About this video

• Video Title: The Last One: This is how you trade PreMarketDesign!
• Channel: ZKE
• Speakers: Zeke (implied by "Zeke, where am I going to put my stop loss?")
• Duration: 38:06

Overview

This video explains a trading strategy called "PreMarketDesign" which focuses on identifying ranges, using Fibonacci levels to pinpoint entry and exit points, and understanding the psychology behind trading decisions. The presenter emphasizes a mechanical approach to trading, where the direction model and established levels are the foundation for profitable trades.

Key takeaways

• Range Identification: The first step is identifying trading ranges, which can shift from bearish to bullish or vice-versa.
• Fibonacci as a Directional Tool: Fibonacci levels are used not for traditional retracements but as a directional model to identify premium and discount zones within a range.
• Premium vs. Discount: Trades should be executed with the aim to sell in premium zones (expensive) and buy in discount zones (cheap), adhering to the "buy low, sell high" principle.
• Mechanical Trading: The strategy promotes a mechanical approach, treating trading like a video game with predetermined levels and reactions.
• Confluences and Inducements: While Fibonacci levels are the foundation, other concepts like order blocks and fair value gaps are used as confluences and inducements.
• Psychology and Capital Preservation: The video stresses the importance of understanding one's own trading psychology and risk tendencies to build a personalized, consistent trading system.
• Range Trading Preference: The presenter prefers trading ranges over trending markets due to their predictability.

PreMarketDesign Trading Strategy: Step-by-Step

1. Identify the Overall Range:

   • Determine the high and low points of a significant price movement to define the trading range.
   • Assess whether the current momentum suggests a bearish or bullish range, noting any shifts in trend.

2. Apply Fibonacci Levels (Directional Model):

   • Draw Fibonacci levels from the low to the high of the identified range (for a bullish bias) or high to low (for a bearish bias).
   • The key levels to focus on are 236, 382, 618, and 786.
   • The 50% level is also crucial as it represents the equilibrium of the range.

3. Define Premium and Discount Zones:

   • Premium Zone: The upper portion of the range, where prices are considered expensive. Sell opportunities are sought here.
   • Discount Zone: The lower portion of the range, where prices are considered cheap. Buy opportunities are sought here.

4. Identify Trading Opportunities:

   • For Buys: Look for entries near the 382 or 236 levels within the discount zone, especially after price has shown bullish momentum or broken a previous high.
   • For Sales: Look for entries near the 618 or 786 levels within the premium zone, especially after price has shown bearish momentum or broken a previous low.

5. Incorporate Confluences and Inducements:

   • Inducements: These are price levels or patterns designed to "induce" traders into taking a position, often before the actual move. Examples include:
     • Previous highs or lows that haven't been retested.
     • Liquidity pools or zones.
     • Fair value gaps (FVGs) or order blocks from higher timeframes.
     • Psychological levels or pivot points (e.g., a level that previously acted as both support and resistance).
   • Confluences: These are additional trading signals or patterns that align with the Fibonacci levels and directional bias, strengthening the trading decision. Examples include:
     • An order block that aligns with a Fibonacci level.
     • A fair value gap that occurs within the premium or discount zone.
     • A sweep of liquidity that precedes a move into a Fibonacci level.
     • Basic support and resistance levels coinciding with Fibonacci levels.

6. Determine Entry, Stop Loss, and Take Profit:

   • Entry: Execute the trade when price reacts to a key Fibonacci level, ideally confirmed by an inducement or confluence.
   • Stop Loss: Place stop losses based on the overall range equilibrium (e.g., below the 50% or a key level like the 786), or a percentage of the range, considering the risk tolerance. The presenter mentions placing it within 30% of the range or below a specific confluence.
   • Take Profit: Target significant Fibonacci levels (e.g., aiming for the opposite zone, like targeting the 382 or 236 for a sell trade initiated at the 618 or 786) or a specific risk-to-reward ratio (e.g., 1:2).

7. Manage the Trade:

   • Be prepared for potential drawdowns as price may need to correct before moving in the intended direction.
   • Understand that stop losses can be tight, and losses are part of trading. The key is to maintain capital to re-enter.

Explanation of Confluences and Inducements

Inducements are essentially traps or bait set by the market to lure traders in before a significant price move. They create a false sense of opportunity or security. In this strategy:

• Unswept Liquidity (Highs/Lows): If price creates a new high and then pulls back without retesting that high, that high becomes an inducement for sellers. Conversely, an unswept low can induce buyers. These are often located near Fibonacci levels.
• Order Blocks/FVGs: A higher timeframe order block or fair value gap that price approaches can act as an inducement, drawing traders to expect a reaction from that zone.
• Psychological Levels/Pivots: Areas where price has repeatedly reacted in the past (acting as both support and resistance) can serve as inducements, as traders anticipate a similar reaction.

Confluences are factors that align to validate a trade setup. They strengthen the probability of a trade working out by providing multiple reasons for price to react at a specific level. In this strategy:

• Fibonacci + Inducement: The primary confluence is when a key Fibonacci level (e.g., the 618 in the premium zone) aligns with an inducement (e.g., a previous high that has not been retested). This combination signals a high-probability sell setup.
• Fibonacci + Higher Timeframe Structure: A Fibonacci level coinciding with a significant support or resistance level on a higher timeframe chart adds another layer of confluence.
• Fibonacci + Multiple Fibonacci Levels: Sometimes, multiple Fibonacci levels clustering together in a premium or discount zone can act as a confluence, indicating a strong area of interest.
• Fibonacci + Order Blocks/FVGs: As mentioned, these are used as confluences when they align with the directional bias and Fibonacci levels, providing extra confirmation for an entry.

Essentially, inducements are what the market uses to trick you or draw you in, while confluences are the multiple signs that confirm your trading idea is sound, making your strategy more robust and mechanical.