Transcription
Ever feel like the market waits for you to set your stop-loss just to hit it and then take off in your direction? That's not bad luck. That's the power of three. And if you don't understand it, you are the liquidity.
Today, I'm breaking down the AMD, accumulation, manipulation, and distribution. I'll show you how to stop being the victim and start trading with the smart money. I'm going to reveal the exact bullish and bearish setups I use, the number one mistake to avoid, and a secret filter to instantly boost your win rate. If you want to trade like the 1%, you need to see the market like this. Let's dive in.
The power of three model is one of the most frequently seen SMC day trading setups. I mostly day trade Bitcoin and gold and every week I usually get around two to five trade setups from this model. Here we look for a pattern that combines three consecutive movements in the market structure, especially during the early hours of the London and New York sessions. Accumulation, manipulation, and distribution.
Here is a bullish example. First, notice how price has moved sideways in a relatively tight range. This is the accumulation phase. During this phase, price is consolidating. There is no strong direction yet. Liquidity builds above the highs and below the lows of this range.
Next, price suddenly moves below the range, breaking below the lows. At first, it looks bearish. That is why we call it the manipulation phase. The manipulation phase is usually short and sharp. Some traders may fall into the trap and start short trades here. This move is designed to take liquidity from traders who place stop-losses below the range and from new traders who open short positions.
After this liquidity grab, price quickly reverses and moves strongly upward. This is the distribution phase. Now we look for price to move above the previous range high, making a market structure shift, and we are also looking for candles to form a fair value gap. The distribution phase is strong and directional. We enter long positions when price moves back to the fair value gap area and then moves up showing strong bullish intent.
Now here is a bearish example. Price first consolidates in a tight range. Then price breaks above the range, taking liquidity above the highs. After that, price reverses strongly downward, making a market structure shift and also forming a fair value gap. We enter a trade when price retraces back to the fair value gap and moves down showing bearish strength.
Here is a TradingView example. This entry happened during the first hour of the London session, and this is the 15-minute chart. For day trading, I usually look for these SMC setups on the 15-minute chart and then move to the 5-minute chart for entry confirmation.
When we are using this model, before entering a trade, we must always consider the market context. Let's go to the 1-hour chart. You can see that price is clearly in a downtrend. Now let's move to the 4-hour chart. Here as well, you can see that price is in a downtrend. So, in a situation like this, we usually look for short setups unless price has reached an optimal trade entry level.
Now let's select the Fibonacci retracement tool and set it from the bottom to the top of this previous 4-hour range. You can see that price has reached the optimal trade entry level here. So, in this case, even though the swing trend appears bearish, since price has reached an optimal trade entry level, the probability of a potential trend reversal from this area is higher. That doesn't mean we should enter a long position immediately. It simply means that if we get a strong bullish setup, we can use this higher time frame context as a positive confluence. I have already uploaded a video on how to identify daily bias and key levels on this channel. I will add the link to that video in the description below for those who want to learn more about that topic.
Now let's move back to the 15-minute chart. You can see here price has accumulated. Then we have a quick strong move to the downside below the low of that range. That is manipulation. After that, we can see displacement candles closing above the swing high of the range, making a market structure shift and also forming a fair value gap. Now, we have all three components of the power of three or AMD model formed.
Now, we can move to the 5-minute chart and wait for price to retrace back to that fair value gap we marked on the 15-minute chart and then show a strong move upward. We have to be very careful here. Having a bullish AMD model formed does not always mean price will move up. Sometimes price retraces back to the fair value gap and continues moving down. Some traders place limit orders here. Based on my experience, I do not recommend that. Move to the 5-minute chart and observe how price behaves.
For the best entry, we want 5-minute candles to move into the 15-minute fair value gap, not close below it, and then move up with strong bullish candle closes above it. We need to see clear bullish strength from the candles. We can also look for new 5-minute fair value gaps or strong bullish candlestick patterns. After that, we can take the entry when price moves back above the 15-minute swing high. We place the stop-loss below the fair value gap and we take the next 1-hour liquidity level as the take-profit target. Here you can see I have marked the liquidity level based on this swing high from the 1-hour chart. Higher time frame liquidity levels can come from the 1-hour or 4-hour chart, swing highs or lows, order blocks, or fair value gaps.
Now, when you are preparing to enter a trade, if the next 1-hour liquidity level is too close to the entry point, and because of that, you are not getting a good risk-to-reward ratio, do not enter. Skip the trade. After entering, if you see price forming new 15-minute fair value gaps, you can use them to add to the trade and increase your position size like this. But do not do that when price is already close to the next liquidity target.
Now, here is a bearish example. This also happened during the early hours of the London session. As usual, we are on the 15-minute chart. To check the higher time frame context, let's move to the 1-hour chart. You can see that the 1-hour chart shows a clear bearish trend. Now let's check the 4-hour chart. The 4-hour chart also shows a bearish trend. Also, if we consider the Fibonacci levels from the previous range, price has not yet reached the optimal trade entry level. So, the higher time frame context is clearly bearish. In a situation like this, if we get a good setup for a short trade, we can enter with confidence.
Now let's move back to the 15-minute chart again. You can see a range here. This is the accumulation phase. Then we have the liquidity grab to the upside above the high of the range. That is manipulation. Now price moves down below the swing low, making a market structure shift and forming a fair value gap. When price moves back to the fair value gap and then comes back below the 15-minute swing low, showing bearish strength on the 5-minute chart, we can take the entry. We place the stop loss just above the fair value gap and set the take profit at the next 1-hour liquidity level. You can see this one also forms a second fair value gap, giving us an opportunity for a second entry.
Now, here is a trap that many traders fall into when trying to trade this strategy. Here we have a nice displacement move to the upside with a clear market structure shift and a fair value gap. Then price retraces back to that fair value gap. No candle has closed below it, and now price is moving up again. It may seem like we can take a long entry here at the swing high, placing the stop loss below the fair value gap and setting the next liquidity level as the take-profit target shown. The power of three strategy or AMD strategy we discussed in this lesson has three phases: accumulation, manipulation, and distribution. In this setup, we can see accumulation and distribution, but we cannot see manipulation. Price has not taken this low. In other words, price has moved up without a liquidity sweep. So, this is not a complete setup.
Now, look what happens. Price moves up slightly and then starts moving down again. So, be very careful. If we cannot clearly see where the liquidity comes from, the probabilities are high that the trade will go wrong, and we will become the liquidity.
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