ICT - Trading Plan Development 1

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This section introduces the need for a trading plan and emphasizes its importance in achieving consistent profitability as a trader.

The Need for a Trading Plan

• Having a trading plan is crucial for both new and experienced traders.

• A well-formulated trading plan helps eliminate emotional-driven results and provides clarity on what actions to take.

• Professional traders have detailed, organized trading plans that serve as their DNA for success.

Managing Time Wisely

• Traders must manage their time wisely and avoid spending countless hours on analysis without clear objectives.

• Quality time should be spent on macroeconomic analysis, higher time frame support and resistance levels, rather than focusing too much on shorter time frames.

• Significant price moves are often preceded by telltale signs on higher time frame charts (monthly, weekly, daily, four-hour).

Focus on Macro Analysis

• Traders should prioritize macro analysis over entry signals.

• Understanding market direction through higher time frame charts (weekly, daily) is essential for making informed decisions.

• Following interest rates and tracking overnight lending rates provide valuable insights for consistent trading.

Money Shouldn't Be the Main Focus

• While making money is a primary goal in trading, focusing solely on monetary gains can be counterproductive during actual trades.

• Instead of fixating on profits or losses per trade, traders should focus on following their well-grounded trading plans.

• Accepting losses as part of the process helps maintain a professional mindset.

Entry Signals Are Less Significant

• Entry signals hold less significance compared to having a macro understanding of the market and directional bias from higher time frame charts (weekly, monthly).

• Spending more time analyzing weekly and daily charts increases the chances of making accurate trades.

By implementing these strategies, traders can improve their trading results and increase their chances of consistent profitability.

Importance of Understanding Trading Patterns

The speaker emphasizes the importance of having a sound understanding of trading patterns and not blindly relying on charts. Having a specific pattern or motive for entering trades is crucial for successful trading.

Understanding Trading Patterns

• It is paramount to have an understanding of what you are doing in trading.

• Merely staring at charts without a specific pattern or motive will not lead to success.

• Backtesting and forward testing are only effective if you have a clear understanding of what you are looking for.

• Focus on developing a trading plan and working with a trading edge that your method exploits.

Components of a Trading Plan

A trading plan consists of various components, including fundamental data, technical analysis, intermarket analysis, risk control, and equity management. These components need to be brought together to create a successful trading plan.

Components of a Trading Plan

• Building a trading plan involves taking all the pieces of the puzzle into account.

• Fundamental data, technical analysis, and intermarket analysis are essential components.

• Impeccable risk control is the first component of any successful trading plan.

• Flawless equity management is closely tied to risk control and is essential for success.

• Controlling money and managing risks are more important than having fancy tools on your trade monitor.

Execution and Analysis in Trading

To execute an effective trading plan, it is important to have a comprehensive approach to using specific tools and concepts. Top-down analysis with all the components mentioned earlier can deliver optimal results while controlling risk.

Execution and Analysis in Trading

• Have a concise list of specific tools that you use for specific times and reasons.

• Understand the purpose and functionality of each tool and use them accordingly.

• Avoid floating in and out with different oscillators or using different tools without a clear understanding.

• Execute a top-down analysis that incorporates all the components mentioned earlier.

• This comprehensive approach will deliver optimal results while controlling risk.

Importance of Risk Control

The speaker emphasizes that controlling risk is crucial for long-term success in trading. It is the number one reason why traders last in this business.

Importance of Risk Control

• Controlling risk is the key to longevity and success in trading.

• All the components of a trading plan revolve around managing and reducing risks.

• The control of risk should be the beginning and end point of every trading decision.

Understanding Other Market Participants

Traders need to understand that they are not the only participants in the market. Overconfidence can be counterproductive, and it is important to acknowledge that other market participants also want to make money.

Understanding Other Market Participants

• Traders should not overestimate their importance or underestimate other market participants.

• Overconfidence can lead to ego-driven decisions influenced by emotions, which is detrimental to trading success.

