Top 5 Trading Confluences — Step-by-Step Guide & Transcript

[00:00] These are the top five trading confluences that I would use if I had to relearn trading as a complete beginner over today. In fact, these are the only confluences that I use on a day-to-day basis within my own trading today.

[00:12] They're quite literally all that I need in order to predict where price wants to go on a daily basis on the chart. So with that being said, I'm going to teach every single one of them to you guys today so that you guys can understand where price is going by using these confluences all together.

[00:26] With that being said, let's jump on the charts and let's figure this thing out. We're going to start with the very first confluence, which is liquidity. Liquidity is by far my favorite confluence to use in trading because it tells us a bunch of things.

[00:39] Number one, it tells us where orders have been filled and where price is going to target next. It gives us two things, the opportunity to enter and then also the opportunity to exit.

[00:51] It's by far the best confluence and the market moves off of liquidity. So in order to understand liquidity, we need to first understand what does it mean. Liquidity is essentially resting orders on a chart.

[01:03] A liquidity sweep is when those resting orders have been swept or filled and then price is going to move in the opposite direction. In order to know what liquidity is or where liquidity lies, we need to understand where resting orders lay on a chart.

[01:18] You probably think I'm going to go into some sort of riddle. No. Liquidity lies above highs and below lows within the market. How do we make a high? With a move up, then a move down. How do we make a low? with a move down than a move up. So we know that liquidity lies underneath lows and above highs

[01:34] within the market, meaning there's resting orders above highs and below lows. Now that we understand that and we know that the market is typically going to draw towards liquidity and sometimes the market is going to want to sweep liquidity to be able to make a move. So now that we understand

[01:50] that, I'm going to show you guys it happening in real time on the charts. If we look here, We're on the daily time frame right now, but this is applicable to literally every single time frame on every single chart.

[02:02] Because again, liquidity is how the markets move. So if we look down here, what do we see? We see two lows that are stacked up. What do we see the market do? We see the market push underneath these lows, which is where what?

[02:14] Liquidity lies, right? So there's resting orders down there. The market then does what? Grabs those orders and then targets what? Boom, these highs. Why does it target these highs? Because there's resting orders up here. Why did it target these highs? because there's resting orders up here.

[02:27] Now, it doesn't even apply to just the daily time frame. It also applies to every single time frame. Why? Because that's how the market moves, okay? If we look at the S&P 500, and if we remove these indicators really quick, and then remove all these nasty lines,

[02:40] if we jump over here onto the NASDAQ, we can see price, boom, jumps up, and what do we have here? A bunch of highs. So what do we know? It's sitting above these highs, resting orders. Price does what? Boom, pushes above these highs, and then does what?

[02:53] sells off and pushes down to take out what? All of these lows. We have lows right here, lows right here, lows right here. Even these lows right here end up getting swept. So in turn, again, what does the market do? It pushes up, it takes out all of this liquidity, and then what

[03:07] does it do? It targets all of the liquidity underneath it. Now, you're probably saying, well, how do I know when the liquidity is getting swept and when it's going to want to target all of these other, all of these drops in liquidity to the downside, all of these lows to the downside,

[03:22] Right? Well, that's what we use our other confluences for. So let's get into my second favorite confluence, which is an inverse fair value gap. Now, in order to know what an inverse fair value gap is, we first need to know what a fair value gap is. So that's actually my third

[03:37] favorite confluence. So we're going to jump from first to third and then back to the second, and then we'll do the last two. What is a fair value gap? A fair value gap is a continuation continuation confluence, and it's something that the chart shows us. When we are in an uptrend or

[03:52] we are in a downtrend, it's a confluence that gets filled, and when the trend is going to continue, it restricts that confluence, and it continues to trend higher. So it is a continuation conf, whereas a liquidity sweep is a reversal conf, right? Liquidity sweep, we sweep out a high,

[04:07] boom, we cause a reversal off of it. But a fair value gap, we know that uptrends move in higher highs and higher lows. So where do fair value gaps lie? Fair value gaps lie within these retracement and it shows us that we are going to continue the trend either higher or in the bearish scenario,

