you an application literally just yesterday teaching you the classification of first presented fair value gap and the rule. So when you see these guys out there making lecture notes and or they done backtesting, they do AI the the I ran the numbers and his stuff doesn't work at time that kind of stuff. >> [laughter] >> They don't have the rules.

Okay, so NQ used the first presented fair value gap to sell off for over 175 handles. I love how consistent the concepts deliver on their unique and new logic that's respected to each one of the things. And what do I mean by that? Well, if this is a sell-side imbalance by side inefficiency, we have to number one use this first presented fair value gap. If you're going to use this one, and I'll I'll explain that in a moment.

By definition, it is the very first fair value gap. Absolutely very first one. So, it's important to have it, understand what it is, highlight on your chart, but then you have to know that if it's going to sell off from that, there has to be something in here to make us want to be short. And by going higher here and then trading down here and then going back up, that doesn't help this in here. Now, during this candlestick, you might want to take that short on a sell stop.

You could do that. But here's I'm Here's where I'm going to lean on the logic that you don't just go in with limited understanding, because I teach a conceptual idea called the lunch macro. Meaning that the market will seek a low that forms during the 10:00 hour. Well, here's 10:00. And if we're using this right here, what's the low? That right there, the candlestick that creates the fair value gap. So, am I going to be inclined to take a short on that?

No. No. You're blending conceptual ideas to build a very strong narrative. Narrative is why price should do something and where it should go because of it. Knowing where it's going to go, not guessing, and how it will book. There's only a few things price can do. And we know what they are. And generally, they're not hiding it from you. Okay? [laughter] And that's the wonderful thing about reading price action the way I teach it.

So, by using first instance of fair value gap, you know, when you get this low here, then it comes all the way back up to it and clears minor buy side and trades up until here. This candlestick doesn't close outside of it. And it closes below middle of that gap. So, that's a wonderful shorting opportunity if you're going to use that. Why? Because now you have context to draw on the fact that we have now a 10:00 low right there.

From that point on, look to the left. 10:00 right here. What low stands out? That one. Why? Why does it stand out? Because it's relatively equal to that one. You see how I'm blending that you wouldn't know this when you first start. But by observing and recording these things in your chart, then back testing with these ideas and building pseudo experience, really pulling out the benefit of hindsight where it's not hurting you.

You can't lose money on it. You can't get all hopped up on goofballs because you you didn't make money. But you're learning to observe things. Did you even realize that when you go to see a surgeon, you know that they were looking at diagrams before they ever picked up a scalpel? Are you going to tell the universities that taught them at med school that they should take that part out because it's not it's not real. It's not real surgery, bro.

It's demo. >> [laughter] >> It's hindsight. It's all hindsight after the fact. But that's the same logic they'll tell you or they'll tell me in comments. But I'm the one that's retired while they're working. Here is this relatively equal low. And it's also a lunch macro where it's going to draw up to that. So, that makes this first instance of fair fair gap valid there. But we're going to take it one step further because I taught you yesterday very plainly in no uncertain terms how to use first presented fair value gaps.

Ring in the first presented fair value gap at 10:00 Eastern time a.m. Now a fair value gap with displacement. Oh, remember that? So if this was again what I just showed was the very first presented fair value gap. And it's true. It is the first one. And it's a sibi. But now we have this one. What is this one doing that that isn't doing? Two things. Number one, it's an up close candle. So it's now a bissy. This was a sibi.

This is a bissy. This bissy also takes out highs. Right there. So it's doing a displacement. It moves higher. It leaves a range. Okay? So that's why it's showing here with displacement. So now I'm adding these details. First presented fair value gap with displacement take greater command over price delivery than just a simple initial formation of a fair value gap. Noticing this bissy, that candlestick right there, is also a reflection fair value gap in addition to it being an obvious bearish inversion fair value gap.

The first gap was a down close candle. See it closed down here. But that gap between this candle's high and that candlestick's low, that's the actual gap that we showed as the first presented fair value gap. Let me show you again. This one. But now this one has displacement. This one's going to trump that because it's displacement. So now with this, we have two things we can do. We can then trade when price is up here.

We can treat this as a short that could take us down into rejection block, which is the down close candle right here, the lowest down close candle. Trade right there. It hits that beautifully. And you don't even need it to take that low out. Why? Why could you trade that way? Because that low is outside of 10:00. You always have to think about what they may do in price action to facilitate the idea of pulling back when it's going higher.

Pulling back to a low that forms in 10:00. Remember, folks, the dealing range is 30 minutes. The opening range is 30 minutes. I don't care how many people tell you it's a 5-minute opening range or a 15-minute opening range. I could care less. They're all wrong. They're all wrong. They are all wrong. If you do these things, you will see clearly I've been telling you the truth all this time. If you keep drinking from the well that's tainted and you keep complaining why the water tastes bitter, what needs to change? >> [laughter] >> Stop drinking from the this from the same tainted well.

Price then comes again one more time relative equal highs. So, it's minor by side there and then creates another opportunity sell off there. But now look what's going on here. This fair value gap has much more emphasis placed on it cuz it's going to command price stronger. Is the wicks going outside of it? No, ma'am. Is the bodies closing at the midpoint consequent encroachment? No, sirree, Bob. They're trading in the lower half.

