2022 ICT Mentorship Episode 5

Intraday Order Flow and Understanding the Daily Range

Introduction to the Mentorship

• The session is part of the 2022 ICT mentorship on YouTube, focusing on intraday order flow and daily range understanding.

• The lecture will primarily teach about e-mini intraday layouts and daily profiles, aiding in comprehension of trading strategies.

Trading Platforms and Tools

• TradingView.com is highlighted as a free platform for charting, with optional membership benefits that are reasonably priced.

• The content aims to contrast what students learn from this mentorship versus other available online resources.

Focus on Index Futures

• The lessons target index futures such as S&P, Nasdaq, and Dow; Asian range trading concepts are not included in this mentorship.

• Emphasis is placed on understanding expiration dates associated with index futures contracts.

Understanding E-Mini Contracts

• E-mini contracts have specific delivery month codes: H (March), M (June), U (September), Z (December).

• Example provided for e-mini S&P 500 contract for March 2022; important to note expiration occurs on the third Friday of each month.

Monitoring Open Interest

• It’s crucial to track open interest leading up to expiration; larger open interest indicates better liquidity for trading.

Intraday Trading Framework and Techniques

Introduction to Market Profiles

• The speaker introduces the concept of market profiles, emphasizing the importance of understanding them as part of the intraday trading framework.

• Acknowledges viewer eagerness for entry techniques but stresses the need to follow lessons at a measured pace, highlighting that homework assignments will reinforce learning.

Importance of Study Time

• Emphasizes that most learning occurs during study time rather than just watching videos; encourages viewers to actively engage with provided materials.

• Suggests focusing on the 15-minute time frame as a critical period for identifying key highs and lows in trading.

Key Trading Concepts

• Discusses looking for imbalances such as fair value gaps while intentionally avoiding order blocks in this lesson.

• Highlights fair value gaps as a primary focus due to their frequent occurrence and easy pattern recognition.

Setting Up Trading Charts

• Advises using TradingView for charting during mentorship, ensuring consistency across students' analyses.

• Mentions the necessity of making presentations comprehensive to cater to both new and experienced traders, aiming to reduce email inquiries.

Daily Trading Schedule

• Instructs viewers to set charts according to New York local time for accurate calibration across different locations.

• Identifies noon to 1 PM (New York time) as a no-trade period, advising against any trading activities during this hour.

Morning Trade Strategy

• Outlines daily range boundaries for intraday trading, recommending trades from 8:30 AM until around 11 AM when news events typically occur.

• Encourages positioning before 11 AM and discusses strategies for managing trades through lunch hours into market close.

Afternoon Session Insights

• Plans to provide insights on afternoon sessions despite initially not intending to cover them due to prevalent misinformation online.

Understanding Stop Hunts and Market Liquidity

The Nature of Appreciation and Feedback

• The speaker expresses a preference for genuine appreciation over excessive praise, stating they do not want to be idolized or referred to as the "greatest of all time."

• They encourage viewers to provide constructive feedback on their content, indicating that suggestions may influence future lessons.

Identifying Highs and Lows in Trading

• A question arises regarding the identification of significant highs and lows that could indicate a stop run, emphasizing the importance of understanding market catalysts.

• The speaker explains how to identify swing highs and lows using a 15-minute timeframe, focusing on candle patterns rather than their closing prices.

Analyzing Price Patterns

• Swing points are highlighted as critical areas where liquidity is placed; traders should mark these levels on their charts.

• Transitioning from higher timeframes to lower ones (e.g., from 15 minutes to 5 minutes), the speaker reassures viewers that annotations will remain intact during this process.

Recognizing Classic Patterns

• The discussion includes identifying classic price patterns such as three drives up into an old high, which indicates potential stop hunts.

• Reference is made to Linda Raschke and Larry Connors' book "Street Smarts," which helped the speaker understand stop hunts better through specific patterns discussed in it.

Understanding Market Dynamics

• The concept of displacement is introduced using an analogy involving water displacement when an elephant falls into a pool; this illustrates how price movements should be observed.

Understanding Market Dynamics and Trading Strategies

Importance of Rules in Trading

• Emphasizes the necessity of rules in trading to mitigate risks associated with market unpredictability, including potential failures in reading patterns or unexpected news events.

• Highlights the significance of stop-loss orders and sound money management to limit losses, warning against leaving trades open without proper risk management.

Analyzing Price Movements

• Discusses the concept of "displacement" in price movements, indicating that a significant break above previous highs should be followed by an energetic movement lower.

• Observes price action around previous highs, noting weak movements that do not indicate strong selling pressure, which could signal potential reversals.

Identifying Liquidity Pools

• Introduces the idea of liquidity pools below recent lows as targets for short positions, emphasizing the importance of identifying sell-side liquidity before executing trades.

• Points out buy-side liquidity resting above recent highs and advises caution during specific times (like lunch hours), where trading can be unpredictable.

