ICT - Trading Plan Development 3

New Section

This section introduces the importance of the interest rate market and its impact on various asset classes, including foreign currencies and the US dollar index.

Top-Down ICT Approach

• The interest rate market plays a crucial role in determining the direction of other markets.

• The United States dollar index is considered a barometer for foreign currency markets.

• A weak US dollar is bullish for foreign currencies, while a strong US dollar is bearish for foreign currencies.

• Changes in the interest rate market also affect stock and commodity markets.

Analyzing Yields

• Monitoring yields in the 10-year, 5-year, 2-year, and 30-year markets provides insights into market trends.

• Generally, yields move in tandem. A downward shift indicates dropping yields and a risk-off scenario.

• During risk-off scenarios, focus shifts to sell signals rather than buy signals.

• Divergence among yields can indicate differences in market favorability.

Quarterly Shifts in Interest Rate Market

• Every few months, there may be a shift in the interest rate market driven by quarterly factors.

• Yields need to confirm each other; if they don't, it suggests fundamental changes are taking place.

• Divergence between UK/US yields and German yields indicates less favorability towards German markets.

Impact on Foreign Currencies

• Increasing yields over a quarter are generally bullish for foreign currencies and bearish for the US dollar.

• This impact lasts until yields encounter resistance levels or fail to make higher highs.

Applying Top-down Analysis

• Understanding whether we are in a risk-on or risk-off scenario guides analysis of interest rate markets.

• Higher timeframe reviews help identify shifts and trends in interest rates.

New Section

This section emphasizes the importance of analyzing multiple factors such as technical levels, stock market indicators, and commodity markets to gain a comprehensive understanding of the market.

Analyzing Multiple Factors

• Consider the direction of the US dollar and its technical levels.

• Monitor Treasury markets, specifically the five-year, ten-year, and 30-year Treasuries.

• Check if stock market averages confirm the overall risk tone using Dow Theory.

• The CRB index provides insights into whether we are in a risk-on or risk-off scenario.

• Gold and oil prices can also serve as barometers for risk-on or risk-off sentiment.

New Section

This section highlights how analyzing interest rates, technical levels, and various market indicators can help traders make informed decisions.

Comprehensive Analysis

• Analyzing interest rates, technical levels, and market indicators helps traders understand market dynamics.

• Higher timeframe reviews provide a broader perspective on interest rate trends.

• Understanding futures markets like Treasuries enhances trading decisions.

• Stock indices can indicate short-term or long-term shifts in the marketplace.

• Commodity markets such as gold and oil offer additional insights into risk-on or risk-off sentiment.

New Section

In this section, the speaker discusses the importance of understanding seasonal influences in the market and shares some strong indicators to use for analysis.

Understanding Seasonal Influences

• It is important to consider whether prices are expected to rally or decline based on seasonal patterns in the market.

• The speaker mentions a "seagull test" that takes place in every tradable market and advises learning about these tests.

• Being aware of seasonal influences helps in making informed trading decisions.

New Section

This section emphasizes the need to understand where we are seasonally and highlights the importance of watching yield movements.

Seasonal Analysis and Yield Movements

• To make effective trades, it is crucial to have an understanding of seasonal influences in the market.

• While analyzing seasonality, it is essential to keep an eye on yield movements.

• Divergence between yields and market highs can indicate a shift from risk-on to risk-off sentiment.

• Correlated pairs should be observed closely when trading, focusing on correlated highs and lows.

New Section

This section emphasizes becoming a specialist in market trading by focusing on specific markets rather than trying to trade everything at once.

Becoming a Market Specialist

• It is advantageous to specialize in one or two closely correlated markets rather than spreading oneself too thin across multiple markets.

• By specializing, traders can develop a better understanding of price action and build stronger relationships with their chosen markets.

• The speaker suggests looking at stock market indices such as Nasdaq Composite Index and SNP as part of maintaining a watchful eye on correlated pairs.

New Section

This section highlights the importance of being selective when choosing which markets to trade and monitoring key factors such as net rated positions and open interest.