[04:24] lower, where we're making lower highs and lower lows. Where do the fair value gaps lie? Right here. And as long as these fair value gaps stay getting respected, the trend stays intact and we continue down So now that we know what a fair value gap is let go onto the chart and let identify them All right fair value gap is is a gap on the chart that shows an imbalance okay You probably saying what an imbalance Well to be quite

[04:45] honest, you don't really need to know, okay? You don't really need to know. All you need to know is that there's a lack of orders within that area. Now, how can we identify the lack of orders? By simply looking for gaps within the chart. So what do we notice right here? There's a gap within

[05:00] this candlestick width to this candlestick width. So what is this? This is a bullish pure value gap. What do we notice about price? We have, what do we notice about price? We have a high, a low, a higher high. Where does this higher low get made? It gets made within this gap right here.

[05:15] Then it goes and makes a higher high. Then what do we see down here? Oh, there's another gap in the chart. Where does this higher low get put in? Within that gap. Boom. And then we continue to make higher highs and higher lows until the trend breaks and changes the direction. So if you

[05:30] were trading within this area, you would have been able to identify, hey, we have a high, a low, we just put in a higher high, and now we have a fair value gap that's getting filled. You could look for an entry within this area, and then boom, you would have been able to catch

[05:44] this massive move to the upside. Same thing over here. We see, boom, there's a massive gap here, in turn, making a fair value gap. We see the gap within the candlestick wick. We see price come down into this gap, if you had bought anywhere within this gap, you would have been

[05:58] in profit on this move to the upside. Let's look at an example of a bearish share value gap, and then let me teach you guys what an inverse share value gap is, because it's my second favorite confluence, and it's very good. And also, make sure you guys stay to the end, because all of

[06:12] these confluences are very, very useful, okay? So, let's go ahead and let's look at what a bearish share value gap is. So, it's the same thing as our bullish share value gap, just in the opposite direction. So let me try and find a good example. Price has just been moving up and up and up

[06:27] recently. So bear with me. Maybe if we go on a daily time frame, we'll be not quite daily time frames are actually any messier. Maybe let's go on to the lower time frame. This is a good example right here. So as you can see right here, what are we in within this move down, right? We're in a

[06:41] downtrend, right? How do we know that? Because we close underneath this low. We have a high and we have a low and we have a lower low. So in turn, we're expecting this to make a lower high. Where can we guess that price is going to make that lower high? Well, what do we see right here? We

[06:55] have a bearish for value gap. How are we able to find that bearish for value gap? Look at the gap between these whips. Price comes up into that for value gap. We're looking to enter sometime within here. And then what happens? Price ends up moving down. Not only that, but we see another bearish

[07:10] for value gap get created. Boom, right here. What do we see price do? So we have high, low, lower, low or sorry low high lower low lower high this could be an entry then what happens lower low

[07:23] lower high within the fair value gap that's an entry as well and then boom price ends up selling off. This is one of the best confluences to use when you are looking for continuations within the trend so if you see that price has already made a liquidity sweep and is already trending towards

[07:39] the upside and you missed the entry down here you can use a fair value gap to be able to spot another entry on the continuation to the upside. And that's why it's my third favorite confluence. Now let's get into my second favorite confluence. Let's go back in track. Let's go back in time and

[07:53] let's look at my second favorite confluence. Let's look at my second favorite confluence, which is an inverse fair value gap. Now what is an inverse fair value gap? An inverse fair value gap is when we create a fair value gap within whatever trend we're in currently. So let's say we have a

[08:10] bullish fair value gap right here. And it's when the fair value gap gets closed underneath, in turn disrespecting the bullish fair value gap. And what does that tell us? It tells us that, hey, if price wanted to go higher, what should have happened off of that fair value gap? Because

[08:26] fair value gaps signal continuation. So price coming into this fair value gap should have pushed price higher. But that's not what happened. But that's not what happened. What happened to price. It ended up closing underneath that continuation confluence. So what do inverse

[08:40] fair value gaps tell me about the market? It tells me that price wants to change the trend and reverse. So this is actually a reversal confluence that shows us a change in trend. When we inverse a fair value gap or a bullish fair value gap to the downside, we can safely

[08:55] assume that the trend is broken and we are going to start trending in the opposite direction. Same thing with bearish fair value gap. If we are in a downtrend, we are expecting fair value gap to get held.