• Reflect on both wins and losses as learning opportunities for personal growth as a trader.

Risk Management Strategies

The speaker discusses risk management strategies, emphasizing the importance of small position sizes and proper risk management techniques. Building wealth does not require high-risk exposure.

Risk Management Strategies

• "Pack small, play big" - Emphasizes the importance of small position sizes relative to account size.

• 2% risk or less is sufficient for building wealth through compound interest.

• Many successful traders have achieved significant results with low-risk exposure.

• Focus on controlling risk rather than solely pursuing profits.

Building Wealth with Limited Risk Exposure

The speaker addresses the common question of how to make a fortune with limited risk exposure. He emphasizes the power of compound interest and highlights that significant wealth can be built without high-risk exposure.

Building Wealth with Limited Risk Exposure

• Compound interest is a powerful tool for building wealth.

• Significant returns can be achieved with limited risk exposure.

• It is not necessary to risk large portions of your account to achieve financial success in trading.

Importance of Consistently Following a Trading Plan

The speaker emphasizes the importance of consistently following a trading plan rather than focusing on high accuracy. Building wealth in trading requires time and risk control.

• Consistently following a trading plan is paramount for success in trading.

• Risking 2% or even less per trade can help build wealth over time.

• Realistic goals should be set, and excessive risk exposure should be avoided.

Avoid Falling for Get-Rich-Quick Promises

The speaker warns against falling for get-rich-quick promises made by internet gurus. Steadily building an account with minimal drawdown should be the goal instead.

• Internet gurus often promise quick riches, but these claims are meant to make traders lose money.

• The focus should be on steadily building the trading account with little drawdown.

• Hitting home run profits every trade or weekly is not necessary; losing weeks or days can still be recovered from.

Setting Realistic Goals for New Traders

New traders should aim for a low yet sufficient baseline target, such as a 1% return or pips per month or week. Gradually increasing targets as experience and risk tolerance grow is recommended.

• A new trader's goal should be to consistently harvest 25 pips per week.

• After achieving this goal, they can graduate to targeting 50 pips per week.

• As experience and tolerance for risk increase, traders can aim for higher targets beyond 75 pips per week.

Case Study: Targeting 25 Pips Per Week

A case study demonstrates how targeting 25 pips per week with controlled risk exposure can lead to steady account growth over time.

• By targeting 25 pips per week and making a 6% return per month, starting with $2,500 can result in doubling the account value in one year.

• Daily trading and scalping 5 pips per day can help achieve the weekly goal of 25 pips.

Case Study: Targeting 50 Pips Per Week

Another case study shows how targeting 50 pips per week with slightly higher risk exposure can lead to significant account growth over time.

• By targeting 50 pips per week and aiming for a 10% return per month, starting with $2,500 can result in substantial account growth over two years.

• Daily trading and scalping 10 pips per day or trading three times a week for a total of 25 pips per trade can help achieve the weekly goal.

Case Study: Targeting 75 Pips Per Week

A case study demonstrates the potential of targeting 75 pips per week as a career-building strategy.

• Targeting 75 pips per week with controlled risk exposure (1% per trade) and aiming for a monthly return of 10% can lead to significant account growth.

• Day trading every day for 15 pips or trading three times a week for larger pip hauls can help achieve the weekly goal.

Building Flexibility into Your Trading Plan

The speaker emphasizes the importance of building flexibility into your trading plan. Goals may not always be met on a daily or weekly basis, but they may still be achieved over time.

• Don't force yourself into hunting or believing that you need to meet your goals daily or weekly.

• Weekly goals may fall short occasionally but could still be met within the same month.

• Monthly goals may average out over the quarter or year, so be flexible and allow the market to pay you when and how it will.

Conclusion: Start with Small Consistency

Starting with small consistency can lead to surprising results over time. An exponential mindset and steady progress are key to success in trading.

