How to Trade Market Manipulation: Part 2 – The 5 Minute Style Entry
The classic entry style we call the Confirmation Entry is one I would always recommend for beginner traders. However, it involves specific rules, which may not allow for much fluidity for traders who want to apply more discretion/experience in their trading. This is why we also have the 5 min entry which allows you to identify where smart money is buying or selling based on a larger price structure as opposed to specific candle as in the Confirmation Entry.
This article will break down the 5 minute First Failure Point style entry into all its different components and stages.
Let’s begin!
The 5 Minute 'First Failure Point' Entry
This entry style is designed to track smart money. As smart money enters positions that effect the market, we simply look to follow the footprint they leave.
As you can see, we have a few more components to this setup as we did in the classic entry. Let’s break them down 1 at a time.
STEP #1 - The manipulation points
This component refers to the level where we anticipate a potential reversal in price. We term these areas as manipulation points as they likely hold a great deal of liquidity.
As an example, the price may be close to an upper manipulation point. If smart money has the desire to sell the market they will likely first push the price higher, beyond the key level to induce further buying pressure.
This buying pressure allows them to sell into the market without causing a huge spike down.
These areas are what the trading masses would refer to as support and resistance zones. Of course, we have specific ways of selecting our manipulation points as not all levels are created equal. For the most part, we we focus on significant levels, such as daily highs/lows or session highs/lows.
As you must have seen in the previous article, we give our members potential manipulation points in at least 2 markets every day as part of the Daily Market Preview video.
See below:
Each level highlighted with an arrow is a manipulation point. You can click on the picture to read why the levels we’re selected in further detail. I would also recommend checking out this video on how to select manipulation points.
Advanced – This article is going to focus on trading the First Failure Point entry from manipulation points the same as you would the confirmation entry. I recommend starting here as well.
Once someone is profitable with the entry from key manipulation points you can begin to trade entries that DO NOT form at/near any key manipulation point. I plan to touch on this in future articles/videos but I will also elaborate further as we go through the article.
STEP #2 - The Topping/Bottoming Formation
Let me start by saying that I only look to use this entry AFTER a standard Confirmation Entry has failed to provide a setup.
After this occurs, I begin to look for a valid topping/bottom (M or W) formation to form.
These M and W formations are a unique way of spotting smart-money-induced selling or buying in the market. What better way to make traders believe the price is going up than to create higher highs and higher lows or lower highs and lower lows in the case of a move down.
components
To complete an M or W formation, the market would have to break the most recent trend up or down aggressively. An aggressive reversal is critical as it gives us confidence that the most recent move is actually Smart Money driven.
Two specific components properly define our topping or bottoming formation. They are; the First failure point and the valid breakout of the first failure point.
• The first failure point
As we all know, price does not move in a straight line. Instead, it makes supports and resistance on its way up and on its way down.
In the case of an uptrend, each support created on its way up is a potential FIRST FAILURE POINT (FFP). The reverse is true when the market is moving down. As the market moves down, each resistance formed becomes a potential FIRST FAILURE POINT.
We term these levels as the First Failure Point as it is the first point where the market fails to continue creating HH/HL in an uptrend or LL/LH in a downtrend.
• The breakout Sequence
I refer to this stage as a sequence because two things come into play to give you a valid trade setup.
First, you need a clear break of the 1st failure point. This is a point where price breaks the failure point clearly enough to be undeniable on your chart.
I define this scenario as the point where you have a 5 min candle open and close below or above the first failure point, in addition to not touching the level. Thus, even the wick of the 5 min candle should not make contact with the last failure point, and it should be in the direction of the trade.
Secondly, the breakout should happen aggressively, with a clear snap and acceleration through the level.
After both conditions are complete, you have a solid First Failure Point trade setup.
STEP #3 - One-touch entry
This is the point where you enter your trade. Once the topping/bottom formation has formed and the first failure point has been broken, you would then set a limit order buy/sell when the price retests the FFP from the backside. There is no additional confirmation to look for, we simply enter the trade when the FFP is touched.
REAL LIFE EXAMPLE
Take a look at the trade below, which depicts this combination of components/rules in action. First, you begin by having a valid topping formation, determine your last failure point and wait for it to break. Finally, the limit order was placed on the backside of the FFP to enter short.
I tend to use a bit wider stop loss than Sterling with this setup as I still prefer to get the stop above/below the highest/lowest point of the topping formation. There are other stop loss styles that allow for much tighter stop sizes and thus an increased R/R ratio.
Like all things in trading, this is a trade off as each has good and bad. This is where journaling all your trades becomes so crucial as you’ll begin to see patterns in your stop loss placement that can help you improve over time.
I hope you enjoyed this second part of our DTFL style entries. As always, if you do have any questions or suggestions for future content, don’t hesitate to leave a comment below.
Thanks and happy trading.
Kevin Chima