Selective Trading and Monitoring Key Factors

• It is not advantageous to trade in every market as it becomes challenging to keep track of multiple markets simultaneously.

• Traders should focus on one or two closely correlated markets and pay attention to correlated highs and lows.

• Monitoring net rated positions can provide insights into whether the market is bullish or bearish.

• Open interest and premiums between nearby and next months can indicate strong or waning demand for a particular market.

New Section

This section discusses deriving market sentiment from online sources, watching key higher time frames, and monitoring resistance levels.

Deriving Market Sentiment

• Market sentiment can be derived from online market vein numbers, sentiment based on chatter, news, forums, and TV discussions.

• If everyone expects the same thing, the market tends to move in the opposite direction.

• Keeping a watchful eye on key higher time frames helps understand overall market trends.

• Important resistance levels play a significant role in technical analysis.

New Section

This section emphasizes the importance of conducting top-down analysis before executing trades and understanding yield movements.

Top-down Analysis for Trade Execution

• Before entering any trade, it is crucial to conduct top-down analysis by considering higher time frame charts such as monthly, weekly, daily, and 4-hour charts.

• Understanding where we are in terms of yields and interest rates helps determine if it is still favorable to trade.

• Assessing risk-on or risk-off scenarios is essential when buying foreign currencies.

New Section

This section highlights the significance of assessing market conditions before trading each day and trading in sync with overall market structure.

Assessing Market Conditions Daily

• Before starting trading each day, it is important to assess whether the market is still bullish or bearish overall.

• Buying in a risk-on scenario is favorable, while buying foreign currencies in a risk-off scenario can be challenging.

• Observing rejection of highs or lows and trading in that direction based on market structure can be beneficial.

New Section

This section emphasizes the importance of aligning trade signals with macro support and resistance levels across different time frames.

Aligning Trade Signals with Support and Resistance Levels

• When following a bull program, focus on buy signals and ensure that macro support and resistance levels are considered across higher time frames.

• It is crucial to have these higher time frame levels visible on charts to better understand price movements.

• Market structure plays a key role in trade execution, whether entering long-term lows for bullish trades or short-term highs for bearish trades.

New Section

This section discusses the significance of market flow and understanding overall market structure for effective trading.

Market Flow and Overall Market Structure

• Even when technical indicators suggest upward movement, it is important to consider market flow and overall market structure before making trading decisions.

• Understanding whether support has been tested or if there are indications of a long-term high helps align trades with the prevailing market sentiment.

New Section

This section discusses the simple time and price theory of expecting the low to form during London. It emphasizes the importance of using key levels and signals for order placement.

Focusing on Key Levels and Signals

• The Asian range low or greater is important when expecting a risk-off scenario.

• Look for swing opportunities in the London open or New York open sessions based on directional premises.

• Top-down analysis is crucial for understanding market moves.

New Section

This section provides an overview of the top-down approach in trading, highlighting the need for detailed analysis and breakdown of market moves.

Detailed Analysis and Breakdown

• Real-life examples will be given to illustrate market moves.

• The outlined top-down approach serves as a framework for daily chart analysis.

New Section

This section focuses on trade entry orders and their usage, with an emphasis on limit orders for entry and stop orders for protection.

Trade Entry Orders

• Limit orders are used 90% of the time for entering and exiting trades.

• Stop orders are primarily used when trading breakouts.

• Specific examples of trade entry orders will be provided in later modules.

New Section

This section discusses reacting to stagnant markets during the reactionary stage, emphasizing the importance of quick action to preserve capital.

Reacting to Stagnant Markets

• If there is little to no movement in a trade, especially during expected volatile periods, it may be best to close the trade.

• Avoid relying on single events or trading days for success.

• React quickly to preserve capital by closing trades that show failure to move.

New Section

This section highlights the importance of acting quickly to preserve capital and being methodical when trying to make money in trading.

Preserving Capital and Making Money

• Act quickly to preserve capital by closing questionable trades that are not moving.

