SMC Trading Strategies
Lesson 7
Daily Bias
We develop a Daily Bias before each trading day to prepare and strategise for how the new Daily Candle's Market Structure might form.
Published by Trader Tips,
Published by Trader Tips,
Introduction
What is a Daily Bias?
A Daily Bias refers to whether we think price will be Bullish or Bearish during the new trading day.
We develop our Daily Bias through analysing the chart on the Daily timeframe by looking at the market structure and weighing up the Bullish and Bearish arguments to decide whether we are going to side with the buyers or the sellers for the day.
The benefit of having a Daily Bias is that it prepares us for what we might expect during the new trading day and which types of setups we want to be looking for.
Like with all things in trading though, our Daily Bias can be wrong. These concepts are used for preparing ahead of the trading day. But being able to adapt to what the market actually does and being able to accept when our Daily Bias is wrong, is crucial for finding success.
Step-By-Step Plan for finding our Daily Bias
The plan for finding our Daily Bias will involve putting together everything we have covered so far in this course.
Step 1: Figuring out what the Draw on Liquidity target for the External Market Structure on the Daily timeframe.
Step 2: Looking for Candle Formations to see whether price is currently in an Expansion Phase or if it is forming a Reversal.
Step 3: Using the analysis from Steps 1 and 2 to have the High/Low/EQ Levels we need to frame the potential Continuation or Reversal for the new Daily Candle.
Step 1
Step 1: What is the current Daily Draw on Liquidity (DOL)?
Price is always delivering to a Key Level, which is either a Swing High/Low or an FVG.
The current Key Level that price is targeting is what we call the Draw on Liquidity (DOL).
So, the first thing we want to figure it out is which Key Level is the current DOL because this will give us an overall idea on whether the market is currently Bullish or Bearish.
The way we achieve this is to look at the most recently mitigated Key Level and see whether it created a Continuation Move (Expansion Candle Closure) or a Reversal (Swing Point).
Bullish Continuation (Bullish Structure)
Examples of Bullish Continuations through Daily Key Levels (Daily Swing High and Bearish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing High or a Bearish Daily FVG and we see a Bullish Expansion Move past the Key Level, this reflects a Bullish Daily Bias where we expect the current Draw on Liquidity to be a Key Level higher in price.
For confirmation of the Bullish Daily Expansion Move that gives us our Bullish Daily Bias, we always want to see at least 1 Bullish Daily Expansion Candle Closure past the Daily Candle that hit the Key Level.
Bearish Continuation (Bearish Structure)
Examples of Bearish Continuations through Daily Key Levels (Daily Swing Low and Bullish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing Low or a Bullish Daily FVG and we see a Bearish Expansion Move past the Key Level, this reflects a Bearish Daily Bias where we expect the current Draw on Liquidity to be a Key Level lower in price.
For confirmation of the Bearish Daily Expansion Move that gives us our Bearish Daily Bias, we always want to see at least 1 Bearish Daily Expansion Candle Closure past the Daily Candle that hit the Key Level.
Bullish Reversal (Bullish Structure)
Examples of Bullish Reversals after mitigating Daily Key Levels (Daily Swing Low and Bullish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing Low or a Bullish Daily FVG and we see a new Daily Swing Low form after hitting the Key Level, we deem the mitigated Daily Swing Low/Bullish FVG to be the previous Draw on Liquidity.
When a new Swing Low forms after mitigating a Key Level, we presume the market has now transitioned into a new Bullish Expansion Phase, which means our Daily Bias would be Bullish with the new Daily Draw on Liquidity being a Daily Key Level higher in price.
Bearish Reversal (Bearish Structure)
Examples of Bearish Reversals after mitigating Daily Key Levels (Daily Swing High and Bearish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing High or a Bearish Daily FVG and we see a new Daily Swing High form after hitting the Key Level, we deem the mitigated Daily Swing High/Bearish FVG to be the previous Draw on Liquidity.
When a new Swing High forms after mitigating a Key Level, we presume the market has now transitioned into a new Bearish Expansion Phase, which means our Daily Bias would be Bearish with the new Daily Draw on Liquidity being a Daily Key Level lower in price.
What if the Previous Daily Candle has hit a Key Level?
If the most recent Daily Candle hit a Key Level (Daily Swing High/Low or Daily FVG), we can't determine whether price wants to create a Continuation Move pushing past the Key Level, or create a Reversal Move.
In this scenario, our Bias has to remain undecided until the Daily Market Structure develops further.
We cannot tell whether
But with that said, we can still trade the next Daily Candle depending on the lower timeframe Continuation or Reversal confirmations, which we will look further into.
Step 1: What is the current Daily Draw on Liquidity (DOL)?
