NOTES OF TRADING:
CHAPTER 1-Momentum
and correction….
A) the price usually moves in two
directions - momentum and correction…
B) DIFFERENCE BETWEEN ROLLBACK
AND PULLBACK:
Perfect — you’re quoting a very price-
action specific definition of pullback vs
rollback. Let’s decode it in plain words:
1. Pullback (body close beyond high/low)
When price breaks the previous candle’s
high or low AND closes with the body
above that high / below that low. This
shows strength in the breakout, not just a
wick test.
The “close with body” confirms momentum
→ the move is likely to continue.
👉 That’s why this is called a sure pullback
→ a retracement inside the trend that is
strong enough to continue.
2. Rollback (only wick breaks high/low,
body closes back inside)
When price pierces the previous candle’s
high or low with a wick (shadow)
BUT the close returns inside the prior
range (no body close above/below)
This shows rejection of higher/lower prices
→ liquidity grab or false breakout.
Traders interpret this as rollback, meaning
the move failed and price may reverse
back.
👉 In simple words:
Pullback = breakout with confirmation
(body closes outside).
Rollback = fakeout / liquidity grab (wick
only, body fails to close outside).
💡 So, this framework is all about where
the candle closes relative to the broken
high/low.
Sure! Let’s break down Kickback in more
detail so it’s crystal clear:
Kickback Explained
Definition:
A kickback is a short, sharp reversal in
price against the prevailing move. It’s
usually temporary and often caused by:
Traders taking quick profits
Stop-hunts or liquidity grabs
Overextended price action
Key Characteristics:
Happens after a strong candle or
breakout.
Usually small in size compared to the
previous move.
Often does not break major
support/resistance levels — it’s just a
minor “bounce back.”
Can occur in both trends and after failed
breakouts.
Purpose in Trading:
Gives traders a better entry point in the
direction of the main trend.
Can trap weak traders who expect the
move to continue immediately.
Example (Uptrend):
Price moves $100 → $110 strongly
(strong bullish candle).
Then a kickback occurs: price dips to
$107 quickly, then continues upward to
$115.
The dip is temporary — the main trend is
still intact.
Visual Cue:
Candle has small retracement body/wick
in the opposite direction of the main trend.
Often followed by a continuation candle in
the trend direction.
✅ Summary:
Kickback = minor, temporary pushback
after a strong move.
Rollback = failed breakout / rejection
(more serious, could reverse trend).
Pullback = healthy trend continuation
retracement….
CHAPTER 2:
In trading, inducement refers to a
subtle market behavior or price
movement that tempts traders to act in
a way that benefits larger, smarter
market participants—usually
institutional players. Essentially, it's a
“trap” set by bigger players to
encourage retail traders to make
predictable mistakes.
Here’s a breakdown:
Purpose:
To lure retail traders into taking
positions (buying or selling) at the
wrong time.
Often occurs near key levels like
support, resistance, or liquidity zones.
How it happens:
Price may appear to break out in one
direction (bullish or bearish),
suggesting a strong move.
Retail traders jump in, thinking the
trend is confirmed.
The price then reverses sharply,
allowing larger players to profit from
the liquidity created by the retail
traders’ positions.
Example:
Price is in a range. Big players want to
sell at the top. They push price slightly
above resistance → retail traders “buy
the breakout.”
Once enough buyers are trapped, price
drops, giving big players their ideal sell
conditions.
Key insight:
Inducement is basically market
manipulation in a legal sense, where
smarter traders use predictable human
behavior to their advantage.
Recognizing inducements helps avoid
traps and improves entry timing.
COCH VS BOS
CHoCH and BOS may look the same on
the outside, but there is a big difference
between them.
BOS only form when a trend continues,
whether the trend is bullish or bearish.
CHoCH are formed only when the trend
reverses….
KEYNOTE: A trend reversal (CHOCH) occurs in
two cases when the price touches the POI or
removes liquidity from the POI and breaks the first
recent high/low.
If the price has not touched the POI, then the first
recent high/low is the IDM.
And when the price breaks the main high / low, this
is also called ChoCH.
CHoCH and BOS may look the same on the
outside, but there is a big difference between them.
BOS only form when a trend continues, whether the
trend is bullish or bearish. CHoCH are formed only
when the trend reverses. You can easily see this
from the example below.
CHAPTER 3: FVG
A Fair Value Gap (FVG) is a concept from
smart money trading (SMC/ICT) that
refers to an imbalance in price action
where not all orders were efficiently
matched between buyers and sellers.
# A DESCRIPTIVE EXAMPLE OF FVG
VISUAL REPRESENTATION
It usually shows up on the chart as a 3-
candle pattern:
Candle 1: A strong impulsive move
starts (bullish or bearish).
Candle 2: A large candle continues the
move quickly (leaving a void).
Candle 3: Price continues in the same
direction, skipping over price levels in
between.
👉 Because price moved so aggressively,
there’s a gap between the wick of the
first candle and the wick of the third
candle. That gap is the Fair Value Gap.
📌 Purpose of FVG
Identifying Inefficiency:
Shows where the market left “imbalanced”
price action (no fair trade between
buyers/sellers)….
Price Magnet / Retracement Area:
Price often comes back later to "rebalance"
this gap before continuing the trend.
Traders look for entries when price revisits
the FVG.
Liquidity Insight:
Large institutions create these gaps when
placing massive orders. Spotting them helps
retail traders align with institutional
footprints.
