The knowledge you have picked up so far in the fundamentals of discretionary trading (STEP02) – things like Dow Theory swing highs and lows, support/resistance and liquidity, price action and the FVG, and stop-loss placement and money management – may each be correct on its own, but in front of a real chart you often freeze up wondering “which one do I actually use, and in what order?” It is like holding a pile of separate parts with no assembly diagram.
On this page we are publishing, as a “template,” the actual discretionary trading procedure that our lab uses in its own verification work. We break it down into 10 steps: reading the higher-timeframe context, checking liquidity, the Premium/Discount zone (how deep the retracement is), POIs such as the FVG and OB, the Heikin-Ashi reversal, the starter position, partial profit-taking, and finally exit management aimed at “zero float wherever possible” (never letting the position sit below breakeven). One thing we want to make clear from the outset: this is one example of a template, not a holy grail. The fine details of the parameters will change depending on market conditions and your capital, and following it to the letter is not a guarantee of winning. The real purpose of this page is for you to take away the “why” behind each step.
Why You Need This – The Template Is a “Form,” Not a Holy Grail
The first thing beginners stumble on in discretionary trading is not a lack of technique knowledge – it is that “the order of judgment changes every time.” One day you start from the higher timeframe, the next day you jump straight into the 5-minute chart. One day you decide your stop-loss before entering, another day you enter first and scramble to find a stop-loss afterward. This lack of consistency is the single biggest obstacle to reviewing why you lost after the fact.
The real value of a template is not “magic that raises your win rate.” It lies in making decisions in the same order and by the same criteria every time, so that afterward you can verify what went well and what did not. When the order is fixed, a loss can be broken down into distinct causes: was the market-context read wrong, was the POI selection off, or did you exit too early? This is exactly the stance our lab takes as a verification media outlet – before win or lose, what matters most is whether the outcome can be recorded in a reproducible form.
A Note From the Researcher
Honestly, the biggest motivation for building this template was to stop myself from “entering for a different reason every time and losing for a different reason every time.” Having a template does not change how often you are right all that much, but it lets you put into words why you were wrong. Over the long run, being able to verify your misses matters more than being right.
Steps 1-3: Market Context (Higher Timeframe, Liquidity Check, a Retracement of 50% or More)
The first three steps are the preparation stage where you “do not enter yet.” Skipping this and diving straight into lower-timeframe price action is the classic pattern of chasing the market (buying the top).
Step 1: Decide “Which Way Is the Market Facing Right Now” on the Higher Timeframe
First, open a higher timeframe such as the daily or 4-hour chart, and use Dow Theory’s rising/falling swing highs and lows to judge the bigger picture (uptrend, downtrend, or range). The goal at this stage is not to find an entry point, but to narrow your directional bias down to one: are you looking to buy today, sell today, or stand aside? This prevents you from unconsciously counter-trend trading, such as buying a small bounce on the 5-minute chart while the higher timeframe is in a downtrend. This is exactly the basic multi-timeframe posture (higher timeframe to lower timeframe).
Step 2: Check Liquidity (Price Levels That Are Likely Targets)
Next, check for places where stop orders are likely stacked up – recent obvious swing highs and lows, round numbers, and the upper/lower edges of a range. The places where most people put their stop-losses tend to get reversed only after price has stretched far enough to sweep those orders in – this is the liquidity sweep, one of the core ideas of SMC. If you sketch out in advance where a sweep is likely to happen, you can switch from being the one caught in the fakeout to the one waiting for the reversal.
Step 3: Wait for a Retracement of 50% or More (Premium/Discount)
Once direction and liquidity are clear, the question finally becomes “how much of a pullback do I wait for before entering?” Our lab’s rule of thumb is a retracement of 50% or more of the recent price swing. On a bullish bias, wait for price to retrace deep into the “discount zone” before buying. On a bearish bias, wait for price to retrace up into the “premium zone” before selling. Jumping in on a shallow retracement pushes your stop-loss further away and worsens your risk/reward. The deeper the retracement you wait for, the easier it becomes to keep your stop-loss close and your profit target wide.
In AI Terms
“Waiting for Premium/Discount” sounds technical, but in plain terms it means “do not put it in your shopping cart until it goes on sale.” Our lab’s AI logs, as verification data on recent XAUUSD (gold) charts, how the distance to a safe stop-loss differs between entering on a shallow retracement versus waiting for a retracement of 50% or more.*This is an AI interpretation and does not guarantee future results.
