Summary of "You need Context, but what is Context?"

This video explains the critical role of context in trading, emphasizing how understanding and trading within context areas statistically improves trade success. The content is part of the "Money-Making Concept (MMC)" series, specifically video number 10, focusing on usual and unusual context in relation to order flow, fair value gaps, and swing points.

Main Ideas and Concepts

Context in Trading: Context is defined as the specific area where traders look for entry points. It is derived from the narrative formed by order flow concepts like fair value gaps (FVGs), fair value areas (FVAs), and swing points.
Two Types of Context: 1. Usual Context: The primary context where most trades are taken. It starts from a boundary (usually a fair value gap or area) and targets an opposing price demand/resistance (PDR) level (like a swing high or low). 2. Unusual Context: Occurs when usual context fails or the market shifts from offering fair value to seeking liquidity. Even within unusual context, traders still trade usual context areas but within a different market condition framework.
Narrative and Boundaries: The narrative begins at fair value gaps or areas, which act as boundaries to move into lower time frames for entry confirmation. Context is not just the boundary but the range from the boundary to a mechanical, objective target (usually the first opposing PDR).
Targets and Opposing PDRs: The target in context trading is typically the first opposing PDR — a swing high or low — representing resistance or support. Secondary or external targets can be intermediate highs/lows further away.
Lines of Defense in Context: There are three main lines of defense that create context areas:
- First Line of Defense: Usually a fair value gap to a swing high or previous candle high.
- Overlapping Defense: fair value area to swing high or previous candle high.
- Last Line of Defense: When a fair value gap fails to create a new higher FVG, the boundary shifts to a swing low or previous candle low, with the target being the swing high.
Importance of Correct Boundary Identification: Using the correct boundary (unmitigated PDRs, not mitigated ones) is crucial for accuracy. Fair value gaps provide the highest accuracy for defining context areas.
Trading Across Time Frames: Context exists on multiple time frames (daily, 4-hour, 1-hour, 5-minute, 1-minute). The boundary and target concept applies similarly, with lower time frames used for entry confirmation within the larger context area.
Unusual Context Explained:
- Occurs when the market stops offering fair value and starts seeking liquidity.
- Marked by failed rejections within fair value areas and the creation of bearish or bullish fair value gaps indicating a shift.
- Even in unusual context, traders trade usual context zones but with a different expectation (e.g., targeting liquidity zones rather than continuation of fair value).
- Examples include failed fair value rejections leading to liquidity sweeps and a shift in the boundary from a fair value gap to swing highs/lows.
Case Studies and Practical Application: The video encourages studying context areas and practicing entry identification on lower time frames in hindsight/backtesting to build understanding and skill.

Detailed Bullet Point Methodology / Instructions

Defining Usual Context:
- Identify a fair value gap or fair value area (boundary).
- Identify the first opposing PDR (swing high/low or previous candle high/low) as the target.
- The area between boundary and target is the context area for trade entries.
- Use lower time frames to confirm entries once price retraces into the boundary.
- Stop looking for new entries after the target is reached; wait for new context.
Lines of Defense Context Areas:
- First Line of Defense: fair value gap → swing high or previous candle high.
- Overlapping Defense: fair value area → swing high or previous candle high.
- Last Line of Defense: When FVG fails, boundary shifts to swing low or previous candle low → swing high as target.
Trading Across Time Frames:
- Use higher time frames (daily, 4H) to identify context boundaries and targets.
- Drill down to lower time frames (1H, 5min, 1min) for entry confirmations using order flow tools (order flow LAX, etc.).
Handling Failed Context / Unusual Context:
- Recognize when fair value areas fail to hold (failed rejections).
- (Content incomplete)