• Be methodical and detail-oriented when exposing money to risk.

• Take advantage of highly probable setups rather than risking on low odds trades.

New Section

This section emphasizes the importance of reacting to key support levels, taking profits, and being aware of unexpected events.

Reacting to Key Support Levels

• If a trade shows rejection at a key support level, consider closing it.

• Take profits and move to the sidelines when there is strong rejection or unexpected events occur.

New Section

This section discusses the importance of reacting to life events and taking oneself out of risky environments in trading.

Reacting to Life Events

• It is important to prioritize real-life relationships and responsibilities over trading.

• If something requires your time or if you are sick, it is necessary to react by either getting out of a trade or tightening up the stop-loss.

• Grief can have a major impact on a trader's psyche, so it is better to remove oneself from risk during such times.

• One can always get back into trading once the situation has stabilized.

New Section

This section introduces the concept of fractal analysis in price action and explains what a fractal is.

Understanding Fractal Analysis

• A fractal is a pattern that repeats itself on different scales.

• Fractals can be seen in nature and are considered as evidence of intelligent design.

• In trading, price exhibits fractal patterns that repeat over and over again.

• By understanding fractals and using higher time frame perspectives, traders can identify key support and resistance levels and recognize repeating patterns.

New Section

This section focuses on explaining how price works within a fractal nature.

Price Swings within Fractals

• Price swings within specific ranges can be analyzed using fractal analysis.

• Understanding how price behaves within a fractal nature provides insights into market dynamics.

• Applying fractal analysis to intraday charts requires a firm understanding of what a fractal is on higher time frames.

New Section

This section discusses the concept of retracement and swing lows as reference points for short-term support. It also emphasizes the importance of identifying key resistance levels and anticipating price movements based on market flow.

Understanding Retracement and Swing Lows

• A retracement occurs when price bounces away from a particular level, indicating that it will eventually come down.

• A swing low refers to a small short-term low that serves as a new reference point for short-term support.

Anticipating Price Movements

• As technical traders, we can reasonably expect another retest or run attempt towards a key resistance level when prices start to bounce on a short-term basis.

• While there is a possibility that price may break through the resistance level, it often fails to do so.

• Optimal trade entry at 62 cents involves entering at a certain level on a price swing.

• It is important to prioritize the higher timeframe resistance level over short-term fluctuations in the market.

Market Flow and Structure Reversal

• The higher timeframe resistance level takes precedence in determining market flow and structure.

• If price breaks below the previous swing low, it indicates a shift in market flow and an early reversal in market structure towards bearishness.

• Confirmation of bearish market flow opens up opportunities for higher timeframe optimal trade entries and continued sell signals.

Fractal Analysis and Trade Entry Formation

• The breakdown of the market creates fractal patterns that are applicable in analysis.

• Understanding concepts like range contraction, range expansion, consolidation, trend, and optimal trade entry formations helps identify trading opportunities within consolidations.

• Price swings within consolidations offer smaller short-term optimal trade entry points for selling.

Limiting Exposure and Bias

• By focusing on selling in established weak markets during consolidations, traders can limit their exposure to the market.

• Having a bias towards selling based on broken market structure and flow helps avoid subjective decision-making.

• Higher timeframe support and resistance levels guide the analysis, ensuring a focused and objective approach.

Consolidation and Trending Moves

• Price movements transition from consolidation to trending moves and back to consolidation.

• During consolidations, price may bounce towards another resistance level before eventually returning to the consolidation range.

• Inside the consolidation, smaller short-term optimal trade entry points can be identified for lower prices.

Fractal Nature of Optimal Trade Entries

• Smaller timeframe charts reveal optimal trade entries near highs and tops within each price leg of the consolidation.

• The fractal nature of trading patterns ensures that these opportunities exist across different timeframes.

Theory vs. Practical Application

• Understanding the theory behind trading concepts is crucial before analyzing price charts.

• Applying this knowledge helps identify patterns, make informed decisions, and avoid cherry-picking examples.

