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ICT Charter Price Action Model 7 - Trade Plan & Algorithmic Theory
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ICT Charter Price Action Model 7 - Trade Plan & Algorithmic Theory

Introduction to Price Action Model Number Seven

Overview of the Universal Trade Plan

  • The session introduces the Price Action Model Number Seven within the context of the Universal Trade Plan, emphasizing its relevance in market maker models.
  • The trade plan consists of five stages: Preparation, Opportunity Discovery, Trade Planning, Trade Execution, and Trade Management. Each stage is crucial for effective trading strategies.

Preparation Phase

  • Traders are advised to note all medium and high-impact events relevant to their markets for the upcoming week, which will inform their trading strategy.
  • Analyzing historical data over 20, 40, or 60 trading days helps determine potential price ranges and liquidity draws essential for planning trades.

Identifying Liquidity Draws

  • The focus is on identifying the highest highs and lowest lows within specified periods to establish a current dealing range that guides future trades.
  • Traders should look for discount PD arrays (price delivery arrays) that align with their weekly bias as they anticipate price movements towards these areas during economic events.

Market Maker Models: Selling Short

Understanding Market Dynamics

  • In a bearish scenario, traders should identify discount PD arrays below current market prices where liquidity runs may occur before executing short positions.
  • Emphasis is placed on waiting for specific redistribution periods (Stage One or Stage Two) before entering short trades targeting identified discount levels.

Economic Calendar Influence

  • A convergence of manipulation signals and economic calendar events can indicate optimal times to enter short positions against prevailing market trends. This requires careful monitoring of price action around key economic announcements.

Executing Trades in Bearish Conditions

Scalping Protocol Implementation

  • During bearish conditions, traders can implement scalping protocols when entering trades at premium fair value gaps during significant market openings (London or New York). This approach aims to reduce risk exposure while capitalizing on volatility injections.

Targeting Liquidity Below Old Lows

  • When operating under a market maker buy model, traders should target sell-side liquidity beneath old lows while managing entries through institutional order flow analysis during retracement phases in key kill zones (market opening times).

Short Trade Management Strategies

Entry Techniques and Risk Management

  • For short entries, placing sell limit orders based on standard deviation convergence allows traders to optimize entry points while managing risk effectively by setting stop losses above recent highs plus an additional buffer (20 pips).

Profit Objectives and Adjustments

  • Traders are encouraged to set multiple profit objectives (e.g., 20 pips for one position and 40 pips for another), adjusting stop losses progressively as profits increase—reducing risk exposure as positions move into profit territory by specific percentages (25%, 50%, etc.).

Position Sizing and Money Management

Calculating Position Size

  • A formula is provided for calculating position size based on account equity, risk percentage per trade, and stop-loss distance in pips—essential knowledge for maintaining proper leverage management across trades.

Example Calculation

Understanding Risk Management in Trading

Calculating Maximum Risk per Trade

  • The maximum risk for a trade is set at 1.5% of the account equity, with $300 being the cap. A stop loss of 20 pips translates to a risk of $20 when trading mini lots (10,000 leverage).
  • Using standard lots ($10 per pip), the same 20 pips results in a $200 risk, limiting traders to one standard lot after rounding down from 1.5 lots.

Adjusting Risk After Losses

  • If a demo account incurs a full-risk loss, it’s advised to reduce the risk percentage by 50% on subsequent trades until half of the initial loss is recovered.
  • For example, if you lose $300 and recover $150, you can revert to your original risk percentage; however, further losses require another reduction.

Managing Drawdowns and Winning Streaks

  • To mitigate drawdowns during winning streaks (e.g., five consecutive wins), it's recommended to drop your risk percentage by 50%, preparing for potential future losses.
  • This strategy aims for smoother equity curves rather than erratic fluctuations that resemble roller coasters.

Algorithmic Trading and Price Action Models

Introduction to Price Action Model Number Seven

  • The discussion shifts towards price action model number seven, which focuses on selling high-low resistance liquidity runs and fractals.
  • This model serves as an opposite approach compared to model six; traders should look for specific setups regardless of their trading style (short-term or long-term).