Support/Resistance Zones:
Once filled, FVGs can act as a reversal point
or continuation level…
⚖️In short:
A Fair Value Gap is a sign of institutional
order flow imbalance. Its purpose is to
highlight where price may return to fill
inefficiency before resuming its move….
CHAPTER 4
Perfect 👌 let’s map it out step by step —
how Order Flow connects with Support,
Resistance, Inducement, and Fair Value
Gaps so you see the whole picture
clearly:
🔹 1. Order Flow (Foundation)
Definition: The battle between buyers and
sellers, shown through market and limit
orders.
Function: Shows who is in control →
aggressive buyers (bullish order flow) or
aggressive sellers (bearish order flow).
Clue: If price keeps breaking highs with
strong closes → buyers dominate; if lows
keep breaking → sellers dominate.
🔹 2. Support & Resistance (Liquidity Pools)
Support: Where buyers are expected →
resting liquidity (limit buy orders).
Resistance: Where sellers are expected →
resting liquidity (limit sell orders).
Reality: These are liquidity pools.
Many traders put stops below support
or above resistance.
Smart Money uses order flow to hunt those
stops (stop runs / liquidity sweeps).
🔹 3. Inducement (Trap Creation)
Definition: A false move designed to “induce”
retail traders to enter in the wrong direction.
Order Flow Role:
Price shows bullish momentum near
resistance → retail buys.
Smart Money uses that buying pressure to fill
their sell orders.
Purpose: Build liquidity for Smart Money by
trapping traders.
🔹 4. Fair Value Gap (FVG)
Definition: An imbalance in order flow —
where price moved so aggressively that
opposite orders weren’t filled.
Example: A big bullish candle leaves no
sellers in between. That gap = inefficiency.
Order Flow Role:
Price often comes back to fill that gap →
balancing orders.
Smart Money uses FVG as entry zones to
realign price with order flow.
🔹 5. How It All Connects (Flow of Events)
Liquidity Pools (SnR): Retail sets orders.
Inducement: Market tempts retail to trade
wrong direction.
Order Flow Shift: Aggressive buying/selling
shows where Smart Money is positioned.
Liquidity Grab: Stops at support/resistance
get hunted.
Fair Value Gap: Price leaves imbalance →
later retraces to fill.
True Direction: Market continues in Smart
Money’s real intended direction.
✅ In simple terms:
SnR = where liquidity sits.
Inducement = trap to attract wrong orders.
Order Flow = tells you who’s actually in
control.
Liquidity Grab = stops taken out.
FVG = imbalance left behind as a footprint.
Got it 👍 — let’s break down the purpose of
order flow in trading.
🔹 Purpose of Order Flow
The main goal of studying order flow is to
understand the real mechanics behind price
movement — not just what the chart looks
like, but why price moves the way it does.
1. See Who Controls the Market
Order flow shows whether buyers (market
buys) or sellers (market sells) are more
aggressive.
Helps you avoid trading blindly against the
stronger side.
2. Detect Liquidity
Support & resistance aren’t magic levels —
they’re liquidity pools.
Order flow shows when that liquidity is being
absorbed (price stalls) or taken out (liquidity
sweep).
3. Identify Traps (Inducement)
Order flow reveals when retail is induced to
trade the wrong way.
Example: Market aggressively buys at
resistance → Smart Money sells into that
buying pressure.
4. Track Smart Money Activity
Large players leave footprints in the form of
imbalances, absorption, and liquidity grabs.
Order flow helps you spot where Smart
Money enters/exits instead of following retail
noise.
5. Better Trade Entries & Risk Management
You can time entries with precision:
Enter after a liquidity sweep.
Enter at fair value gaps (imbalances).
Avoid chasing price blindly.
Gives you smaller stops, higher RR trades.
✅ In short:
The purpose of order flow is to:
Understand the true forces behind price
movement.
Spot where Smart Money is entering.
Avoid retail traps.
Enter trades with confidence, precision, and
higher probability.
Do you want me to show you a practical
example of order flow in action (like how a
liquidity sweep + FVG + order flow shift gives
an entry)?
CHAPTER 5:
In trading, POI stands for Point of Interest.
It’s a zone or level on the chart where you
expect price to react.
Traders mark POIs to look for trade setups,
usually because price is likely to:
Reverse (bounce) – e.g., at strong support or
resistance.
Continue (breakout/retest) – e.g., after a
liquidity grab.
Show institutional activity – areas where big
players (smart money) entered the market.
Common types of POIs:
Support & Resistance zones → horizontal
levels where price reacts often.
Order Blocks (OBs) → last bullish/bearish
candle before a strong move.
Fair Value Gaps (FVGs) → imbalances left in
the market.
Liquidity pools → highs/lows where stop
losses are collected.
Supply & Demand zones → areas of heavy
buying/selling interest.
👉 In short: POI is any level on your chart
where you’ll watch closely for confirmation
before entering a trade.
IFC CANDLE
The institutional funding candle is a big part of the
SMC for determining POI.
When the price breaks but cannot close above or
below the major swing highs or lows, or the major
session highs and lows, as well as the IDM, this is
called an IFC.
Basically an IFC candle means that the price has hit
all major StopLosses and then reacts top/bottom to
a reversal.
Once the liquidity has been squeezed out, you can
buy or sell in the LTF confirmation.
One more thing you need to understand, IFC candle
colors don't matter.
