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ICT Mentorship Core Content - Month 06 - Reducing Risk & Maximizing Potential Reward In Swing Setups
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ICT Mentorship Core Content - Month 06 - Reducing Risk & Maximizing Potential Reward In Swing Setups

Lesson 6: Reducing Risk and Maximizing Potential Reward Swing Setups

In this lesson, the focus is on reducing risk and maximizing potential reward swing setups. The goal is to frame trades with low risk and high reward.

Framing Monthly and Weekly Levels

  • To reduce risk, traders should not allow high-risk percent per trade.
  • Professionals look for framing set-ups with low risk and high reward.
  • Focus on framing monthly and weekly levels.
  • Look for bear shorter blocks, bearish liquidity voids to sell short optimal trade entries.
  • Sell at old highs or old lows as a premium.

Bearish Fair Value Gaps

  • Look for fair value gaps to short up false break above.
  • Look for rejection blocks candles that have real long Wicks to sell above the bodies of those candles.
  • Sell at old highs or old lows as a premium.

Mitigation Blocks Breakers Low Shoulder Blocks Voids Below Us Old Lows And Old Highs

  • Look for mitigation blocks Breakers Low Shoulder blocks voids below us old lows and old highs and rejection blocks with candles that have long Wicks will look for cell slots below the bodies of those candles before a rejection block
  • Everything in reverse is also true.

Using Order Blocks in Trading

  • Use order blocks in trading because it's impossible to make videos with every possible scenario.
  • Hunt the current range you're trading in by using PDRA arrays on the monthly chart from bottom up for premium PD arrays and top down for discount PD arrays.

Looking at Higher Time Frame PD Arrays

  • Use higher time frame PD arrays for entries to permit tighter stops.
  • For average traders operating a business or working a job, use nothing less than a four-hour chart.
  • Setups are often around the close of the day.

Maximizing Leverage and Risk

  • Traders should not try to put too much risk on their trade and get rich in a handful of trades.
  • Don't try to double your account every single month.
  • Keep your risk really small because that sells your business model to potential clients when they see how very low your risk is.
  • Consistently pull in returns by reducing risk.

Swing Trading Method

In this section, the speaker discusses the swing trading method and how it differs from position trading. He emphasizes the importance of using entry patterns to reduce risk and only trading on higher time frames.

Entry Techniques for Swing Trading

  • The swing trading method is based on a daily chart.
  • Use the same entry techniques as in position trading on a four-hour basis to reduce risk.
  • Using a four-hour chart reduces ranges to smaller, more conservative numbers.

Reward-to-Risk Ratio

  • Use nothing less than three-to-one reward-to-risk ratios.
  • Trades with five-to-one or ten-to-one reward-to-risk ratios are not unheard of.
  • You only need to be accurate 30% of the time when you trade with reward-to-risk ratio conditions.

Leverage and Maximizing Reward

  • Control your leverage and don't try to maximize it just because your broker offers high leverage.
  • Only trade on higher time frame monthly and weekly levels for maximum rewards.

Smart Money Plays

In this section, the speaker talks about smart money plays and how they relate to swing trading. He explains that smart money can't see five-minute order blocks but instead relies on higher time frame price levels.

Higher Time Frame Price Levels

  • Smart money can't see five-minute order blocks but instead relies on higher time frame price levels.
  • Orders layer above or below specific levels such as big figures or mid-figure levels.
  • Orders start building in with lower time frames.

Risk Management and Trading Strategy

In this section, the speaker discusses the importance of risk management in trading and how to frame trades with a minimum of 3:1 risk-reward ratio. He also emphasizes that professionals put very little money at risk to get huge price moves.

Framing Trades with Minimum 3:1 Risk-Reward Ratio

  • Professionals frame their trades with nothing less than three to one.
  • It's hard to find a three to one trade on these types of setups; many times it's five or higher, sometimes even fifteen.
  • Having R multiples is what professionals do; they put very little money at risk to get massive price moves.