Insights from Market Behavior

  • Reflecting on personal experiences since starting trading in 1992, rapid market declines are noted as common occurrences due to panic selling rather than aggressive seller actions.
  • Market crashes tend to be relentless; understanding this behavior helps traders anticipate movements during bearish trends.

Analyzing Sell-Side Dynamics

  • Sell-side liquidity runs are characterized by speed and volatility; they often result in exaggerated moves compared to buy-side dynamics.
  • Traders should consider macroeconomic factors influencing market conditions when identifying sell opportunities.

Market Conditions and Their Impact

Recognizing Second Stage Distribution

  • During bearish markets, recognizing second stage distribution is crucial as it may lead to significant sell-offs under certain conditions.

Real Supply and Demand Factors

  • Commodities like crude oil exemplify real supply-demand dynamics; events such as economic shutdown can drastically affect prices leading them into negative territory.

Conclusion on Market Movements

Understanding Market Dynamics and Liquidity Runs

The Impact of Market Conditions on Trading Strategies

  • The speaker reflects on a personal experience with oil prices, emphasizing the unpredictability of markets and the importance of understanding market conditions to avoid significant losses.
  • In bearish markets, it's crucial to conduct thorough analysis beyond initial expectations, as certain setups may exceed anticipated outcomes.
  • A contrast is drawn between buy-side resistance liquidity runs and sell-side low resistance liquidity runs, highlighting that markets are often designed to extract value from participants.

Mechanisms Behind Price Movements

  • Sellers in the market provide liquidity; when they aim to lower prices, they do so aggressively to drive sell-side liquidity into the market for covering positions.
  • Sudden price drops (flash crashes) occur due to rapid repricing by market makers, which can be misattributed to external factors rather than inherent market dynamics.

Distinguishing Between Market Phases

  • The speaker emphasizes recognizing different setups: second stage distribution versus second stage accumulation. Each has distinct implications for trading strategies.
  • Fear often clouds judgment in bearish conditions; understanding how to identify potential sell-off points can lead to better decision-making in volatile markets.

Risk Management and Analysis Techniques

  • Personal anecdotes illustrate how awareness of fractal patterns helped avoid significant losses during limit down moves in commodities like grains.
  • The discussion contrasts parabolic movements expected in bullish scenarios against controlled declines seen in bearish trends, stressing the need for careful analysis before entering trades.

Making Informed Trading Decisions

  • Traders must differentiate between types of downward movements—whether they anticipate support or a complete collapse—to optimize their strategies effectively.
  • Failing to recognize these distinctions can result in missed opportunities or severe losses due to slippage beyond stop-loss orders during extreme volatility.

Market Dynamics and Economic Forecasting

Understanding Market Stages

  • The discussion begins with the concept of market consolidation, highlighting two stages: distribution and support. This framework can be applied to both intraday trading and longer-term market reversals.
  • The speaker emphasizes a universal fractal model applicable across all time frames, contrasting it with previous models that focus on different aspects of market behavior.

Economic Climate Considerations

  • A critical analysis of the current economic climate is presented, noting that external factors like geopolitical events and economic downturns could influence market behavior significantly.
  • The speaker warns about potential declines in the stock market as we approach fall 2022, suggesting that recent trends may lead to unexpected volatility.

Commodity Price Trends

  • There is a strong correlation drawn between commodity prices (like food and energy) and overall market health. Rising prices are expected to create bullish scenarios despite short-term declines.
  • Predictions indicate significant increases in energy prices due to supply chain issues exacerbated by past shutdowns during COVID-19, leading to higher costs for consumers.

Energy Market Insights

  • The discussion shifts towards energy markets, predicting parabolic price movements rather than traditional declines. This suggests a strategic buying approach for companies involved in oil futures.
  • It is argued that energy companies will not allow prices to drop significantly; instead, they will seek opportunities to maximize profits through strategic pricing.

Trading Strategies Amidst Uncertainty

  • Traders are advised to remain vigilant about their strategies in bearish markets. Understanding second-stage distributions can help mitigate risks associated with potential crashes.
Playlists: ICT Charter Content, ICT MMXM Lectures
Video description

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.