Steps 4-6: POI and Reversal (FVG/OB/QM POIs, Heikin-Ashi Reversal, Starter Position)
Within the “zone” that price has retraced into, this stage is about narrowing down to a pinpoint reaction level, confirming actual signs of a reversal, and testing it with a minimal lot size. This is where the real trade setup begins.
Step 4: Narrow It Down to an FVG/OB/QM POI
Because the Premium/Discount zone spans a range of prices, within it you look for a POI (Point of Interest) that is especially likely to produce a reaction. Our lab mainly uses the following three, all of which are concepts covered in the SMC/ICT introductory roadmap.
- FVG (Fair Value Gap): A “gap” left in the candlesticks when price moves with strong momentum. This uses the tendency of price to come back later and fill that gap. It is the gap side of the “wick and gap” idea covered in the price action article.
- OB (Order Block): The last candle in the opposite direction right before a big move. This reframes what general discretionary trading calls a “support/resistance zone that produces a bounce” as a place where institutional orders remain.
- QM (Quasimodo): A reversal pattern resembling a shoulder-head-shoulder that forms after price breaks a high/low (sweeping liquidity) and then reverses. It combines a fakeout with a reversal in a single shape.
Any single one of these three is enough on its own, but we consider a location where several of them overlap to be a higher-expectancy POI. The fine-grained criteria (such as how many candles to look at) are something you adjust per market, so here we will stick to the underlying idea.
Step 5: Wait for the Heikin-Ashi Reversal as Your “Go Signal” to Execute
Even once price reaches the POI, you still do not enter. A POI is a “candidate location to enter,” not a “signal to enter.” Our lab uses a color reversal in the Heikin-Ashi on a lower timeframe as the execution trigger. Heikin-Ashi candles smooth out noise so the trend direction is easier to read; for example, the moment the color flips to a reversal color at the POI, after a run of candles showing a downtrend, is treated as a “sign that the flow has changed.” This layers a “reason for timing” (the Heikin-Ashi reversal) on top of a “reason for location” (the POI). The idea of bundling your reasons together into one is shared with the basic entry patterns.
Step 6: Confirm the Reaction With a Starter Position (Minimum Lot Size)
Once the reversal signal appears, do not put on your full position right away – start instead with a “starter position” at minimum lot size. The aim is to confirm with an actual open position whether your read is correct, while keeping the loss minimal if you are wrong. At this point you must first decide your stop-loss level and lot size. Place the stop-loss just outside the POI (the structure), then work backward from that distance to determine your lot size – never break the order in which lot size is the result of that calculation, not an input you pick first.
Steps 7-10: Position Management (Multiple Entries, Partial Profit-Taking, Zero Float Wherever Possible)
From here on, it is about managing the position “after” you have entered. Our lab believes that what actually separates discretionary traders is not the entry but the exit (position management). Even entering at the same spot, results can end up completely different depending on how the exit is designed.
Step 7: Once You Confirm the Reaction, Add to the Position With Multiple Entries
Once the starter position has moved into profit as expected and confirms that your read was correct, consider adding a second and third entry (multiple entries) at the next POI or pullback. The key idea is not to place your maximum lot size all at one point from the start, but to add only as much as has been confirmed correct. This is the exact opposite of averaging down, which adds more the further price moves against you – it is closer to “pyramiding,” adding on while confirming that price is moving with you. As disclosed with hard numbers in D08, averaging down is dangerous, so here our principle is “never add against the trend.”
Step 8: Use Partial Profit-Taking to “Lock In Profit While Letting It Run”
Once profit has built up, rather than closing the entire position at once, take profit in stages. For example, close part of the position at your first TP (take-profit target) to lock in cash, and let the rest run. This softens both the regret of “taking profit too early and missing further gains” and the regret of “getting greedy and watching it all give back.” Locking in a portion also creates psychological breathing room, which has the practical effect of making it easier to stay calm and let the remainder run.
Steps 9-10: Move the Stop to Breakeven and Aim for Zero Float Wherever Possible
Once a portion has been locked in through partial profit-taking, step 9 is to move the stop-loss on the remaining position up to breakeven (your entry price). From that point on, the position becomes, in effect, one that “cannot lose.” Our lab calls the goal of reaching this state “zero float” (never letting it sit below breakeven). Float here refers to unrealized loss, and the idea is to keep it from going below zero wherever possible.
Step 10 is to hold that state while letting the rest of the position run, and to close it out for good at the next POI or liquidity target. What matters here is the phrase “wherever possible“: the market does not always move continuously, and a gap or sudden move can slip straight past your breakeven stop. Understand zero float as an attitude that lowers your probability of losing, not a mechanism that guarantees you can never lose.