Price is always delivering to a Key Level, which is either a Swing High/Low or an FVG.
The current Key Level that price is targeting is what we call the Draw on Liquidity (DOL).
So, the first thing we want to figure it out is which Key Level is the current DOL because this will give us an overall idea on whether the market is currently Bullish or Bearish.
The way we achieve this is to look at the most recently mitigated Key Level and see whether it created a Continuation Move (Expansion Candle Closure) or a Reversal (Swing Point).
Bullish Continuation (Bullish Structure)
Examples of Bullish Continuations through Daily Key Levels (Daily Swing High and Bearish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing High or a Bearish Daily FVG and we see a Bullish Expansion Move past the Key Level, this reflects a Bullish Daily Bias where we expect the current Draw on Liquidity to be a Key Level higher in price.
For confirmation of the Bullish Daily Expansion Move that gives us our Bullish Daily Bias, we always want to see at least 1 Bullish Daily Expansion Candle Closure past the Daily Candle that hit the Key Level.
Bearish Continuation (Bearish Structure)
Examples of Bearish Continuations through Daily Key Levels (Daily Swing Low and Bullish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing Low or a Bullish Daily FVG and we see a Bearish Expansion Move past the Key Level, this reflects a Bearish Daily Bias where we expect the current Draw on Liquidity to be a Key Level lower in price.
For confirmation of the Bearish Daily Expansion Move that gives us our Bearish Daily Bias, we always want to see at least 1 Bearish Daily Expansion Candle Closure past the Daily Candle that hit the Key Level.
Bullish Reversal (Bullish Structure)
Examples of Bullish Reversals after mitigating Daily Key Levels (Daily Swing Low and Bullish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing Low or a Bullish Daily FVG and we see a new Daily Swing Low form after hitting the Key Level, we deem the mitigated Daily Swing Low/Bullish FVG to be the previous Draw on Liquidity.
When a new Swing Low forms after mitigating a Key Level, we presume the market has now transitioned into a new Bullish Expansion Phase, which means our Daily Bias would be Bullish with the new Daily Draw on Liquidity being a Daily Key Level higher in price.
Bearish Reversal (Bearish Structure)
Examples of Bearish Reversals after mitigating Daily Key Levels (Daily Swing High and Bearish Daily FVG).
If the most recent Daily Key Level to be mitigated was either a Daily Swing High or a Bearish Daily FVG and we see a new Daily Swing High form after hitting the Key Level, we deem the mitigated Daily Swing High/Bearish FVG to be the previous Draw on Liquidity.
When a new Swing High forms after mitigating a Key Level, we presume the market has now transitioned into a new Bearish Expansion Phase, which means our Daily Bias would be Bearish with the new Daily Draw on Liquidity being a Daily Key Level lower in price.
What if the Previous Daily Candle has hit a Key Level?
If the most recent Daily Candle hit a Key Level (Daily Swing High/Low or Daily FVG), we can't determine whether price wants to create a Continuation Move pushing past the Key Level, or create a Reversal Move.
In this scenario, our Bias has to remain undecided until the Daily Market Structure develops further.
We cannot tell whether
But with that said, we can still trade the next Daily Candle depending on the lower timeframe Continuation or Reversal confirmations, which we will look further into.
Step 2
Step 2: Identifying the Formation of the Previous Daily Candle
In step 1, we covered how we determine the current Daily Draw on Liquidity target, which involves looking at the External Market Structure of the Daily timeframe, which gives us an idea of the general direction that the market wants to move in.
But it's important to remember that even if we know the DOL, price doesn't just move in a straight line. For example, in an uptrend, the market still has bearish days.
This is why the next step of narrowing our Daily Bias involves looking specifically at the last Daily Candle that closed.
Candle Formations
Over the last few lessons, we covered 3 different types of Candle Formations, which are:
Expansion Candle (Continuation Formation).
CRT Candle (Reversal Formation).
Engulfing Candle (Reversal Formation).
If we can identify the previous Daily Candle as one of these 3 Candle Formations, this can give us a big helping help when it comes to framing our bias for the new Daily Candle.
Expansion Candle (Continuation Formation)
Examples of a Bullish Expansion Candle and a Bearish Expansion Candle.
If the previous Daily Candle was an Expansion Candle, our presumption is that the next Daily Candle is more likely to be a Continuation Candle.
CRT Candle (Reversal Formation)
Examples of a Bullish CRT Candle and a Bearish CRT Candle.
If the previous Daily Candle was an CRT Candle, our presumption is that the next Daily Candle is more likely to be a Reversal Candle.
Engulfing Candle (Reversal Formation)
Examples of a Bullish Engulfing Candle and a Bearish Engulfing Candle.