• Eventually, price will move outside of consolidations into trending moves again.

New Section

In this section, the speaker discusses the importance of analyzing different time frames to maintain a daily bias and stay on the right side of the market. They also introduce the concept of fractal patterns and how they can be applied to real charts.

Analyzing Different Time Frames

• Analyzing different time frames helps with daily bias and staying on the right side of the market.

• Major market reversals can occur, but monitoring macro trends can help anticipate them.

• Fractal patterns are not limited to specific time frames and can be observed in any time frame.

Applying Fractal Patterns to Real Charts

• The speaker uses a 15-minute chart of the cable (British Pound USD) as an example.

• A major resistance level is identified at 163, where price trades up but fails to break through.

• This failure provides an optimal trade entry for selling, indicating a shift towards a bearish market.

• By using higher time frame analysis and fractal patterns, multiple optimal trade entries for selling opportunities can be identified.

New Section

In this section, the speaker further explains how fractal analysis can help identify optimal trade entries for selling. They emphasize focusing on one pattern in nature and highlight several examples from the given chart.

Identifying Optimal Trade Entries for Selling

• Once a bearish market is established, all trading should focus on finding selling opportunities.

• Even intraday traders can look for smaller short-term optimal trade entry sell signals.

• Multiple opportunities for optimal trade entries can be found within a small section of time by using fractal analysis.

Examples of Optimal Trade Entries

• The speaker points out various instances where high-to-low or low-to-high price movements provide optimal trade entry points for selling.

• These examples demonstrate how using higher time frame analysis and fractal patterns can keep traders on the right side of the market.

New Section

In this section, the speaker discusses how fractal patterns can be applied to different time frames and how they replicate price swings. They highlight the importance of understanding market flow and structure on individual candles or bars.

Applying Fractal Patterns to Different Time Frames

• Fractal patterns observed in one time frame can be replicated in a larger time frame.

• The speaker suggests zooming out to an hourly chart to see how fractal patterns are replicated.

• High-to-low and low-to-high price swings can be identified as fractal patterns across different time frames.

Understanding Market Flow and Structure

• Market flow and structure should be understood at the individual candle or bar level.

• This understanding helps identify turning points, trade scenarios, and changes in market direction.

• Fractal analysis provides a framework for analyzing market flow and structure.

New Section

In this section, the speaker emphasizes that regardless of the time frame being analyzed, traders should look for sell scenarios based on specific patterns. They highlight that there are several opportunities to use price movements to enter trades.

Identifying Sell Scenarios

• Traders should look for sell scenarios based on specific patterns.

• Price movements provide opportunities for entering trades.

• Several opportunities exist within different time frames to enter trades based on price movements.

Utilizing Price Movements for Trade Entry

• The speaker uses a turning point as an example of utilizing price movements for trade entry.

• By focusing on specific patterns, traders can use price movements to enter trades effectively.

New Section

This section discusses optimal trade setups based on swing highs and lows in a five-minute candlestick chart.

Optimal Trade Setup

• An optimal trade setup is identified when a swing high is formed after a price run-up.

• The swing high can be used as an entry point for a sell signal.

• Look for patterns where the swing high has two lower highs on either side of it within a small range.

• Selling can be done at market or using a sell stop order below the swing high or at the low with higher lows on either side.

• Alternatively, use the swing low as an indication to sell on a limit order at that price or higher.

• Anticipate price to break down below the low and look for range expansion to the downside.

• Manage stops above the previous highs.

New Section

This section explains how to identify optimal trade setups for bullish market expectations.

Bullish Market Expectations

• Look for support levels and wait for a low with two higher lows on either side of it.

• Price should run up from this consolidation phase before starting to come back down.

• Enter into long positions before price starts expanding by using smaller short-term optimal trade entries or placing limit orders at specific prices.

• Use the previous swing high as a stop level or place a limit order at that price or lower to enter long positions.

• Set your risk management parameters based on pips or percentage of account balance.

• Anticipate range expansion and profit taking when short-term swing highs breakout.