[09:09] So if we have a bearish fair value gap right here, what happens? Price pushes into it, we're expecting price to continue up. Same thing right here If we have a fair value gap right here we see price push up into it we expecting it to be maintained What happens if we have a fair value gap right here Because we expecting price to respect this fair value gap and continue lower what happens if price doesn do that and

[09:30] closes above the fair value gap? That to me is signaling that, hey, this bearish trend is no longer going to continue because this fair value gap should have made price continue lower. But what happens? We closed above it and we didn't continue lower, so it's signaling to me that

[09:45] we're going to start a new trend. So what are we going to do? We're going to go ahead and show you guys examples of both of these happening in real time on a chart so that you guys can see it happen. Okay, so let's go ahead and let's go on to the hourly timeframe. This is a good example right

[09:59] here from today. Okay, we can see that price previously was making higher highs and higher lows. We have a low, we have a previous high right here, then we have a higher high, then we have a higher low, higher high, and then we would have assumed that price would have wanted to do what?

[10:13] respect this fair value gap right here. But what ends up happening? We end up closing underneath this fair value gap and then boom, now what are we doing? We're actually trending downwards. We end up putting in a lower high and now we're putting in a lower low. So in turn, we started

[10:28] a new downtrend. That's an example of an inverse bullish fair value gap. Let's look at an example to the upside, okay? Let's look at an example to the upside where a bearish fair value gap was unable to hold. This is a perfect example right here. We have a massive sell-off. We have a

[10:44] massive sell-off. We have a fair value gap right here. We would be assuming that price would want to come into this gap, respect it, and move lower. But what ends up happening? We end up closing above the fair value gap, disrespecting the current order flow, and then what happens? We end up making low,

[11:00] high, higher low, higher high, higher low, higher high, higher low, and trending higher. So those are my three favorite confluences, let's get into my fourth favorite confluence to help determine where

[11:12] the market wants to go. My fourth favorite confluence is going to be equilibrium or Fibonacci retracement levels. So I'm mainly just going to focus on equilibrium. Equilibrium is another continuation confluence. So how do I measure equilibrium? Equilibrium. I go over here and I

[11:28] use this tool on TradingView called the GAN box and I drag it like this. I'm going to go ahead and pop up my settings so that you guys can copy it because if you have all of these checked on, your GAN box will look something like this and that's super messy and we don't want any of that

[11:43] going on. We want it clean and we just want to see the 50% mark of the GAN box. So once you guys have your GAN box like this, how are we going to use it? Well, just like Fair Value Gap, GAN boxes and Equilibrium are used for retracements when we're already within a current trend. So this is

[12:00] a continuation call. So when we're in an uptrend, right, we're assuming that price is going to continue making higher highs and higher lows. Now what Equilibrium helps us do is when we put in a high, then a low, then a higher high, we can put on the GAM box from the most recent swing low up

[12:17] to the most recent swing high to be able to have an estimate or an area where price is going to retrace into a discounted price range, so a good area and time to buy in order for price to push

[12:29] higher and continue the uptrend. So just like fair value gaps are going to be an imbalance of price where price is going to want to come back in there and balance it out, equilibrium is used to be able to show that everything from this line and below is discounted price. So that's like you go into

[12:44] the grocery store and seeing your favorite meal at a discount. There's no way that you're not going to want to buy that thing, right? Or that's like telling all the stockbrokers and the people on Wall Street, hey, we're in an uptrend right now and price just retraced to a discounted price.

[12:58] Everything, this line and underneath, is probably a good time to buy. So, same thing within a downtrend. If we're in a downtrend and we're making high, low, lower high, lower low, boom, we can use the GAN box to be able to mark out the area that it's probably going to retrace up to.

[13:15] Boom, and then once we push past this line, we are in a premium price range. Now, again, it might be a little bit confusing, but when we want to press the sell button, we actually want to be selling in a premium and then buying back at a discount.

[13:29] That's technically how it works. But for most of you guys, you guys just know it as, hey, I'm pressing the sell button right here and I'm pressing pay profit down here. That's all you need to know it as. But once we get above this green line, what happens? It gives us a good area and a good time to short.