If the previous Daily Candle was an Engulfing Candle, our presumption is that the next Daily Candle is more likely to be a Continuation Candle (Continuation from the Engulfing Candle that confirms new Swing Point).
Consolidation Candle (Indecision Candle)
Examples of a Bullish Consolidation Candle and a Bearish Consolidation Candle.
If the previous Daily Candle opened and closed without hitting either the Top Wick or the Bottom Wick of the Daily Candle before it, we consider this a Daily Consolidation Candle.
A Consolidation Candle doesn't offer us much in analysis, it is a candle that didn't make any progress in either the Bullish or Bearish direction.
In the scenario where the previous Daily Candle was a Consolidation Candle, the best thing we can do is to wait for price to develop it's Market Structure further.
Step 2: Identifying the Formation of the Previous Daily Candle
In step 1, we covered how we determine the current Daily Draw on Liquidity target, which involves looking at the External Market Structure of the Daily timeframe, which gives us an idea of the general direction that the market wants to move in.
But it's important to remember that even if we know the DOL, price doesn't just move in a straight line. For example, in an uptrend, the market still has bearish days.
This is why the next step of narrowing our Daily Bias involves looking specifically at the last Daily Candle that closed.
Candle Formations
Over the last few lessons, we covered 3 different types of Candle Formations, which are:
Expansion Candle (Continuation Formation).
CRT Candle (Reversal Formation).
Engulfing Candle (Reversal Formation).
If we can identify the previous Daily Candle as one of these 3 Candle Formations, this can give us a big helping help when it comes to framing our bias for the new Daily Candle.
Expansion Candle (Continuation Formation)
Examples of a Bullish Expansion Candle and a Bearish Expansion Candle.
If the previous Daily Candle was an Expansion Candle, our presumption is that the next Daily Candle is more likely to be a Continuation Candle.
CRT Candle (Reversal Formation)
Examples of a Bullish CRT Candle and a Bearish CRT Candle.
If the previous Daily Candle was an CRT Candle, our presumption is that the next Daily Candle is more likely to be a Reversal Candle.
Engulfing Candle (Reversal Formation)
Examples of a Bullish Engulfing Candle and a Bearish Engulfing Candle.
If the previous Daily Candle was an Engulfing Candle, our presumption is that the next Daily Candle is more likely to be a Continuation Candle (Continuation from the Engulfing Candle that confirms new Swing Point).
Consolidation Candle (Indecision Candle)
Examples of a Bullish Consolidation Candle and a Bearish Consolidation Candle.
If the previous Daily Candle opened and closed without hitting either the Top Wick or the Bottom Wick of the Daily Candle before it, we consider this a Daily Consolidation Candle.
A Consolidation Candle doesn't offer us much in analysis, it is a candle that didn't make any progress in either the Bullish or Bearish direction.
In the scenario where the previous Daily Candle was a Consolidation Candle, the best thing we can do is to wait for price to develop it's Market Structure further.
Step 3
New Daily Candle: Continuation or Reversal?
Examples of a Continuation from the previous Daily Candle and a Reversal from the previous Daily Candle.
When we look at the previous Daily Candle in the context of or Daily Bias, we are asking ourselves the question: "Is the new Daily Candle more likely to continue the trend of the previous Daily Candle, or is it more likely to reverse?"
In Step 2, we covered how if the previous Daily Candle fits into one of our Candle Formation frameworks, it can give us a big advantage in terms of how we plan for the next Daily Candle.
In this step, we are going to take those frameworks and explore how we plan for the next Daily Candle based on whether we are expecting a Continuation or a Reversal.
Framing a Continuation
Examples of a Bullish Continuation from the previous Daily Candle and a Bearish Continuation from the previous Daily Candle.
If we expect the new Daily Candle to create a Continuation from the previous Daily Candle, we want to see the Daily Candle develop as an Expansion Candle.
We frame Expansion Candles from the Equilibrium Level (EQ) off the previous Daily Candle's Equilibrium Level (50% Midlevel), which means we want to see the next Daily Candle form without disrespecting the EQ Level.
The EQ of the previous Daily Candle can be touched without invalidating the Expansion Candle framework, we just don't want to see lower timeframe candles close past the EQ because this signals weakness in the potential Continuation.
Bullish Continuation Framework
Bullish Continuation Framework.
For an ideal Bullish Daily Expansion Candle, we want to see price push down and reject from a lower timeframe Key Level, forming the Bottom Wick for the Daily Candle above the previous Daily Candle's EQ. From here, we want to see Bullish Expansion through the rest of the day.
Bearish Continuation Framework
Bearish Continuation Framework.