Higher Time Frame Levels Offer Huge Returns

  • Higher time frame levels offer ranges of 200 to 500 Pips and can yield up to 10 R wins.
  • Professionals aim for a return of 20% -30%, which is considered an industry standard.
  • When you have $10 million in your management and show a 30% return, large investors will be beating your door down to get a hold of you.

Swing Trading Strategy

In this section, the speaker talks about swing trading strategy and how it can be used for low-risk high reward trading. He also explains that by removing high leverage and coupling higher time frame setups with high R multiples, traders can achieve success.

Frequency of Swing Trades

  • There are typically one to two swing trades per every four to six weeks (about one every month).
  • The frequency is pretty safe, giving traders plenty of time to prepare for these trades.

Removing High Leverage for Low-Risk High Reward Trading

  • By removing high leverage, traders can actually trade with just three-to-one leverage.
  • Leverage is going to kill you when you build your positions up to the point where you can eventually trade.
  • Coupling higher time frame setups with high R multiples is key to low-risk high reward trading.

Conclusion

In this section, the speaker concludes by emphasizing that traders don't have to trade a lot to do well in this business. He also stresses the importance of risk management and having a solid trading strategy.

Final Thoughts

  • Traders don't have to trade a lot to do very well in this business.
  • Risk management is crucial for success in trading.
  • Having a solid trading strategy that includes swing trading and removing high leverage can lead to low-risk high reward trading.

Trading with Leverage

In this section, the speaker discusses how to trade with leverage and still keep risk low.

Leveraged Trading

  • When trading with leverage, you may be underleveraged even if you have a million dollars on deposit.
  • Using a three-to-one leverage and looking for setups that pay out as high as 10r can yield up to 15 percent.
  • Focusing on just six swings per year alone, risking one and a half percent using three-to-one leverage and about a 50 pip stop can more than double your equity every single year.

Example of Maximizing Reward and Reducing Risk

In this section, the speaker provides an example of maximizing reward and reducing risk in trading.

Euro Dollar Trade Example

  • The speaker uses an old monthly high from 2011 in April to define the bearish order block.
  • The mean threshold of the last up candle is defined below that level.
  • The focus is then reduced down to a lower time frame executable time frame of four hours.

Trading Strategy for EUR/USD

In this section, the speaker discusses a trading strategy for EUR/USD using the PD array matrix and mean threshold.

Key Points

  • The strategy involves looking for the range between the Down Candles high and entering up at that mean threshold from the order block from October 2009. The level is 142.80.
  • Using a four-hour timeframe, traders can see price trades up into that level and have the mean threshold and bearish Order block noted here. The mean threshold is 14865.
  • Traders should use the mean threshold on the monthly candle as an entry point to go short. They should also risk a stop one pip above the highest high of that candle so they have a 70 pip stop loss.
  • The potential reward comes to a reward range of 585 Pips, which is an eight-to-one reward-to-risk ratio.
  • This trade framework has the potential in just one trade to make as high as 12 and a half percent return.

Homework: Shorting at 141.55 Level

In this section, traders are given homework to look at last bullish candle right before the down move and consider it as a potential short.

Key Points

  • Traders should look at that candle here as a potential short using entry techniques taught in January's content on position trading concepts.
  • Traders should use studies out on a four-hour timeframe and use entry techniques taught in January for position trading where they would look to take profits at first objective -the mean threshold of that last down candle in 2010.
  • Traders should also consider the down candle in October that same candle's low as an objective looking for an opportunity for a low-end swing trade.
  • The homework should be shared on the Forum, and traders should not copy other people's answers.

Using Monthly and Weekly Scenarios for Trading

In this section, the speaker discusses how to use monthly and weekly scenarios for trading.

Finding Trade Scenarios

  • Look for scenarios in any pair using a monthly or weekly scenario.
  • Find five scenarios that yield at least a five-to-one reward-risk ratio.
  • Frame out swing trades and look for potential payouts of five to one.
  • Use hindsight to study the power of this strategy.

Benefits of This Strategy

  • You don't have to trade all the time.
  • You can get a massive return on your equity with little risk exposure.
Playlists: 2017 ICT Private Mentorship Core Content Month 06
Video description

2017 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in February 2017. 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.