[13:43] Why? Because it's showing us that, hey, we're in a premium price range where prices are looking good to be able to short the market down to lower prices, especially because we're in a downtrend. So, let's show this on the chart.

[13:55] This is super easy to show on the chart If we just find a really clean trend we be able to mark it out pretty easily um let go ahead and maybe if we go out of the this is a nice mini downtrend that

[14:07] we have within here so we can see high low lower low and once we put in this lower low what am i going to want to do i'm going to want to draw equilibrium from the most recent high down to

[14:19] the most recent low to be able to find because if we set this far replay to right here this is what price would look like at current market data, right? So we see, hey, we just put in this low. Where do we think price is going to want to retrace to? I don't know. That's why we use our

[14:32] cost nuances like equilibrium. So we would take the GAN box and draw it out and say, hey, anything up here is probably going to be a good area for us to execute a short and to see price go lower. Why? Because we're in a downtrend right now. We just had a low, a high, a lower low, and now we're

[14:49] expecting a lower high to be made, and that's where we want to enter. So if we were to play this, we can see that boom, what does price do? It pushes up into the equilibrium range and then ends up selling off. And I'm sure if we spread this up even more, we could see that boom,

[15:04] it ends up making a new lower low, pushing past this low, and that could have been a great take profit point using one of our other consequences like liquidity at these lows. Okay, so that's equilibrium explained. Now, last but not least, we are going to talk about rate of structure. This is

[15:20] my fifth favorite confluence to use. It's very similar to an inverse per value gap, and it's going to be using trends as well. So when we are within an uptrend, we know that uptrends move in higher highs and higher lows. So we already discussed how an inverse per value gap could

[15:35] show us a change in trend, but how could this new confluence, break of structure, show us a change trend as well? Well, it's as simple as literally seeing a break in the structure of the uptrend.

[15:47] So if we're in an uptrend, we have to assume that we're going to make higher highs and higher lows. But what happens if we push and break underneath this look? Then that means the trend has broken and structure has broken. Because why? Now we have a lower low and we're probably going to

[16:01] go up and create a lower high to then, boom, move into a downtrend. So that's how we identify a break of structure within an uptrend. We see a candlestick closure underneath the most recent

[16:13] low within the market. Same thing to the downside as a downtrend. If we are in a downtrend in the market and we see, boom, lower lows and lower highs, how do we know that that downtrend has

[16:25] been broken? By us closing above the most recent lower high. Why? Because if this downtrend were to have continued, we would have just made another lower high and then another lower low. But what

[16:37] happens if price ends up closing above this high boom that is going to be the start of a new up trend so last but not least let's show you guys an example of this on the chart and then you guys will be good to go so let's go to the high time frame let's go to the daily time frame really

[16:50] quick okay so let's look here we were in a mini downtrend on this move down right we have boom high low lower low lower high lower low lower high lower low then what happens boom we get a massive

[17:03] move up above what? The most recent high. So what is this right here? This is a break of structure. So now we can safely assume that we are in an uptrend and we are probably going to be moving down to do what? Not to make a lower low, but probably to make a higher low to then push up

[17:21] past this higher high that was created to continue this uptrend higher. So that's an example of a break of structure to the upside. Let's find a break of structure to the downside. This is a great example right here. We can see we have boom, low, high. I mean, this is pretty vertical,

[17:37] but higher low, higher high, higher low, higher high, higher low. And then what happens? Higher high, but boom. What happens right here? We end up putting in a lower low than the most recent low within this uptrend. Once that happens, the structure of the uptrend has been broken. And

[17:52] then what do we see price do? It puts in, boom, a lower high. How could we have been able to track out this lower high by maybe using some of our continuation confluences like equilibrium for example we put in this lower high then price ends up trending downwards to push past this low and

[18:07] again that was all signaled by us being a great construction to the downside so those are my top five confluences that i use every single day and all i do is i get on the market at market open

[18:19] and i use all of these confluences together in a sequence all mended together to be able to formulated strategy to be able to understand where price wants to go. And I really only use these five confluences every single day. If you guys enjoyed the video, please drop a subscribe,

[18:35] drop a comment of what video you guys want to see me do next. I love and appreciate every single one of you guys. Peace out.