For an ideal Bearish Daily Expansion Candle, we want to see price push up and reject from a lower timeframe Key Level, forming the Top Wick for the Daily Candle below the previous Daily Candle's EQ. From here, we want to see Bearish Expansion through the rest of the day.
Framing a Reversal
Examples of a Bullish Reversal from the previous Daily Candle and a Bearish Reversal from the previous Daily Candle.
If we expect the new Daily Candle to create a Reversal from the previous Daily Candle, we frame the Reversal off the previous Daily Candle's High/Low.
Bullish Reversal Framework
Bullish Reversal Framework.
For the framework of an ideal Bullish Daily Reversal Candle, we want to see price push down at the start of the day to sweep the previous Daily Candle's Low (Bottom Wick), before then reversing and expanding higher throughout the rest of the day, closing as a Bullish Candle.
Bearish Reversal Framework
Bearish Reversal Framework.
For the framework of an ideal Bearish Daily Reversal Candle, we want to see price push up at the start of the day to sweep the previous Daily Candle's High (Top Wick), before then reversing and expanding lower throughout the rest of the day, closing as a Bearish Candle.
New Daily Candle: Continuation or Reversal?
Examples of a Continuation from the previous Daily Candle and a Reversal from the previous Daily Candle.
When we look at the previous Daily Candle in the context of or Daily Bias, we are asking ourselves the question: "Is the new Daily Candle more likely to continue the trend of the previous Daily Candle, or is it more likely to reverse?"
In Step 2, we covered how if the previous Daily Candle fits into one of our Candle Formation frameworks, it can give us a big advantage in terms of how we plan for the next Daily Candle.
In this step, we are going to take those frameworks and explore how we plan for the next Daily Candle based on whether we are expecting a Continuation or a Reversal.
Framing a Continuation
Examples of a Bullish Continuation from the previous Daily Candle and a Bearish Continuation from the previous Daily Candle.
If we expect the new Daily Candle to create a Continuation from the previous Daily Candle, we want to see the Daily Candle develop as an Expansion Candle.
We frame Expansion Candles from the Equilibrium Level (EQ) off the previous Daily Candle's Equilibrium Level (50% Midlevel), which means we want to see the next Daily Candle form without disrespecting the EQ Level.
The EQ of the previous Daily Candle can be touched without invalidating the Expansion Candle framework, we just don't want to see lower timeframe candles close past the EQ because this signals weakness in the potential Continuation.
Bullish Continuation Framework
Bullish Continuation Framework.
For an ideal Bullish Daily Expansion Candle, we want to see price push down and reject from a lower timeframe Key Level, forming the Bottom Wick for the Daily Candle above the previous Daily Candle's EQ. From here, we want to see Bullish Expansion through the rest of the day.
Bearish Continuation Framework
Bearish Continuation Framework.
For an ideal Bearish Daily Expansion Candle, we want to see price push up and reject from a lower timeframe Key Level, forming the Top Wick for the Daily Candle below the previous Daily Candle's EQ. From here, we want to see Bearish Expansion through the rest of the day.
Framing a Reversal
Examples of a Bullish Reversal from the previous Daily Candle and a Bearish Reversal from the previous Daily Candle.
If we expect the new Daily Candle to create a Reversal from the previous Daily Candle, we frame the Reversal off the previous Daily Candle's High/Low.
Bullish Reversal Framework
Bullish Reversal Framework.
For the framework of an ideal Bullish Daily Reversal Candle, we want to see price push down at the start of the day to sweep the previous Daily Candle's Low (Bottom Wick), before then reversing and expanding higher throughout the rest of the day, closing as a Bullish Candle.
Bearish Reversal Framework
Bearish Reversal Framework.
For the framework of an ideal Bearish Daily Reversal Candle, we want to see price push up at the start of the day to sweep the previous Daily Candle's High (Top Wick), before then reversing and expanding lower throughout the rest of the day, closing as a Bearish Candle.
Conclusion
Tying it All Together
When it comes to finding our Daily Bias, what's important is that we make sure we try our best to understanding the full picture of the market.
We won't always be right and there's many factors that can flip a trading plan on it's head such as a random piece of news, but by following these 3 steps before jumping into any lower timeframe analysis, we can prepare ourselves for the new trading day:
Step 1: Figuring out what the Draw on Liquidity target for the External Market Structure on the Daily timeframe.
Step 2: Looking for Candle Formations to see whether price is currently in an Expansion Phase or if it is forming a Reversal.
Step 3: Using the analysis from Steps 1 and 2 to have the High/Low/EQ Levels we need to frame the potential Continuation or Reversal for the new Daily Candle.
But this only gives us our Daily Bias, in the next lesson we are going to be looking into Daily Profiles, which are typical frameworks we use when forecasting Continuation and Reversal Daily Candles using our Daily Bias.
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