• Small consistent actions over time can yield significant results.

• Building a trading plan that allows for flexibility is crucial.

• Aim for realistic goals and focus on steady progress rather than quick riches.

Setting Trading Goals and Risk Management

In this section, the speaker discusses the importance of setting trading goals and implementing risk management strategies.

Monthly and Weekly Pip Goals

• The monthly goal is to achieve 200 pips, which is considered modest.

• The weekly pip goal is set at 50 pips.

• Breaking down the weekly goal, it can be achieved by aiming for 10 pips per day, 17 pips three times a week, or 25 pips twice a week.

• Accumulating these goals over one year would result in a growth of $22,290.

Taking First Profit and Managing Risk

• It is crucial to determine at what level to take first profit before entering a trade.

• Scaling out of positions or moving stops to break-even after taking half of the original position helps reduce emotional and psychological pressures during trades.

• Traders need to be methodical about taking first profit as brokers will not do it for them.

• Taking first profit at predetermined levels builds confidence and removes the rush to close trades prematurely.

Building Confidence through Profit-Taking

• Taking profits at predetermined levels assists in building confidence as it removes the fear of losing potential gains if a trade reverses.

• By taking first profit, traders either secure half of their initial position's profit potential or stop out at breakeven while collecting their first profit.

• This approach helps remove the sting of losing trades that may have initially been profitable.

Understanding Interest Rates

This section focuses on the significance of interest rates in driving market movements. Traders are encouraged to understand how interest rates impact various markets such as stocks, commodities, and Forex.

The Role of Interest Rates

• Interest rates serve as the driving force behind market movements.

• The global markets are interconnected, and interest rates influence the demand for a country's currency.

• Higher interest rates attract more demand, as investors seek higher yields.

Tracking and Utilizing Interest Rates

• Traders should track and utilize different types of interest rates to determine trade ideas.

• Understanding how interest rates trade and their associated yields can make it easier to identify long-term trends.

• Interest rate spreads and yield differentials play a crucial role in determining trading opportunities.

The transcript is already in English.

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This section discusses the role of interest rates in currency markets and how understanding the interest rate differentials between countries can be advantageous for trading.

Interest Rates and Currency Markets

• Understanding which country has higher interest rates and which has lower rates can be a differential play or carry trade in currency markets.

• Higher interest rates in a country can strengthen its currency, while lower interest rates can weaken it.

• Seasonal tendencies in the market can also provide insights for trading. The British Pound, for example, tends to make major lows in February to March, June, September, October, and December, and major highs in April to May.

• The bond market's seasonal tendency to rally in April and May indicates that interest rates would be going down during that period.

• Analyzing the net positions of large commercial traders on higher timeframe charts can help determine long-term trends and directional biases.

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This section introduces seasonal tendencies as a tool for forecasting major price swings in commodity markets.

Seasonal Tendencies

• Commodity markets have cyclical or seasonal tendencies that can forecast significant price swings.

• The British Pound has a seasonal tendency to make a major low in February to March, June, September, October, and December, and a major high in April to May.

• These seasonal tendencies have been used successfully for nearly 20 years.

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This section compares the seasonal tendencies of the British Pound with US Treasuries.

Comparison of British Pound and US Treasuries

• The British Pound's seasonal tendency aligns with the inverse relationship between currencies and bonds. When currencies go down (weaken), bond prices go up (rally).

• In April and May, when the British Pound tends to rally, there is a seasonal tendency for bond prices to rally as well, indicating lower interest rates.

• In January and February, when the British Pound tends to make lows, there is a seasonal tendency for bond prices to slide down, indicating higher interest rates.

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This section emphasizes the advantage of having insights from seasonal tendencies and tracking commercial trends in finding long-term trends in trading.

Advantage of Seasonal Tendencies and Commercial Trends

• Seasonal tendencies provide a macro roadmap of what should transpire in the market.

