okay folks welcome back this is lesson seven of eight of the second month of the mentorship we're going to be specifically dealing with the market maker trap of false flags now a false flag okay is basically a a pattern that classic chartists and pure chart pattern traders will fall victim to a lot earlier on my career i fell victim to this particular pattern a lot as well because as a new trader being introduced to the markets and the commodity market or asset class i started with was the commodities market my way of introduction came by way of kent roberts and one of the patterns that he taught in his uh manual world most powerful money manual i wouldn't go so far as to say that but uh it did introduce me to technical analysis and one of the patterns that studying classic chart patterns is a continuation pattern and one of the simplest to see in price action is a bull flag but unfortunately not all sudden price rallies that move into a short-term consolidation are bull flags and if you don't know what a bull flag is don't worry i'm going to give you an example what they are but for now for the points of uh of concern we have to understand that in a mature bull trend or in higher time frame distribution levels price will post or create or print if you will in your in our charts a false bull flag now retail traders and i'm referring to myself when i first started as a commodity trader i saw this as a classic continuation by pattern but it many times resulted in a reversal as time went on in my understanding grew i discerned that understanding higher time frame charts and what you know now as a premium market they assist me in understanding and identifying potentially bearish bull flags in other words a typical bull flag would indicate a pause or midway point and another leg higher or basically a traditional abcd pattern and it's a measured move type phenomenon in price action but i found that i would fall victim to this simply because i was only looking for patterns for the sake of patterns price does not move based on any kind of pattern whether it be a order block or mitigation block or breaker or even classic char patterns like a head and shoulders or in this case a bull flag now obviously the opposite side of the spectrum and when we're bearish in a continuation pattern in a nice strong trend you'll see a quick sudden move lower a small little consolidation and then another equal leg lower prior to the small little consolidation and again i'll give you some examples when we get past this boring part but not all sudden price declines that move into a short-term consolidation are bare flags and obviously in mature bear trends or in higher time frame accumulation levels price will post false bear flags and obviously retail traders will see this as a classic continuation cell pattern but many times it will reverse and again to take away is understanding higher time frame charts and understanding the discount markets will assist in identifying when these are potentially false bear flags or when not to expect another leg lower but in fact a bye okay so for those that are unaware of what a bear flag or bull flag is this is basically a graphic depiction i just simply did a google on bull flag and this is one that came up um that i agree with in terms of what it explains on how the price action should be viewed generally you'll see a price leg up and then it'll be a small little consolidation that consolidation can go sideways or in this case it could be slightly slanted lower and then all of a sudden there will be another impulse swing higher that would be equal to the first impulse swing higher so you have a measured move the reason why they call these patterns bull flags is the first leg up in price that would be viewed as a the flagpole okay which is the reason why i got its name that way and then the the flag portion is that small little consolidation slanting lower and then then you would measure that flagpole on the first leg up and then add that to the the move out of the consolidation and that would give you your measured move and while when i first started i can admit to you that some of my grain trades and some of my live cattle and live hog trades when i was trading commodities um they came by way of trading this simple pattern right here um it happened to occur when i had uh one hour stochastics divergence and when it was in agreement it was great the problem is i never really considered the higher time frame charts or what i understand now as a premium or discount market obviously the same thing can be said just in reverse for for bear flags generally you'll see a market drop off have a sudden decline then consolidation sideways or in this case it could be a consolidation that slopes up diagonally and then another leg equal to the first price swing or impulse swing lower that measurement on that first leg lower if you add it to i'm sorry if you subtract it to rather uh the breakout high and the consolidation that will give your projected low now again when markets are in a nice strong trend and they're not mature and they still have more legs to go lower okay this pattern is pretty pretty consistent the problem is when you're not aware when the trend is mature or where you're in areas of accumulation in other words the market's really coming under aggressive buying by smart money these patterns will materialize near the low and you'll see a lot of folks see this as a continuation pattern you'll see it on twitter you'll see it on social media that there will be a particular expectation to see new leg uh lower in price but many times it won't go down or if it does it'll just go down just a smaller bit and then reverse abruptly go higher now looking at another google example okay just give you a little bit more framework these are not my charts i'll just simply grab them off of google and you can actually do google searches on your own and get a little bit more um examples of what a bull flag and a bear flag look like in price action but i liked this one here just for a quick uh an idea of what we would be looking for in other words what the flagpole measurement would be and adding it to or subtracting it from that consolidation to give us a price target and that's great well i'm not trying to teach you the continuation pattern here because it's obviously pretty general knowledge i want to teach on how the markets can actually give us these false patterns and we can take advantage of that so here we have a classic up where the market has moved up aggressively suddenly moved up higher and we have what we have a small little consolidation after that immediate rally up higher when you see that obviously the first thing comes to mind if you know a bull flag pattern is uh well this is obviously a bull flag and