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ICT Charter Price Action Model 8 - Trade Plan & Algorithmic Theory
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ICT Charter Price Action Model 8 - Trade Plan & Algorithmic Theory

Price Action Model #8: Targeting 6% Per Month

Overview of the Trading Model

  • This model focuses on achieving a target of 6% per month using a strategy that aims for 25 pips per week.
  • The development process includes five stages: preparation, opportunity discovery, trade planning, trade execution, and trade management.

Preparation Stage

  • Identify medium and high-impact market events for the upcoming week to understand potential influences on price action.
  • Analyze the last 20 trading days to determine the highest high and lowest low, establishing a current dealing range. Sundays are excluded from this analysis.
  • Look for liquidity draws within this range by identifying old highs or lows where price may move next. A PD array should align with the weekly bias direction.

Opportunity Discovery

  • Focus on identifying 25 pip ranges that facilitate buying or selling based on institutional order flow—bullish or bearish respectively.
  • Use a diagram of the Euro Dollar's 15-minute timeframe to visualize these setups; aim for runs above old highs when bullish.

Trade Planning

  • When anticipating market declines, look for manipulation signals coinciding with economic calendar events suggesting volatility injections; short premium fair value gaps in redistribution phases.
  • Conversely, during expected rallies, identify similar manipulations but focus on buying at discount fair value gaps in reaccumulation phases.

Trade Execution

  • For bearish positions, anticipate entry during retracements higher in key trading sessions (London/New York). Utilize sell stop raids as triggers for short entries.
  • For bullish positions, similarly look for retracements lower during key sessions and use buy stop raids as entry points into long trades.

Trade Management Strategies

Short Trade Management

  • Enter short trades using sell limit orders set at PD array convergence minus 5 pips; aim to capture a target of 25 pips per position before closing via limit order if achieved.

Long Trade Management

  • For long trades, place buy limit orders at PD convergence plus 5 pips with similar objectives as shorts regarding profit-taking strategies.

Stop-Loss Management & Position Sizing

  • Adjust stop-loss levels based on profit milestones: reduce by 25% when reaching halfway towards your objective and adjust to break-even when nearing full target achievement.

Understanding Risk Management in Trading

Calculating Position Size and Risk

  • Each pip represents a specific dollar amount based on the lot size; for mini lots, a 15 pip stop-loss equates to $15 risk per trade.
  • If a demo account incurs a loss, reduce the risk percentage by 50% until half of the loss is recovered before returning to the original risk level.
  • Implementing gradual adjustments in risk helps maintain an even equity curve, minimizing large drawdowns and promoting consistent growth.

Building Consistency in Trading

  • The goal is to achieve a 6% return monthly by targeting small, manageable objectives like capturing 25 pips or handles weekly.
  • Focus on trading strategies that allow for low-risk setups, such as aiming for five handles daily over five days.

Strategies for Effective Trading

  • Traders can optimize their time by identifying high-probability sessions each week rather than spending excessive hours monitoring charts.
  • Using micro accounts allows traders to engage with minimal risk while still pursuing consistent gains through smaller trades.

Long-Term Growth Mindset

  • Aiming for modest returns (e.g., 25 pips weekly) can lead to significant annual growth if approached methodically and without impulsive trading behaviors.
  • Poll results indicate many new traders have unrealistic income expectations compared to their current earnings; focusing on doubling accounts gradually is more feasible.

Analyzing Market Conditions

  • New traders often struggle with fear of missing out (FOMO), leading them to make hasty decisions; maintaining discipline is crucial for developing good habits.

Analysis of GBP/USD Trends

Contextual Overview

  • The discussion focuses on the British pound (GBP) versus the US dollar (USD), referencing a previous commentary from April 26, 2022, to provide context for current trading levels.
  • The speaker highlights specific price levels and imbalances observed in hourly and 50-minute time frames, indicating where significant market movements occurred.

Price Movement Insights

  • A bearish sentiment is suggested as recent price action shows a failure to break higher after taking out swing lows, indicating potential downside expansion.
  • Emphasis is placed on analyzing volatility with a directional bias rather than predicting exact closing values; one successful session can align with broader weekly trends.

Trading Strategy Discussion

  • The speaker argues that even if only one trading session aligns with expectations, it can be profitable. This approach contrasts with traditional views on weekly chart analysis.
  • Observations indicate that recent price actions have taken out relative equal lows without rallying to take out buy-side liquidity, reinforcing the bearish outlook.

Intermarket Relationships

  • The analysis incorporates intermarket relationships (SMT), noting divergence between the dollar index and GBP movements during key trade entries.
  • Specific examples are provided where the dollar made lower lows while GBP failed to make corresponding higher highs, suggesting an opportunity for short positions.

Risk Management and Discipline

  • A hypothetical trading scenario illustrates risk management principles: risking $50 on a $5,000 account could yield a 6% return from a single trade setup.
  • The importance of discipline in trading is emphasized; traders should focus on executing one well-analyzed setup per week rather than overtrading.

Conclusion on Trading Practices

  • A challenge is posed to viewers regarding self-discipline in trading practices; many fail due to lack of adherence to disciplined strategies despite understanding their importance.

How to Build Confidence in Trading

Developing a Weekly Practice Routine

  • Emphasizes the importance of assessing how many trades can be supported by a specific amount of capital, suggesting that traders should think critically about their financial decisions.
  • Shares personal experience with trading, highlighting the practice of capturing small gains (e.g., 25 handles in index futures) as a way to build confidence and skill over time.
  • Discusses a recent success story involving his son, who made $700 on one NASDAQ contract, illustrating the significance of setting realistic expectations for trade setups.
  • Encourages traders to consistently look for setups throughout their careers, reinforcing that even during losing streaks, maintaining discipline is crucial for long-term success.
  • Stresses the importance of discipline in trading; knowing when to stop after losses can prevent further financial damage and help maintain psychological stability.

The Psychological Aspect of Trading

  • Advises traders to review their journals and past successful trades as a means to boost morale during challenging periods in trading.
  • Highlights the value of having a structured weekly routine focused on improving trading models, which can lead to consistent profitability even at modest rates (e.g., 6% per month).
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Government Required Risk Disclaimer and Disclosure Statement 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.