EUR/USD Breakdown: FVG Tag, SMT & Entry Confirmation

This is the 4-hour chart since early May, when we started this recent buy model. Recently, we have just been consolidating and pulling back after reaching an external high. A couple of days ago, we created this SMT here with GBP/USD at 4-hour fair value gaps, which is a major, major trading idea for us.

Now, this SMT at the 4-hour is considered a tag—meaning the price action that is tagging the fair value gap is creating an SMT. We are not comparing it with a candle on the leg that made the fair value gap. Let me repeat that—this is an SMT on the tag of the fair value gap because it’s the same price action, right next to each other, as price is happening right now. A comparison to a candle to the left would be before the move and at the fair value gap. But if there is no comparison to the left or you can’t make anything comparable, then we need a tag at the fair value gap—not “at” but a tag. These are more of my favorite fair value gap tags because I think they’re more real. I prefer to have both.

Ever since we did that, we have gone straight up. Now, as day traders—if you’re a New York session trader—it’s tough because you’re missing a lot of these moves. You really need to hold these trades through the overnight session—Asia and London—because that’s where a lot of the moves are being made.

Just looking at the move over the past couple of days, we had a pullback into this 1-hour fair value gap. Now we’re day trading because we’re on the 1-hour, looking at 1-hour fair value gaps, and we’re going to look to execute on a 5-minute.

Yesterday, early in the morning, we had this setup. We went over it in the review. We had the SMT here, then this setup, and then we had a 5-minute buy model here. Price came up and broke external liquidity on both—bam.

Now, as we go higher, we just keep doing textbook things. These are all breakaway gaps. Now we’re at this gap right here. What do we see? I’m going to make it really big—really big. We have a tag of the 1-hour fair value gap, and inside that tag, we have SMT right there. That’s the SMT—it’s this candle. Yep, we have SMT. So now we have SMT at a 1-hour fair value gap on the tag.

Now we go down to a 5-minute for our buy model. Let’s see if it gave us a decent entry.

Okay, we got a tag right here. The GBP/USD was clear because we had this gap, and when we broke it, that was the signal. Here it would be right here—once we break above that. Don’t forget, this is SMT, so the EUR/USD is not going to take out liquidity as clearly as the GBP/USD does.

So now we have to look at internal liquidity. As you can see, this move down here, and then this move up here, violated this fair value gap. Now we are pushing higher. Not the cleanest setup—I like to see a little bit better. It was definitely much, much cleaner on GBP/USD.

But when you’re trading the stronger model, you’re not going to get a manipulation lower, so you have to kind of make do. The other way to have done this—and I always say mark these out—is the change of state of delivery. That line right there. Once we really close above that, then you can take a trade.

Listen, if you bought on this one or this one or this one—it doesn’t matter. On the change of state of delivery plays, I like to see a strong close and at least half the candle above the CISD. In this case, that didn’t happen until here. Once it did, it still retraced back to the CISD and then you had no drawdown. That’s why CISD is a little subjective. That’s why I always prefer the inverse fair value gap model if it’s cleaner. But sometimes you have to use the CISD, and I always say make sure you mark them out.

I always mark out two CISDs. This is another CISD. Why is this another CISD? Because this was the series of down moves that created the SMT inside that fair value gap. Then, there are different trains of thought. Some will say that’s a change of state of delivery because it’s the last series. I think it’s very subjective, so I like to mark it up this way to give me a couple of ideas—different change of state of deliveries. This one, to me, is obvious, and a nice close above it resulted in a really, really nice trade.

Then we come into overnight—last night—and we’re coming into this fair value gap after we punch up. What happens? This move does not have an SMT. They both go higher, but then price returns on EUR/USD and not on GBP/USD. So what happens here? We now have another SMT on the tag. “On the tag” means it’s happening right inside that fair value gap. These bars are an SMT.

Now let’s go to the 5-minute. On the 5-minute, we now have a much clearer setup. And on the pound, this is nice because we’re buying the euro and it’s on the euro, so it’s much cleaner now. This is what I mean—we are delivering from a fair value gap. We took out internal liquidity, reversed back up, and inversed a fair value gap. That’s the 5-minute trade up to external highs right here. Anything higher is just a bonus. These are the external highs. If it displaces above, you can wait and see. If it displaces above like this, just put your stop right at that level—because if it returns there right away, it’s probably going to go back through. You want this to be a breakaway candle. What do I mean? It didn’t get mitigated and still went higher.

Then, obviously, wait for an inverse fair value gap on a short-term chart, which happens right here. So you were able to sneak out maybe another 12–13 pips. Hey, every dollar counts.

This setup right here—honestly, if I were to write a book about our model, this would be the example. I just showed you how to go from a 4-hour—actually we’re going from a daily fair value gap to a 4-hour, down to a 1-hour so we can day trade, and then from that 1-hour down to a 5-minute where we can execute. This is a textbook trade. Textbook trade plan.

The trade plan, and then the entry model. Remember, our entry model has to deliver from a fair value gap—both a higher time frame and the same time frame. We need an SMT. We need to take out some internal liquidity—some internal low. It doesn’t have to be major—it just has to be some internal low. We need a fair value gap displacement below that low, and then an inverse back above with momentum and a strong close above—and clear targets.

That’s our entry model. Again, that’s just the entry model.

Our entry model needs context. What’s our context? We need to deliver from a higher time frame fair value gap. And you know the time frames:

• Monthly to Daily — we execute on Weekly
• Weekly — we execute on 4-hour
• Daily — we execute on 1-hour
• 4-hour — we execute on 15-minute
• 1-hour — we execute on 5-minute
• 15-minute — we execute on 1-minute
• 5-minute — we execute on 30-second

In this case, we’re concentrating mostly on 1-hour fair value gaps, and sometimes 15-minute—especially when we go down to the NQ. That’s our sweet spot.

So you have a trading plan with context: deliver from a higher time frame fair value gap, has to have SMT, and then our buy model goes into effect and has to confirm. That’s it. That’s the three steps.

So we have a three-step plan. And the third step is the entry model—and the entry model is a five-step plan.

Hey everyone, it’s Dale here. I hope you enjoyed the video. If you’d like to trade alongside me and our team of prop firm funded traders every day, then click the link below the video and hop aboard. We’re looking forward to trading with you.