then you would measure the the flag pole or the impulse price swing up and then you would add that to the consolidation area and it would give you a projected high so we would expect recently if we were just pre pattern trading or looking for continuation classic patterns if you will we would be looking for higher prices the problem is if we're just looking at one time frame and just only focusing there that's a problem you have to have a certain measure of top-down analysis and using higher time frame charts monthly weekly daily and at least a four-hour but preferably a daily chart that will give us the indications that there's going to be a little bit more information that needs to be considered so when we see that clearly it's viewed as a classic bull flag okay and if we were going back in time in a time machine if someone would have given me this chart my first six to eight months of trading i clearly would have expected this market to go higher based on just this simple pattern alone and unfortunately like i said in the past when i first started trading everything was in a bull market and i can only understand buying low and selling high i never understood rather the the concept of selling short my you know my first year just couldn't grasp it so i would only be a buyer but i could tell you as a new trader my first year i would have looked at this and considered this as a bull flag problem is is that's what would generally end up happening so clearly we see that this spool flag was the opposite it gave us no advancement higher the only thing it did was just breached above a previous area of consolidation so let's take a look about this specific area and what was behind the scenes that led to this overall price reversal okay folks let's take a closer look at this particular false flag okay we have price showing a clear classic bull pattern in here bullish flag but what would cause this market to break down like that why did it not continue and make its equal leg up here added to the move up why we why didn't we get a measured move higher and again why did the bullseye fail well let's take a look at things a little bit closer and let's focus primarily on the bodies of the candles and the price action first forget this wick for a second okay i'm gonna look primarily at the body to the candle right in here as price dropped lower we rallied up tried to go a little bit lower again and finally ran through everybody that trades bull flags would have been excited about this move here breaking out the only thing it did was trade just above this old high okay if we were going to use this area right in here we're going to note that and shade it with an area to highlight it and we're going to go out to a daily chart okay so we have the daily chart here and what i want you to look at is we have a price swing from this high down and then we have a retracement up so as price was running up into that blue shaded area we had on a 15 minute time frame we're inside of this big up candle which is a bearish order block and we also have if we take our fib and we draw it from the high down to the low right here which is right before this price swing up we can clearly see that we are in an area of distribution and what that means is we are in an area of premium so all through here the market is in a premium market relatives of a range we have this old high this old low so now what we know about the market now we're going to drop down into a four hour chart so we're focusing primarily here and when we look at this down move in here we have a rally up creating a liquidity void and then we have another liquidity void going down midway through that is going to be the equivalent of what would be viewed as a bearish order block so since we're in a premium market where we should be seeing distribution we have two areas at which the market created liquidity voids running up then running down this entire range okay is going to be viewed in the scope of a bearish order block so we'll be looking at like a mean threshold if we drop down into a one hour chart okay so we have price coming down and right in here we're going to look at a little bit more detail by dropping down into a 15-minute time frame okay we have the gap between the opening of this candle and the close of this candle right in here okay so we're gonna focus primarily on that we're gonna zoom in on a five minute chart to refine and you can see there's one up candle prior to the down move here now there's two candles going up right before the to move lower and this up move here with these up candles one and two that only trades right back up into the institutional order flow of this low here and this low here the low in this candle comes in at 77 14 the high comes in at 77 14. so it closed in the liquidity void in here relative to what was offered the market was posting bullish prices or offering higher for the buy side when it gapped down through it they offered it one more time up here to be sold filling in that range so from this low over here cut through this candle and you'll see that actually uh ipta filled in that range so we have one two candles if you take those two candles and you measure that range from the body low to the body high between the two candles you get equilibrium right here which is that level i have highlighted which is also the bottom of that last up candle on a five minute time frame so that's why that level's here okay so by having that level and also i'm framing this swing high here so we have a little bit of a fair value gap right there you can see price creating this potential bull flag here and it starts to come up but what is it really doing it's only clearing out the bodies of the candles over here and this big wick that we saw on a 15 minute time frame is not being considered at all but when price starts to break down all we have to do is go back in and look at price action here look at the up candles okay the up can they'll start with their bodies and their wicks on the low end that's where all the sensitivity on selling short will be so when we get into areas of heavy distribution like this and we see a quick rally up in a consolidation or slight dropping lower which would look like a bull flag we don't see that as a bullish scenario what we're doing is we're looking for it to create a false move and break lower now one or two scenarios can happen one you can get a turtle soup scenario where it'll start to come up okay and then start to break down that's the easiest one to trade because you'll actually see it go up get people tripped up thinking it's going to go higher then it rolls over once that happens you want to sell the first return back to a bearish order block that comes in way of the opening comes in 76. 97 the high comes in at 76.