• Tracking commercial traders' net positions on higher timeframe charts can help determine long-term trends and directional biases.

• Looking at the trend of where their net positions are moving (higher or lower) can indicate overall bullish or bearish sentiment.

• By waiting for commercials to be net long or lightening up on their net short positions during an uptrend, traders can increase their odds of capturing trades with large potential gains.

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This section highlights the importance of analyzing higher timeframe charts and monitoring commercial traders' net positions for determining price direction and potential trading opportunities.

Analyzing Higher Timeframe Charts and Commercial Traders' Net Positions

• Analyzing higher timeframe charts helps determine if prices are going higher or lower.

• Monitoring commercial traders' net positions provides insights into overall bullish or bearish sentiment.

• The swings from net long to net short positions are easy to spot on weekly charts and can help identify long-to-intermediate term trends.

• Waiting for commercials to be net long or reducing their net short positions during an uptrend indicates a bullish scenario.

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The speaker discusses the challenges of trading news releases and highlights the importance of waiting for the release and observing the market reaction before making trades. Key economic indicators in the US, UK, and German markets are mentioned as important factors to consider.

Trading News Releases

• Trying to trade news releases directly is considered difficult and akin to gambling.

• Numerous robots or programs claim to provide quick profits based on knee-jerk reactions to news releases.

• It is impossible to accurately predict the numbers in these reports, making it a risky approach.

• Instead, it is recommended to wait for the release and observe the market reaction.

• Often, signals form shortly after a news release, sometimes in a counter-directional manner.

Key Market Moving Indicators

UK Market

• Daily rate decision

• Retail sales

• Consumer prices

• Claimant count

• GDP (Gross Domestic Product)

• Industrial production

US Market

• Federal Reserve rates

• Retail sales

• Consumer and producer prices

• Non-farm payroll

• Gross Domestic Product (GDP)

• Trade balance

• Consumer confidence reports

• Service and manufacturing sector PMI (Purchasing Managers' Index)

German Market

• Rate decision

• Ifo index (German business sentiment)

• Unemployment rate

• Consumer prices

-GDP

-Manufacturing and services sector PMI

Planning for News Impact

To effectively plan for news impact, it is crucial to be aware of key economic events by referring to an economic calendar. Some recommended resources include:

1. BabyPips.com's Calendar

2. ForexFactory.com's Calendar

3. Google search "econ a day calendars" for additional options.

4. Chris Lori's "Inside the Banks" webinar is recommended for further understanding of interest rates and their impact on the market.

Bond Market Insights

• The bond market provides valuable insights and leading information for various asset classes.

• While the speaker no longer trades bonds, they monitor bond futures daily.

• Understanding the inverse relationship between bond prices and yields is important.

• Tracking 10-year Treasury notes, 5-year Treasury notes, and 2-year Treasury notes can reveal interesting patterns.

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The speaker emphasizes the significance of monitoring 30-year Treasuries, 10-year Treasury notes, and other bond-related instruments to gain insights into different markets. They highlight the inverse relationship between price data and yield in the bond market.

Monitoring Bonds for Insights

• The bond market offers valuable information applicable to any market or asset class.

• Monitoring futures contracts of 30-year Treasuries and 10-year Treasury notes can provide useful insights.

• When prices rise in bond futures, yields tend to decrease (inverse relationship).

• Tracking German bonds (e.g., German ten-year bonds) can also be beneficial when trading currency pairs involving the euro.

Additional Bond Instruments

• Monitoring five-year Treasury notes and two-year Treasury notes on both US and German bases can provide further insights.

• Understanding all three types of bonds allows traders to identify potential trading opportunities.

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In this section, the speaker discusses their preferred method of analyzing the U.S. dollar index and recommends a website for accessing charts.

Analyzing the U.S. Dollar Index

• The speaker looks at both the cash basis and futures chart of the United States dollar index.

• They prefer using futures charts as they are accustomed to reading them since the 1990s.

