How to Trade a Failed Breakdown With Order Flow

All right, Dan from Funded Trader Academy here with your Trade of the Week. This one comes from Thursday, August 27th, playing off the gap up from the Nvidia earnings that very next trading day. So, we’re going to assess this trade from start to finish. It’s just a little base-hit trade off the open of that Thursday. But before we do that, let’s go build a little bit of broader context here.

All right, so as we came into this day’s trading session, we had essentially a consolidation week, a nice D-shaped profile here on the week, and we had some essentially balanced profiles throughout. We’re just sitting in this range right in here, this consolidation range, right? So, Wednesday overnight hits, we have the Nvidia earnings, and we gap up and rally. Okay, gap up, rally, and then the overnight kind of chops back through that. You have your Asian session kill zone right here. You have your London session that takes out that Asian session low, and price is fading from these overnight highs all the way through, right?

So, the sentiment coming into here was a little bit bullish, right? We had this gap up. We don’t know how price is really going to respond here, but we do have some key levels to work with as the market opens. Okay, so if you look right here, you have the London session low at 7707. You have this pre-market 7723 POC right in here, this overnight with a lot of volume in here, by the way, for an overnight, so it’s relevant. And it’s sitting right at a swing high. We have a 26 swing high, we have a 29 swing high, and we have ultimately this 34 up here, along with, what is this one here, this 39 and a quarter. Okay, so we have all kinds of levels to work with here.

So, as we come into the marketplace, there are a few scenarios that I want to understand. I want to understand how price responds down here if we get here, right? So, if we have an initial impulse move that is down, I’d like to see price take out this London low, offer a failed breakdown, and then rally back to these highs. Okay, that’s one scenario I can definitely see taking place.

If the initial impulse move off the open is up, I’d look for failure up in here. Okay, I don’t necessarily like that scenario so much given that I have a bullish bias, but it’d be something to observe, right? If we do see some failure, rotation, break of structure, so on and so forth, we can take a look at a reversion-to-the-mean trade back to the downside.

Okay, the other scenarios are the inverses of this, right? So, if we have an initial impulse move and we displace lower, okay, then I’d look for price to retrace and roll back down. If price displaces through this POC or any of these through here, I would look for a retrace and a rally situation. So either way, off the open, whether the initial impulse move is up or the initial impulse move is down, I’ve got two scenarios here that I would like to see develop.

Okay, now, if I were a market maker and were able to move price, the one that I would want to see take place is this one right here. We have a little bit of a bullish bias. I would look for a dip, a failed breakdown, and a rotation. So, let’s go take a look and see how this all played out off the open.

Right, so we come into the market open. We are in this volume gap, this Nvidia earnings gap up, where we have retraced, we have dipped in, we have retraced, so on and so forth all the way through, right? We’re going to look at this from an Order Flow standpoint here using DeltaFlow.

Right, so here is the open. Okay, so price opens up. A little bit of bullish activity here and a big surge of volume off the open, as per usual. Price comes down. The initial impulse move is down. Okay, so the initial impulse move is down. We take out that London low. That 7707 has been taken.

Okay, we have heavy aggressive sellers pushing price to the downside. They get trapped. There are late sellers here playing a breakdown. Okay, they get caught in a trap. We flip. We flip from selling to aggressive buying. Price follows suit.

Okay, we break structure right here. Aggressive bullish buyers come in right here and break the structure back to the upside, and we see that there’s follow-through all the way back up. Now, on this surge back to the upside, as soon as we clear this little swing high, this opening swing high, we’re aiming for that 7723. Okay, cool. We tag that. We have all these other ones up here as well, and as price surged up, we started to fail up in here and got tagged out on the way back down through here as we notched our stop up, but still a very decent base-hit trade right off the open.

So, just to kind of recap the cadence on this trade, before the market opened, I identified my key levels of interest. Where do I want to see—what levels am I interested in assessing price at? Okay, and then I waited to see what the initial jab step of the market was. This is what I wanted to see ideally, right off the open. If this happened off the open, I would more than likely strike at that under the right conditions.

If we had that failed breakdown, well, we got it on the two-minute chart. Okay, and I had my if-then scenarios mapped out. So, if this, then that, right? If that, then this. Okay, and then we simply await price to offer us our entry model as that develops. And we got it about 12 minutes into the market. I was able to take a trade going long with bullish sentiment and a narrative to support that setup.

Hope that helps. We’ll see you guys over on the next video.

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.