97 that's where your short would be okay once you get that you put your stop above what would be considered the bull flags high that wick that would be that would be your your risk so in terms of uh risking a lot of pips it's not much at all and you would just simply wait for it to come back down to trade and close in first objective would be to close the quality void that the volt flag creates or the false flag that it creates rather if we go up to a 15 minute time frame you can see even on this time frame we have the last up candle right before it starts trading lower the opening on that candle is 76. 97 against the low as well and obviously we've already shown that the high is 76. 97 here on this candle here so price breaks down closes in its void goes right to the bearish order block and then we can see that as a sell-off okay so what am i showing you here i'm showing you that there's going to be times when we break our market down from a top-down perspective by defining the market in terms of discount or premium okay and understand the higher time frame as we've shown with the daily chart here and walking our way down to a lower time frame that we can execute on we can use the premise that other traders are going to see this as a bullish scenario so it's really a sentiment play in addition to institutional order flow in a higher time frame so we're able to see what everyone else with a retail minded uh perspective would see here in terms of continuation on the upside but when we start to see it to break down we know we can get right back in there and sell it short rate at that moment there and then quickly price moves away aggressively and then closes in it's void right here and then ultimately trades up one more time closing in this small little liquidity void here and ultimately moving lower so let's take a look at an example of a bear flag that would be a false flag and how that would translate into higher prices okay we have one more example here price has a sudden decline we're an existing downtrend here okay price goes into a small consolidation and look we're having that saw consolidation sloping higher okay by all intensive purposes this would be deemed as a classic bear pattern okay or bear flag continuations so one would reasonably expect to see a move from this high down to this low from this high projected lower so we could potentially see a move to about 73 55 if we were looking at pure chart patterns in the form of classic patterns the problem is the market's traded down into 7442 so what's significant about that okay well i'm going to show you by having our higher time frame perspective we're going to highlight this little area okay that's where our bear flag is or our pseudo bear flag and i want you to see what's actually happening here when the market trades into that level we're going to high time frame but i want you to see what happens right from the price at this point here suddenly that bear flag doesn't look so bearish okay so by having this let's go in here and take a look at the daily chart okay here's that area where that bear flag would appear like we were just showing on the uh one hour chart look at the bodies of the candles over here okay all these wicks trading down here again all the heaviest volumes inside of the wicks so if we take our area we just highlighted keep it where it's anchored at for the one hour setup we're identifying as a false bear flag i'm actually identifying all the price action below these lows okay now i'm not using the wicks i'm using the bodies of the candles okay and the expectation is this movement here because we're now coming back down into this area for the first time in a couple months or months and a half here on the aussie so we're going one more time back into this area below the lows in terms of their bodies of the candles not the wicks okay so we ignore all these wicks we know that the bulk of the volume is seen in the bodies so this run down below here was really just making a run one more time for the stops below these candles so if we're seeing that on a daily chart we have to consider that when we go back into the hourly chart so when the market starts creating that pseudo bear flag in here we don't see that as a bear flag we actually start going in and looking for reasons to expect higher prices now we don't just simply go buy it as the market starts to rally we want to wait for a swing high to be created and violated on the upside okay we get that here we have a swing high market trades up through it here comes back down to the last bearish candle right here so we can take that idea and not look at it as a bear flag but look at it as a buying opportunity so we could be a buyer right here with a stop below the flag's low so we could be doing this your stop moving below there you're getting long at 74.
70 we'll call it 7470 and the expectation would be we would be looking for a range fill-in of all these down candles so we'd look for upside objective here last up candles body and then we'll be looking for the stops above these equal highs that clean level here plus we have another bearish order block here and then one more right in here then we have equal highs again so we could be looking for that for a liquidity pool and we can we can look up here for another objective if we want to look for a really long term type scenario okay so going forward price responds off that level rather handsomely comes back a little bit retracement just to populate more buying in here price comes up sweeps out these equal highs right here so these highs in here were cleared out the high on this candle comes in at 75. 68 the high on this candle here comes in at 75.