• The speaker uses SMT concepts to identify diverging highs and lows between the USD X and relative price points in other currencies.

• They also monitor the bond and USD x SMT, as well as major stock market indices, to gauge long-term price swings.

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In this section, the speaker explains how they use major stock market indices and the CRB commodity index for analysis.

Major Stock Market Indices

• Major stock market indices are one of the speaker's favorite tools for gauging long-term price swings.

• Failing at highs on daily charts suggests a possible risk-off scenario with weaker stock prices and possibly affecting foreign currencies.

• The U.S. dollar index can confirm this scenario with a rally at support or reverse for risk-on scenarios.

• Monitoring these interconnected markets helps in finding clues about overall market trends.

CRB Commodity Index

• The speaker prefers watching the CRB commodity index on a cash basis.

• They find it useful as it usually has an inverse relationship with the dollar index.

• Confirming a swing higher in the dollar with shorting fiber (Euro) or cable (British Pound) during a CRB decline is part of their analysis strategy.

• The CRB index can provide insights into major market analysis and help determine directional bias.

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In this section, the speaker discusses the role of oil, gold, and T note yields as barometers for risk-on and risk-off scenarios.

Oil and Gold

• The speaker looks at oil and gold markets as barometers to determine if there are risk-on or risk-off scenarios underway.

• These markets should move in tandem with foreign currencies and the CRB index.

T Note Yields

• The speaker analyzes T note yields, specifically the two-year, five-year, and ten-year yields.

• Divergence between these yields can indicate potential shifts in the trend.

• Monitoring yield changes can mirror what foreign currencies should be doing.

• Confirmations in technical analysis on daily charts can provide buy or sell signals for foreign currencies or the US dollar.

• There is typically a three to four-month cycle in these yields that affects market dynamics.

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In this section, the speaker explains how they analyze T note yields in relation to the slide in foreign currency markets.

Analyzing T Note Yields

• The chart shows the United States ten-year, five-year, and two-year T note yields.

• Seasonally and quarterly, there will be divergences that occur in these yields.

• These divergences play a role in understanding the slide in foreign currency markets such as the British Pound and Euro USD pairs.

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In this section, the speaker provides additional insights into analyzing T note yields and their relationship with foreign currency markets.

Understanding Yield Divergence

• Divergences that occur at specific times seasonally and quarterly can impact market dynamics.

• Historical analysis reveals a three to four-month cycle that affects yield movements.

• The speaker aims to explain why there was a significant slide in foreign currency markets during June 2012 by examining how it relates to T note yields.

The transcript does not provide further information beyond this point.

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This section discusses the relationship between yields, foreign currency, and the US dollar index. It explores examples of yield divergences in different bond markets.

Yield Divergence Examples

• The speaker compares the five-year notes of the UK, Germany, and the United States in 2012. The US note had higher yields while the German and UK notes had lower yields.

• In October 2010, there was a divergence where the German five-year note failed to make lower lows in yield while the US note did.

• The speaker explains that these yield divergences indicate shifts in market sentiment.

• Another example is shown in April 2010, where the US five-year note made higher highs while the German note couldn't reach equivalent new highs.

• Similar patterns are observed with ten-year notes, indicating bullish or bearish sentiment shifts.

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This section continues discussing yield divergences and their impact on major currencies and the US dollar.

Impact on Major Currencies

• When yields increase, it is bullish for major currencies and bearish for the US dollar. Conversely, when yields drop, major currencies decline as investors seek safety in buying bonds and returning to the dollar.

• There is an inverse relationship between bond market performance (bonds going up means yields dropping) and major currency performance.

• Understanding risk-on/risk-off scenarios helps determine buy/sell programs for daily trading based on macroeconomic views.

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This section emphasizes the importance of key support and resistance levels in trading.

Key Support and Resistance

• Knowing key support and resistance levels is crucial for confirming entry or exit signals.

