TLDR;
This video presents a price action and bar structure-based trading methodology, demonstrating two trades (S&P 500 and crude oil) where the author achieved a 4x return on risk. The method involves identifying key daily trend changes and using five-minute charts to pinpoint entry points with limited risk. The video highlights the importance of repeatable patterns applicable across liquid markets and offers insights into managing entries for potentially higher returns.
- Identifies repeatable trading patterns based on price action and bar structure.
- Demonstrates two specific trades in S&P 500 and crude oil with detailed setups.
- Explains how to manage risk and potentially increase returns using strategic entry points.
Introduction to High-Return Trading [0:04]
The video introduces a trading methodology rooted in price action and bar structure, applicable across all liquid markets. The author shares screenshots from a private chat to demonstrate real-time trade setups in the S&P 500 (ES) and crude oil (CL). These trades are designed to yield at least four times the initial risk, using a methodical and repeatable approach. The author highlights specific entry and exit points, emphasising the potential for significant returns with controlled risk.
Identifying Daily Trend Changes in S&P 500 [2:56]
The presenter explains how to identify potential trades by first analysing the daily chart of the S&P 500. A key indicator is breaking the previous day's high, which signals a change in the downtrend pattern. Once this occurs, the focus shifts to lower time frames (five-minute chart) to find precise entry points. The presenter notes that economic news, such as the Michigan Sentiment and PCE data, can influence market movements and create short-term climaxes.
Executing the S&P 500 Trade [4:23]
After identifying the daily high violation, the presenter looks for two waves down on the five-minute chart to pinpoint an entry. Bar accounting is used to methodically identify upswings and downswings, leading to an ABC down pattern. The goal is to capitalise on daily upside potential with limited five-minute risk. The presenter identifies a specific risk bar and explains how to set a buy stop order above the high of the bar and a stop-loss order just below the low.
Achieving 4R on the S&P 500 Trade [7:20]
The presenter details the execution of the S&P 500 trade, explaining how a 12.25-point risk could yield a 49-point profit, achieving a 4R (four times the risk) return in about an hour. The trade continued to run, reaching up to 6.7 times the initial risk by the high of the day. The presenter suggests considering leaving some of the position open for an 8x return, especially when there is a strong daily change of pattern, but acknowledges the prudence of securing a 4R profit given market uncertainties.
Crude Oil Trade Setup: Daily Low Violation [8:53]
The presenter transitions to the second trade example, focusing on crude oil (CL). The setup begins with identifying a daily low violation, indicating a potential short-term pattern against the daily trend. The presenter uses a five-minute chart to analyse price action after the low violation, seeking an ABC up pattern to enter a short position.
Identifying the Risk Bar in Crude Oil [10:37]
Following the daily low violation, the presenter identifies an ABC up pattern on the five-minute chart. This pattern helps to pinpoint the risk bar, which is crucial for setting the entry and stop-loss levels. The presenter explains the bar-by-bar analysis, highlighting the importance of identifying the correct up and down swings to define the risk bar accurately.
Executing and Managing the Crude Oil Trade [12:00]
The presenter outlines the execution of the crude oil trade, setting a sell stop order below the low of the risk bar and a stop-loss order above the high. The initial target was set to achieve a 4R return, which was nearly met. The presenter also discusses an alternative entry strategy, suggesting waiting for a pullback to the 50% level of the entry bar. This approach could potentially double the return to 8R by reducing the initial risk.
Alternative Entry and Risk Management Strategies [13:21]
The presenter discusses two entry strategies: immediately entering at the risk bar or waiting for a pullback to the 50% level of the entry bar. While waiting for a pullback can increase potential returns, it also carries the risk of missing the trade entirely if the market moves quickly. The presenter suggests a balanced approach: entering a small initial position at the risk bar and adding to the position on a pullback. This strategy ensures participation in the trade while also offering the potential for higher returns with reduced risk.