The wicks are allowed to get to consequent encroachment. The second one is lower than the first. And it's indicating what? Order flow is bearish. Then, now we're inside of buy side liquidity inside of the lower half. Anywhere in here, you pick your entry point. What's the most realistic one for you? I'll let you in your honesty tongue and cheek determine what that is, and you annotate that. And your stop loss would be this candlestick over here's high plus one tick.

Why that one? Because it's outside the scope of this buy side imbalance sell side inefficiency. You got to include that volume imbalance that's there. The two buy means here. This open is slightly higher than that candlestick's close. So, this candlestick is the last one we spent time outside of it. The open is outside of it. Not just a wick. So, you're going to look for a candlestick that does that. So, your stop loss will be here plus one more tick higher.

Your entry would be wherever you determine in the lower half. Okay? You're realistic and you're being practical if you say if it goes to the low of this plus one tick and your stop is over here. And that means it's going to force you to do what? Trade a micro. It's all about building realistic expectations, folks. It's not about having the sugar high saying, "I could have made all this money and quit my job in 3 weeks." No.

No. How are you realistically going to go into this thinking because you have no skill yet? You have no experience yet. So, you want to look at your results and the pseudo numbers that you'd be calculating on what would yield an entry just at the lower end. And how much of a drawdown would you have to assume? You want to record those things. So, wherever your hypothetical entry price points are and your hypothetical stop losses are, you want to record the total risk that's involved.

Then, how much heat or drawdown did that idea incur? And what it will do is it will condition you to say, "I know just because I want to get in doesn't mean it's going to go in my favor as soon as I get in." And it builds in this expectation that you don't get from market replay. Market replay is so stilted and stunted where you don't even see the drawdown. Like it's there for a second if you need to do a hypothetical entry.

And then all of a sudden the next candlestick it's it's it's closed. So it it never conditions you to anticipate or live in it. Whereas by journaling like this and then recording somewhere in here saying how much time, how many minutes, how much time and how much distance did the price move against you where you're literally having to suffer through whether or not the trade's going to move in your favor or not. And then you record when it goes down to the low.

As we were talking about in lunch macro, this is a low that formed in 10:00. So we can see this as a low where it trades down to relative equal lows. You can annotate that as a partial. So you can say I hypothetically, you know, would annotate say two micros. And then one could come off at that low and this low, one tick above or at or one tick below. There's your first objective for a partial for low-hanging fruit. And then over time you may look at your examples and say, "Okay, now I'm going to try to condition myself to start looking for longer protractions in price.

Hold the trade longer." And then reaching for these relative equal lows over here that just so happens to form again during that 7:00 and 9:00 a.m. Eastern time. See how all these things dovetail together? It's not like I'm cherry-picking things that just work over here but not over there. They all work together. And over time you'll see those three things I just went through give you the entire narrative of what this did here and then delivering down to something like that.

But paying the hypothetical trader when it took out the relative equal lows here on the lunch macro. So hopefully you found this one insightful. Hopefully it inspires you to enjoy backtesting. Uh avoid market replay like it's the plague. And find a way to record your your live data that's coming either if it's paid for as live data or if it's delayed. Don't worry about it being delayed because you're looking at old price data anyway.

What difference does it make? You're going to be able to see how the candlestick booked as it happened if you were watching it live. It is no there's no reason for you to complain about that. What you're trying to do is condition yourself to see how these individual candlesticks book real time from the from the part at which they open and then where they close. The highest high and lowest low, how often it creates a higher high and lower low while the candlestick is still active before it dies and moves on to another candle.

All those things you encapsulate that inside of watching a recorded screen. And I showed you how to do it if you have a Windows computer. It's free. Hold down the Windows button, hold down the alt button, and tap R, and it'll start recording your screen. It'll stay on until you turn it off or your battery goes off. And again, as a reminder, just make sure that you're not using a screen saver cuz it will pop up and then you'll just be be recording your screen screen saver.

And believe me, back in the day I I did a lot of that. So, that's going to be it for this one. Hopefully you you get something out of it. Hope I encourage you to do it because if you don't do it, it's worthless, okay? But it's not worthless because you don't do it. It's worthless in your hands if you don't do it. But it's definitely how I got to the point where I can read price action and be able to tell you what's going to happen then how price should book candlestick by candlestick and you don't have to worry about these black box little things that people want to sell, software programs, gimmicks, this that.

You can't outperform you cannot outperform the human mind. Because all AI out there, they can't see the subtle nuances that I'm talking about here. And there's other things I haven't taught yet. They'll they'll never outperform that. They'll never be able to do that. You want to believe AI will do that, but they won't. They absolutely will not be able to do it because what the candlestick's doing as it's booking AI won't be able to receive that information and perceive that as anything.

It will always have to wait for the candlestick close. But what I'm teaching you to do is reading it while it's happening. Computers have to have finite data. They have They have to be very specific. It has to go back to a specific an array of data and then run calculations on it. We will be able to interpret as you see me do my students do. We interpret the candlestick while it's active. AI can't see that. It can't recognize that.

It can't do it. And you can argue all you want, but again I'm out here. Bring your AI up against me and I'll smack it around. Just for fun. Until next time, I wish you good luck, good trading, and be safe.