The Order Flow Trap That Led to an 18-Point Short

Hey guys, Dan here from Funded Trader Academy with my trade of the week. Let’s break down this 18-point short, this breakdown trade from Tuesday, May 12th, taking out key session levels. We’re going to look into this setup from start to finish and dial in the specifics using the order flow footprint software to qualify this trade. Before we dial in the specifics here, let’s go ahead and take a look at some key context of the day heading into this trading session. So, as you can see, we are notching into new all-time highs day after day. And heading into this trading session, we had a nice overnight retrace. Okay, so we identified some key levels here at that 7,400 psychological level and that prior-day low being 7,390. So, in this zone right here, heading into this session, what I wanted to see was either a failed breakdown through here, rotating back up, or I wanted to see a true breakdown as we came down and tested these levels. I wanted to see a true breakdown that failed and rotated back down. Okay, that was the idea heading into today’s session. So, we’re going to go ahead and take a look at this. And let’s go to the order flow chart to qualify this here a little bit. All right. So, off the open, what you can see is price. Let me pop this up here for a second. So, off the open, we had price just continually chugging its way down. Okay? And then we finally had a flush of our key level, right? This was our breakdown right through here. You can see the aggressive heavy bearish flow: 1,133, 805, 491, 349, and then we started to see some bulls take over a little bit and pop this thing up. Okay, as they popped up, we had heavy aggressive bullish flow back to retest this level. And then we saw some massive traps, a 500 block here. These are block orders that are executed at the ask, so they are filled by aggressive market participants getting in late. Okay. And on the flip side of that, you have passive sellers. Okay. So, when I see this and I see what’s called a shooter candle here with a delta doji, that starts to gain my interest. Okay. So, this is looking like it is a failed rotation back to the upside. We see a nice trap towards the upside. We have almost 800 to 850 aggressive buyers getting in late at these key levels, failing to push the market up. Okay, so that tells me that there is an institution of some sort selling into that aggression. Okay, and then we start to see the delta flip. Okay, on this very next candle, we have 1,811 to the downside. Sellers just came in and flushed. Okay, that’s where I pulled the trigger on my market order entry right at the low of this candle. And then we flushed all the way back down to my next area of imbalance. Okay, my next area of imbalance was this 7,361. We flushed, kept going, kept going, kept going. As we popped up and failed it by a couple of points, I exited my position right here at 7,370 for about a 17 and 3/4-point short to the downside on the S&P futures. Okay, so to recap this trade, I framed out the day. Let’s go back to this. I framed out the day with very likely scenarios that I would like to see play out. Okay, and we waited for that to strike. Okay. So, if price broke down through here, we would wait for a retest, a trap, and a failure, and then rotate back to the downside. All right. So, we drafted out two very plausible if-then scenarios to the downside and waited for one of them to develop. Okay. It was very clear around that 9:40 time frame in the morning when that was about to take place, when we were breaking down that prior-day low. Okay. The key level was taken. We saw traps, a delta shift, and a break of structure on that retest. And then we took our position and held that to the next level of imbalance, or until price failed to reach there and popped back to the upside to take us out. Okay, hope that was helpful. We’ll see you guys over on the next video. Hey everyone, it’s Dale here. I hope you enjoyed the video. If you would 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.