A Note From the Researcher
The thing beginners stumble on most here is that “once you move the stop up to breakeven, a small pullback stops you out, and you end up watching helplessly as it keeps running afterward.” This really does happen a lot. Even so, our lab makes the breakeven stop the default because avoiding one big loss does more for long-term survival than maximizing profit does. Missed profit can be made back next time, but a large loss eats into your capital itself.
How to Use This in Discretionary Trading – Which Page Each Step Corresponds To
This template simply re-orders, into “execution order,” the knowledge you learned individually in STEP02. Having a single table of which step corresponds to which page means you know exactly where to go back to when you get stuck.
| Step | What to Do | Related Learning Page |
|---|---|---|
| 1 | Decide direction on the higher timeframe | D03 Dow Theory / D02 Chart Basics |
| 2 | Check liquidity | D04 Support/Resistance and Liquidity |
| 3 | A retracement of 50% or more (Premium/Discount) | D07 Pullbacks and Retracements / D09 SMC Introduction |
| 4 | Narrow down to an FVG/OB/QM POI | D06 Price Action and the FVG / D09 SMC Introduction |
| 5 | Execute on the Heikin-Ashi reversal | D06 Price Action / D07 Entry Patterns |
| 6 | Starter position, stop-loss, and lot size | D08 Stop-Loss and Money Management |
| 7 | Multiple entries on confirmed follow-through | D08 Money Management (How It Differs From Averaging Down) |
| 8-10 | Partial profit-taking, breakeven stop, zero float | D08 Stop-Loss and Money Management |
The trick to using this in live discretionary trading is to keep steps 1-6 as your “pre-entry checklist” and steps 7-10 as your “post-entry operating rules,” kept separate from each other. In particular, fix your stop-loss and lot size by the time you finish step 6, and once you are in the trade, do not let emotion break your breakeven-stop and partial profit-taking rules – this line is what prevents both chasing the market and holding onto a losing position out of denial.
Discretionary, SMC, and EA Translation Table – Reading the Same Phenomenon in Three Vocabularies
This template overlaps three layers: general discretionary-trading language, SMC language, and how it is handled in an EA (automated trading). Once you can read the same phenomenon in all three vocabularies, you will not get lost when you move on to the 16 SMC articles or the EA library.
| General Discretionary Term | SMC Term | How an EA (Automated Trading) Handles It |
|---|---|---|
| Bounce off support/resistance | Order Block (OB) | Judged by a conditional rule for reaching a price zone |
| Getting faked out / wicked out | Liquidity Sweep | Detects a reversal after a break of a recent high/low |
| Gap left after a strong move | FVG (Fair Value Gap) | Extracts the price-range gap between consecutive candles numerically |
| Half retracement / deep pullback | Discount / Premium Zone | Calculated as a Fibonacci ratio of the recent range |
| Reversal signal / candle turn | Heikin-Ashi color flip / reversal pattern (QM) | References the Heikin-Ashi color as a signal |
| Moving the stop up to breakeven | Zero Float (never below breakeven) | Automatically moves a trailing stop / breakeven SL |
Useful When Looking at EAs and Automated Trading – Part of This Logic Has Already Been Turned Into an EA
Part of the thinking behind this template has actually been built into our lab’s EAs. For example, SMC Gold Sniper is an EA that trades gold (XAUUSD) on the M30 timeframe, detecting setups by combining SMC-style structure with Heikin-Ashi and the Parabolic SAR; it has posted a profit factor of 1.87 and a maximum drawdown of 8.2% in a 2018-2026 backtest, and is currently in forward testing. It is easiest to think of it as translating part of what a human does visually – “POI, then Heikin-Ashi reversal, then starter position” – into conditional logic.
Having a discretionary template raises the resolution at which you can read an EA’s track record, because you can read “what this EA is basing its entries on” and “where it is taking profit and where it is cutting losses” against your own procedure. Conversely, it lets you stay wary of an EA that cannot explain its reasoning and only emphasizes its win rate. How to read the numbers themselves is covered in how to read EA performance (profit factor, max drawdown, expectancy), and how to spot a dangerous EA is covered in the dangerous-EA checklist.
Separately, MAC v2.0, another verification slot at our lab, is a deliberately high-risk design that stands in contrast to this template: it combines an SMC base with averaging down (a 1.2x multiplier, up to 15 tiers, 30-pip spacing, a 15-pip TP, and no hard SL, managed by the EA). It deliberately runs the opposite logic to the “never add against the trend” principle stated in step 7, and we verify and publish it including how far the unrealized loss balloons. Viewed side by side as a “counter-example” to this one example of a template, the importance of money management becomes much easier to grasp in three dimensions.
If You Feed This Into AI Analysis – How We Use This Template in Our Morning Market Analysis
On weekday mornings, our lab has AI read the market following the first half of this template (steps 1-4) and publish a market-context post. Concretely, the AI reads charts across multiple timeframes and puts into words the higher-timeframe direction, the liquidity most likely to be targeted, the location of the Premium/Discount zone, and the POIs (FVG/OB) worth watching. Think of it as the AI translating and presenting the groundwork for market-context reading that would otherwise take a human tens of minutes.
What we publish, however, is strictly observation and analysis, not an instruction to “buy here” or “sell here.” Steps 5 onward (executing on the Heikin-Ashi reversal, the starter position, position management) depend on actual price action and on each individual’s capital and risk tolerance, so they are not something that can be mechanically declared. AI is “a tool that translates difficult verification work,” not a holy grail – that distinction is the basic stance our lab takes whenever we use AI.
In AI Terms
“The AI reads along the template” means the AI takes market-context reading, otherwise full of jargon, and rephrases it every morning in the same unwavering order into plain language: “the bias right now is long/short, this high/low is likely to be targeted, this zone is where the retracement is.” Our lab also keeps, as verification data, a record of how price actually moved after the POI the AI flagged that day, logging both the days it was right and the days it was wrong.*This is an AI interpretation and does not guarantee future results.
Verifying Whether We Actually Follow It – Published as a Track Record
Having published this template, we believe it is a verification media outlet’s responsibility to show through results whether we actually follow what we said. Our lab publishes weekly and monthly performance on the performance dashboard, including losing months, maximum drawdown, unrealized losses, and the number of averaging-down adds. A fine-looking template means nothing if the actual risk/reward distribution and win/loss record do not back it up. We aim to make visible not only the steps that went well, but also the cases where we broke the template and lost. “Say it, do it, and show the results too” – this is the form of trust our lab wants to build up, instead of a sales pitch.
Summary
The FX AI Lab discretionary template is a single flow: higher-timeframe context (step 1), checking liquidity (step 2), a retracement of 50% or more, i.e., Premium/Discount (step 3), the FVG/OB/QM POI (step 4), executing on the Heikin-Ashi reversal (step 5), the starter position (step 6), multiple entries on confirmed follow-through (step 7), partial profit-taking (step 8), the breakeven stop (step 9), and letting it run with zero float wherever possible (step 10). Remember the first six steps as your “pre-entry checklist” and the last four as your “post-entry operating rules.”
To repeat, this is one example of a template, not a holy grail. The fine details of the parameters will change with market conditions and your capital, and following it exactly is not a guarantee of winning. Even so, judging in the same order every time makes it possible to verify “why you lost” – and that alone moves you further ahead than using memorized knowledge piecemeal. Next, to deepen the concepts further, head to the SMC/ICT introductory roadmap; if you want to know how this logic gets automated, head to the EA library; and if you want to check whether we actually follow it ourselves, head to the performance dashboard. For those who would rather observe an EA’s behavior with a small amount before judging everything for themselves, there is also the option of copy trading (HFM) as an overseas, high-risk verification slot (this is not put forward as a front-line recommendation – please be sure to check the risk disclosure below).
Frequently Asked Questions
- Q. Will I win if I follow this template exactly?
A. No. This is one example of a template for fixing the order of your decisions so you can verify why you lost – it is not a guarantee of a winning rate. The market is unpredictable, and there is always a possibility of loss. The detailed parameters also need to be adjusted to fit your own capital and the market conditions. - Q. Does “zero float” mean I can never lose?
A. No. Zero float is an attitude of “aiming” to move the stop-loss up to breakeven after partial profit-taking so no unrealized loss remains – it is not a mechanism that guarantees you can never lose. A gap or sudden move can still slip straight past your breakeven stop. Understand it as an idea that lowers your probability of losing. - Q. Is the multiple-entry approach in step 7 the same as averaging down?
A. The opposite. Averaging down is a technique of buying more the further price moves against you, lowering your average entry price, and it carries real danger without a hard SL, as disclosed with numbers in D08. Step 7 is pyramiding, adding on only as much as confirmed follow-through allows – the direction is entirely different.
Risk Disclosure
This page is not investment advice – it is analysis and verification information provided by our lab. Past performance (including backtests and forward tests) does not guarantee future profit. Overseas brokers (such as HFM) carry high-leverage risk; our lab positions them as a small, high-risk verification slot, with domestic brokers (JFX/OANDA) as the main operating focus. FX and automated trading can result in losses. Please always trade with disposable funds and act on your own judgment and responsibility.