Daily Market Structure

• Describes typical daily market behavior: morning moves followed by a less active lunch hour and then afternoon trends. Traders are encouraged to analyze past charts for better understanding.

• Suggests traders assess whether morning trends were bullish or bearish to predict continuation patterns later in the day.

Sentiment Analysis and Market Direction

• Explains how retail resistance can create buying interest at high prices despite traders framing their strategies as short entries; this dynamic can lead to upward price movements.

Market Dynamics and Trading Strategies

Afternoon Trading Trends

• The afternoon trading session often features a trend, with mechanisms that help the market accelerate into the close. Observing price action on lower time frame charts can reveal these patterns.

• A notable phenomenon occurs around 20 minutes to four o'clock, driven by market-on-close orders. Algorithms begin to push aggressive pricing, compelling traders to cover or exit their positions.

Daily Bias and Range Expansion

• Understanding daily bias is crucial for trading decisions. Traders should assess whether the daily candle is likely to expand higher or lower rather than predicting every single close.

• If analysis suggests an upward expansion, traders should look for opportunities in the afternoon that align with morning logic, similar to how forex traders analyze daily ranges.

Session Analysis and Measured Moves

• In intraday trading, it's important to identify initial highs and lows of the day. This approach mirrors forex strategies but requires adjustments for New York time.

• Analyzing morning sessions can reveal bullish trends that may reverse or continue in the afternoon. Measured moves can occur where the afternoon replicates morning movements (e.g., a 200-point move).

Chart Calibration and Homework Assignment

• Traders are encouraged to calibrate their charts to New York time for accurate analysis. Consistency in chart settings is essential for effective learning.

• Comparing different trading approaches highlights contrasts between this methodical strategy and more chaotic styles prevalent on platforms like YouTube.

Swing Highs and Lows Strategy

• Focus on identifying swing highs and lows after 1:30 PM as part of an algorithmic macro movement strategy specific to equity markets.

Market Dynamics and Trading Strategies

Understanding Market Resistance and Buy Programs

• The market exhibits pent-up aggression to rise but faces short-term resistance, leading to price retracement during the lunch hour. Algorithms control price movements until later in the day.

• A small stop hunt can trigger a buy program, where algorithms continuously offer higher prices regardless of volume or external influences.

• Volume fluctuations may seem confusing; however, they often indicate market manipulation. Recognizing these patterns can help traders anticipate future movements.

Identifying Patterns for Trading Success

• While predicting market behavior isn't foolproof, recognizing repeating patterns can guide trading decisions. Traders should focus on long entries when conditions align.

• Avoid over-leveraging in volatile markets; understanding leverage is crucial as it can lead to significant losses if not managed properly.

Swing Low Analysis and Market Behavior

• The market creates swing lows that often coincide with stop hunts below sell stops. Traders are encouraged to buy into these sell stops despite initial fears.

• After 1:30 PM, traders should look for violated swing lows followed by rallies or sudden upward displacements as key indicators for potential trades.

Simplifying Trading Strategies

• Only two essential trading patterns exist: buying after a swing low violation or purchasing at fair value gaps when prices retrace. Complexity in strategies is unnecessary.

• Focus on logical trade setups rather than gimmicky names like breakers or order blocks; simplicity leads to better decision-making.

Practical Application in Nasdaq Trading

• Analyzing Nasdaq charts reveals similar patterns as observed earlier. Relative equal highs indicate buy-side liquidity above certain levels, guiding trading decisions.

• Retail support forms around relative equal lows, which attract buyers chasing price movements. Understanding this dynamic helps traders position themselves effectively against retail sentiment.

Risk Management and Market Manipulation Awareness

• Observing aggressive price drops can signal optimal buying opportunities; however, contrasting strategies exist among traders regarding risk management and contract sizes used for trades.

Understanding Futures Market Dynamics

Characteristics of the Futures Market

• The futures market is described as cleaner and more predictable compared to other markets, providing a smoother delivery of price action.

• Volatility can arise from unexpected reports or events, leading to noisy price movements; traders are advised to wait for stabilization before entering trades.

Trading Strategies and Mindset

• Many new traders struggle with understanding price movements, often focusing on small micro moves which may not be profitable without significant contracts.

• A successful trading mindset involves being comfortable with larger daily ranges rather than fixating on minor fluctuations.

Transitioning Between Markets

• The speaker notes a recent shift from forex trading to index futures due to current market conditions in forex being less favorable.

• Index futures are highlighted as more liquid and systematic, making them preferable during certain times of the year.

Seasonal Considerations in Trading

• July and August are identified as months where trading can be inconsistent; however, the rest of the year typically offers better opportunities.

• Understanding market mechanics at a basic level is crucial for avoiding losses in these structured markets.

Best Practices for New Traders

• New traders should focus on identifying key setups rather than attempting numerous trades; it's recommended to look for significant moves in both morning and afternoon sessions.

• Practicing with demo accounts is encouraged over live trading until confidence is built; this approach helps prevent unnecessary losses while learning.

Conclusion on Trading Approach