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ICT Mentorship Core Content - Month 03 - Institutional Market Structure
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ICT Mentorship Core Content - Month 03 - Institutional Market Structure

New Section

This section introduces the concept of institutional market structure and its analysis in relation to correlated and inversely correlated assets.

Institutional Market Structure

  • Institutional market structure involves analyzing correlated assets with a relationship to inversely correlated assets.
  • The purpose is to determine what the smart money is accumulating or distributing.
  • Currencies are the easiest to analyze using institutional market structure, with the dollar index being utilized.

Identifying Institutional Market Structure in Forex

  • To identify institutional market structure in forex, we compare every price swing in the dollar index with the foreign currency pairs we trade.
  • As the US dollar index trades higher, we expect lower price swings in foreign currency pairs. Conversely, if the US dollar index trades lower, we expect higher price swings in foreign currency pairs.
  • If either the US dollar index or a foreign currency pair fails to move symmetrically, it indicates that smart money is actively trading.

Understanding Smart Money Technique (SMT) Divergence

  • SMT divergence refers to a divergence between closely correlated or inversely correlated assets, specifically focusing on the US dollar index.
  • When expecting the dollar index to trade higher, it puts downward pressure on foreign currencies. Conversely, when expecting the dollar index to trade lower, it allows foreign currencies to rally. This confirms current price action and underlying trend continuation.

Stalking Reversal Patterns

  • In symmetrical market conditions where the dollar index makes a lower low and foreign currencies make a higher high (or vice versa), this confirms current price action and suggests that reversal patterns should be avoided as they are not highly probable.
  • In non-symmetrical market conditions, where the dollar index makes a lower low and the foreign currency fails to trade higher than a previous high (or vice versa), stalking reversal patterns becomes high probability. This indicates that the underlying trend is likely not to continue.

New Section

This section continues discussing non-symmetrical market conditions and their implications for trading.

Non-Symmetrical Market Conditions

  • When the dollar index makes a lower low and the foreign currency fails to trade higher than a previous high, this does not confirm current price action and suggests that the underlying trend is likely not to continue. However, it presents an opportunity for stalking reversal patterns.
  • If the lower low on foreign currencies indicates that the dollar index is going down below a previous low, it can wipe out sell stops, accumulate new buying, and result in a rally in the dollar.

Summary

  • Institutional market structure involves analyzing correlated assets with inversely correlated assets to determine smart money accumulation or distribution.
  • The US dollar index is commonly used for analyzing institutional market structure in forex.
  • Symmetrical market conditions confirm current price action and suggest avoiding stalking reversal patterns.
  • Non-symmetrical market conditions present opportunities for stalking reversal patterns but indicate that the underlying trend may not continue.
  • SMT divergence focuses on closely correlated or inversely correlated assets, particularly involving the US dollar index.

Timestamps are approximate and may vary slightly depending on video playback.

New Section

In this section, the speaker discusses how market manipulation occurs in foreign currency pairs and the role of the dollar index in supporting foreign currency long positions.

Market Manipulation and Dollar Index

  • Market manipulators accumulate sell stops on foreign currency pairs by driving prices below previous lows.
  • This accumulation is followed by a rally in the market, causing the dollar index to sell off.
  • The underlying weakness of the US dollar is indicated by the lower high formed in the US dollar index.

New Section

The speaker emphasizes the importance of stalking reversal patterns during market conditions influenced by manipulation.

Stalking Reversal Patterns

  • Stalking reversal patterns during manipulated market conditions can be highly profitable.
  • Identifying these patterns can provide high-probability trading opportunities.

New Section

A case study is presented using a daily chart of the British Pound USD (cable) to illustrate market manipulation and divergence with the US dollar index.

Case Study - British Pound USD

  • In April to mid-June 2016, there was a higher high formed in pound-dollar while the dollar index made a low.
  • Despite looking bullish, this higher high lacked confirmation from a lower low in the dollar index, indicating underlying strength in the US dollar.
  • Once buy stops above 4760 level were triggered, pound-dollar experienced a significant decline.

New Section

The speaker explains how understanding market manipulation allows traders to capitalize on opportunities and focus on being bullish on certain currencies.

Understanding Market Manipulation

  • The underlying strength observed in the dollar index indicates aggressive buying, preventing it from making a lower low.
  • When a foreign currency pair shoots higher independently, it is a result of manipulation rather than chance.
  • By recognizing where manipulation occurs in the market, traders can take advantage of the situation.

New Section

The speaker emphasizes the importance of being bullish on the US dollar due to its underlying strength and accumulation during specific time periods.

Being Bullish on the US Dollar

  • The unwillingness of the dollar index to make a lower low in June 2016 suggests aggressive buying and accumulation.
  • Traders should primarily focus on being buyers of the US dollar and consider sell signals or bearish stances on foreign currencies.
  • This approach has been followed throughout the second half of 2016 by the speaker.

New Section

Another example is presented using a daily chart to demonstrate how understanding market manipulation can provide long-term perspectives.

Case Study - Latter Portion of August 2016

  • In late August to early September 2016, cable made a higher high, indicating bullishness.
  • However, during this period, there was no lower low formed in the dollar index as expected.
  • This divergence suggests that while cable was rallying, there was underlying strength and accumulation in the dollar index.

Conclusion

Understanding market manipulation and analyzing divergence with the dollar index can provide valuable insights for traders. Recognizing these patterns allows traders to capitalize on opportunities and focus their strategies accordingly.

New Section

In this section, the speaker discusses the importance of checking foreign currencies against the dollar index to confirm breakouts and avoid false signals in the market.

Confirming Breakouts with Dollar Index

  • It is crucial to double-check apparent strength and breakouts in foreign currencies by referring to the dollar index.
  • If there is no corresponding movement in the dollar index, it indicates a false breakout in the foreign currency market.
  • Retail traders often fall for these false breakouts, while smart money focuses on the dollar's performance.
  • By analyzing specific date ranges and price action, one can gain a long-term to intermediate-term perspective on market direction.

New Section

This section emphasizes how accumulated long positions moving higher after retracements indicate strength in the market.

Accumulated Long Positions

  • When accumulated long positions start moving higher after retracements, it suggests an expansion on the upside.
  • The unwillingness of prices to hold at lower levels indicates distribution by institutional players.
  • British pound USD quickly drops lower due to distribution, leaving retail traders holding losing positions.

New Section

The speaker introduces a tool called MT4 line chart overlay that helps visualize price movements and analyze institutional market structure.

Using MT4 Line Chart Overlay

  • The speaker demonstrates how to install an MT4 indicator called "line chart overlay" for visual analysis.
  • Installing indicators on MT4 has become slightly more complicated but can be done by following specific steps.
  • After downloading and overwriting the indicator file, restart MT4 and go to "Insert," then select "Indicators" and choose "Custom."
  • Scroll down and select "Overlay Chart Line" to overlay another pair or the dollar index onto your chosen chart.
  • This tool helps identify underlying strength in buying and selling at highs and lows, comparing the dollar index to foreign currencies.

New Section

The speaker explains how identifying institutional market structure provides a framework for trading decisions.

Institutional Market Structure

  • Analyzing institutional market structure involves weighing the strength of buying and selling in the dollar index versus foreign currencies.
  • Identifying areas of weakness or strength on a daily chart provides a long-term perspective for short-selling opportunities.
  • Traders can sell short at specific timeframes (e.g., 60-minute or 4-hour) or as day traders above the opening price in New York.
  • Understanding market structure eliminates ambiguity and provides a specific mindset for trading decisions.
Playlists: 2016 ICT Private Mentorship Core Content Month 03
Video description

2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in November 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.