ICT 2024 Mentorship \ Lecture #20 August 29, 2024

Live Stream Overview and Technical Setup

Initial Setup and Audio Check

• The speaker greets the audience, checking audio quality amidst background noise from landscapers.

• Discusses latency settings for the live stream, indicating a need to manage expectations regarding real-time interaction.

Latency and Subtitles

• Mentions that low latency affects the availability of captions and subtitles during live streams.

• Explains that while subtitles may not appear immediately, they will be available in recorded sessions later on.

Trading Insights and Strategies

Trading Challenges

• Addresses common questions from students about managing trades, particularly focusing on trailing stop-loss strategies.

• Emphasizes the importance of understanding market conditions when entering or exiting trades.

Market Analysis Techniques

• Introduces concepts of grading inefficiencies in trading rather than using "quarters theory."

• Highlights the significance of Fibonacci levels in analyzing price swings and market behavior.

Practical Trading Examples

Analyzing Market Movements

• Describes recent market movements following a significant gap opening at 6 PM.

• Discusses consolidation patterns observed in the market leading up to morning sessions.

Order Blocks and Trade Execution

• Explains how to identify order blocks as indicators for potential trade entries.

• Clarifies terminology around bearish order blocks, emphasizing their role in understanding market dynamics.

Trade Execution Strategy

Short Selling Techniques

• Shares personal experiences with short selling during specific market conditions.

Market Maker Sell Model Insights

Understanding Market Dynamics

• The speaker discusses the importance of understanding the market maker sell model, emphasizing that one should allow for a second stage of redistribution before making trading decisions.

• After being stopped out on an initial trade, the speaker adjusted their stop loss aggressively but acknowledges that this approach may not be advisable without proper market knowledge.

Trading Strategies and Liquidity

• The current price action is analyzed in relation to Tuesday's old daily low, indicating a draw on liquidity as per the market maker's strategy.

• The speaker highlights that every closed candle can indicate potential bearish order blocks, stressing the need to recognize these patterns in trading.

Fair Value Gaps and Market Behavior

• There is no fair value gap formed yet; however, there are indications of buy-side liquidity above relative equal highs which could lead to significant price movements.

• A new day opening gap is noted, with expectations for price movement towards higher levels if conditions permit.

Trade Execution and Lessons Learned

• The speaker reflects on their animated teaching style while discussing trading principles and emphasizes learning through practical examples.

• A significant pull of liquidity is identified above 694.75, suggesting potential upward movement but cautioning against making hard predictions.

Risk Management and Patience in Trading

• The discussion includes strategies for re-entering trades after being stopped out without incurring losses, focusing on maintaining a winning position.

• Emphasizing patience in trading, the speaker advises against chasing prices that have moved significantly away from entry points. Instead, they suggest waiting for better opportunities.

Conclusion: Navigating Market Trends

Market Analysis and Trading Strategies

Initial Market Observations

• The speaker notes a small retracement into an inefficiency but advises against taking action, suggesting patience for a better setup.

• Discussion on momentum potentially driving prices higher, particularly in relation to previous highs and market reactions post-Nvidia earnings.

Price Levels and Gaps

• Emphasis on the importance of price levels, specifically referencing the new day opening gap high from August 27th as a potential target for upward movement.

• The speaker highlights the significance of volume balance in trading setups, indicating that it can provide insights into market behavior.

Technical Setup Considerations

• A mention of technical tools used for charting, including settings that help align movements with candlestick patterns.

• The speaker discusses drawing ranges on charts to aid in understanding price movements and emphasizes focusing on lower half pricing when approaching old premiums.

Fair Value Gaps and Trading Strategy

• Attention is drawn to fair value gaps; the speaker expresses interest in seeing price action move into these areas without exceeding certain midpoints.

• A warning against unauthorized sharing of mentorship videos is issued, highlighting copyright concerns while reinforcing the educational aspect of his content.

Market Dynamics and Emotional Discipline

• The discussion shifts to how historical price levels act as support or turning points, providing a framework for future trades.

• