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ICT Mentorship Core Content - Month 04 - Interest Rate Effects On Currency Trades
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ICT Mentorship Core Content - Month 04 - Interest Rate Effects On Currency Trades

Introduction to Currency Trades

This section introduces the topic of currency trades and sets the foundation for understanding smart money accumulation and distribution.

Smart Money and Interest Rates

  • Understanding interest rates is crucial in selecting trades.
  • Technical analysis of key interest rates can unlock professional money management movement.
  • Interest rate triads provide a visual depiction of smart money accumulation and distribution.

Interest Rate Triads

  • The three key interest rate markets are the 30-year bond, 10-year note, and five-year note.
  • By analyzing the price action of these three rates in relation to each other, one can unlock important insights into market movements.
  • Overlaying or comparing these interest rates helps identify price action patterns.

Amplifying Trade Scenarios

  • Applying comparative analysis on interest rates amplifies trade scenarios discussed in previous teachings.
  • This module will highlight more probable trade scenarios based on the concepts covered.

Identifying Smart Money Accumulation and Distribution

This section explains how to recognize smart money movements in bearish and bullish conditions.

Bearish Conditions - Smart Money Distribution

  • In bearish conditions, a base asset or benchmark makes higher highs while comparable assets closely correlated make lower highs.
  • This indicates heavy distribution by smart money while less informed traders perceive it as underlying strength.

Bullish Conditions - Smart Money Accumulation

  • In bullish conditions, a base asset or benchmark moves lower, forming lower lows.
  • Smart money accumulation is seen when certain stocks do not make lower lows but instead form higher lows.

Supply and Demand Dynamics

  • Heavy buying prevents prices from going lower during smart money accumulation.
  • Conversely, heavy selling occurs during smart money distribution when prices are prevented from going higher.

Warning Signs of Distribution Cycle

This section highlights warning signs that indicate a distribution cycle in the market.

  • In a distribution cycle, the base asset or benchmark (e.g., Dow Jones Industrial) makes higher highs, but other stocks or indices fail to make higher highs.
  • This discrepancy suggests heavy distribution by smart money rather than underlying strength.

The transcript does not provide further sections or timestamps beyond this point.

New Section

This section discusses the relationship between the 30-year treasury bond market, the 10-year note, and the five-year note in order to identify accumulation and distribution in the interest rate market. It explains how these movements represent smart money activity and provide trading opportunities.

Overlaying Three Markets

  • By overlaying the 30-year treasury bond market, the 10-year note, and the five-year note, one can observe accumulation and distribution in the interest rate market.
  • Accumulation or buying represents smart money movement, while distribution or selling indicates smart money activity.
  • The three interest rates should confirm each higher high or lower low when the US dollar index is at a significant price point.

Failure Swings

  • Failure swings indicate smart money participation in the markets and validate trading opportunities.
  • A failure swing occurs when one of the interest rates breaks a pattern of moving lower or higher.
  • Smart money's entry and exit cause significant volumes to move, affecting supply and demand factors in pricing.

Underlying Strength

  • The model shows underlying strength in one of the interest rates when a failure swing occurs.
  • The middle interest rate highlighted in blue represents a failure swing.
  • If this coincides with identifying a potential institutional order reference point in the US dollar index, it confirms a shift in the marketplace.

Confirmation for Bullish Order Block

  • When looking for a bullish order block on the dollar index, if two of the interest rates show higher highs but one shows a lower high, it confirms the bullish order block.

New Section

This section emphasizes that simply having charts of open-high-low-close prices for interest rate markets is not enough. Comparative analysis is necessary to understand market movements and identify shifts.

Comparative Analysis of Interest Rate Markets

  • Charts alone do not provide a clear understanding of market movements.
  • Analyzing the 30-year treasury bond market, the 10-year note, and the five-year note in comparison is crucial.
  • A closer look at recent moves in the dollar index reveals corresponding patterns in interest rate markets.

Failure Swing in Bond Market

  • The 30-year treasury bond market shows a failure swing between the fifth and eighth days.
  • A failed higher high indicates a potential long opportunity on the dollar index.

Comparison of Highs

  • Comparing highs across different time frames reveals important insights.
  • The 10-year note shows an unchanged high, while the five-year note forms a higher high.
  • This highlights a shift in the interest rate market.

New Section

This section emphasizes that interest rates are the primary drivers of price action in currency markets. Understanding this relationship is crucial for analyzing and predicting market movements.

Importance of Interest Rates

  • Interest rates are the number one leading driver for price action in concurrency markets.
  • They have a significant impact on currency markets globally.

Understanding Bullishness and Bearishness in Trading

In this section, the speaker discusses the concept of bullishness and bearishness in trading.

Trade Analysis

  • The speaker refers to the US Dollar Index and its movement between the fifth and eighth. The index made a lower low, indicating bearishness.
  • A significant divergence is observed between the lower low on the dollar index and the 30-year treasury bond, which failed to make a higher high as expected.

Anticipating Price Movement

  • Traders need to anticipate dynamic price movement when price moves into previous levels of institutional order flow.
  • An example is given of an old order block in November that was traded back down into during December. This rejection led to a rally on the dollar index, suggesting bearish opportunities for foreign currencies.

Validating Order Blocks

  • To validate which order block to trade off of, traders should look at the interest rate markets for clues from smart money.
  • Divergence between 30-year, 10-year, and 5-year interest rates can indicate potential trading opportunities.

Impact on Foreign Currencies

  • Bullishness in the dollar index suggests bearish situations for other currencies like fiber (Euro) and Euro/USD.
  • Cable (British Pound) failed to make a higher high when Euro/USD made a higher high and dollar made a lower low.

Building an Action Plan

In this section, the speaker discusses how to build an action plan based on the information provided earlier.

Using Points of Focus

  • Traders should use points of focus taught in the first month of mentorship when price action trades to a focus point like an order block.

New Section

In this section, the speaker discusses the importance of observing the interest rate triad and the dollar index to confirm smart money involvement in trade ideas. They emphasize that if there is no clear indication of large fund movements, it is advisable to pass on the trade idea and look for new ones.

Confirming Smart Money Involvement

  • The interest rate market can provide confirmation of smart money involvement.
  • If all three components of the interest rate triad (short-term rates, long-term rates, and inflation expectations) show a failed higher high while the dollar is moving lower, it indicates a bearish tone on the dollar.
  • A bearish tone on the dollar can be validated by observing a lower low in one or more interest rate markets.
  • When a sell signal is confirmed in the dollar index at a bearish order block or an old high that has been overrun for liquidity purposes, it suggests that the dollar will likely decline further.
  • Interest rates moving higher in their price actually means that interest rates are declining, which is bearish for the dollar.

New Section

This section explains how order blocks, liquidity pools, and fair value gaps can be used to validate trade ideas. It emphasizes that simply looking at candlestick patterns is not enough; one must delve deeper into these concepts to gain better insights.

Validating Order Blocks and Liquidity Pools

  • To validate order blocks and liquidity pools, it is important to understand fair value gaps.
  • Looking beyond individual candlestick patterns allows traders to identify key levels where significant buying or selling pressure may occur.
  • By analyzing whether price action trades up into a fair value gap or closes within a range, traders can anticipate future market movements.
  • Understanding these concepts helps traders make more informed decisions rather than solely relying on buying into up candles or selling into down candles.

New Section

This section concludes the discussion on validating order blocks, liquidity pools, and fair value gaps. It reiterates the importance of looking beyond surface-level candlestick patterns to gain a deeper understanding of market dynamics.

Importance of Validating Order Blocks and Liquidity Pools

  • Validating order blocks and liquidity pools provides valuable insights into market trends.
  • By analyzing interest rates and their price movements, traders can anticipate the direction of the dollar.
  • Interest rates moving higher in price actually indicates declining interest rates, which is bearish for the dollar.
  • Understanding these concepts helps traders make more accurate predictions and improve their trading strategies.
Playlists: 2016 ICT Private Mentorship Core Content Month 04
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2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in December 2016. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN Trading performance displayed herein is hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person’s investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase or sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a “limit move.” The placement of contingent orders by you, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.