• Patience is essential for successful trading, and understanding support and resistance levels forms the cornerstone of trading success.

The transcript provided does not include any non-English language content.

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In this section, the speaker discusses optimal trading strategies and market sentiment in the futures market or Forex.

Determining Optimal Trading Strategies

• On a daily basis, it is recommended to analyze previous day's session highs and lows, pivot levels, and Asian range highs and lows.

• Avoid following the herd mentality in trading. When everyone is doing something, it may not be a good thing.

• Look for opportunities to trade against the majority. Trade when the market is bearish for buying and when it looks bullish for shorting.

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This section focuses on market structure analysis and finding high probability price swings.

Market Structure Analysis

• Hunt for intermediate-term price swings by analyzing market structure.

• If all your trades are occurring in one direction (long or short), your trading may not be optimal.

• Limit your consideration to only trading at intermediate-term highs for shorts and entering at intermediate-term lows for longs.

• For short-term scalps or day trades, it is advised to take them in the same direction as the overall trend.

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The speaker explains how open interest can indicate smart money activity in the futures market.

Open Interest and Smart Money Activity

• Open interest reflects smart money activity in the futures market.

• Declining open interest during a market consolidation or range suggests commercial short-covering by large hedgers.

• Increasing open interest during consolidation indicates commercial selling as they hedge their positions.

• Premiums in futures contracts indicate high demand. If open interest drops while premiums exist, it can be a near-perfect trade scenario.

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This section emphasizes maintaining a focus on higher timeframe directional bias for trading.

Higher Timeframe Directional Bias

• Maintain a focus on the weekly, daily, and possibly four-hour timeframes for determining the highest probable direction.

• Look for support or resistance levels on these timeframes to identify where prices may be heading.

• If price is trading lower on the daily timeframe, look for old lows or highs on the left side of the chart to determine potential trade opportunities in that direction.

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The speaker discusses general market risk-on or risk-off analysis using various indicators.

General Market Risk-On/Risk-Off Analysis

• Start by analyzing interest rates and yield movements.

• Observe weakness or strength in stocks, commodities, treasuries, gold, oil, and the dollar index to gain insights into market sentiment.

Anticipatory Stage of Analysis

This stage of analysis is where you will spend the majority of your time. It focuses on the weekly and daily timeframes, as trades are based on these higher time frames. It may take a few days for a trade to set up, but this is considered a good thing.

• Pay attention to interest rates, CoT (Commitment of Traders) reports, major market indices, seasonal tendencies, key support/resistance levels, and intermarket analysis with correlated assets.

• The anticipatory stage of analysis is the foundation for successful trading.

Execution Stage of Analysis

In this stage, you hunt for setups based on the insights and conclusions from the anticipatory stage. If risk is on, look for setups to buy currencies and confirm them with higher moving or poised-to-rally stock indices. If risk is off, look for setups to sell currencies and confirm them with lower moving or poised-to-decline stock indices.

Management Stage of Analysis

This stage requires concepts for trade management on open positions. It involves managing stop-loss orders, limit orders, initial profit objectives, and scaling later portions. A clear trading plan with defined concepts and techniques is crucial for consistent success in trading.

Reactionary Stage of Analysis

This stage occurs when trades are open and there are reasons to believe that they may collapse. Clear parameters in your trading plan should be in place to invoke immediate trade termination if necessary due to reports/news events or realizing an error in judgment.

Documentation Stage of Analysis

This stage involves recording trade ideas, tools used, screenshots, and emotions before and during the trade. It is important to document the results of the trade and reflect on whether the trade plan was adhered to. Lessons learned from the trade should be noted, along with determining leverage or lot size for future trades.

Temporary Losing Streaks

Temporary losing streaks are a normal part of trading. Keeping records of trades and referring to them during periods of drawdown or losses can help remind traders that these streaks come and go.

The language used in this summary is English, as per the transcript provided.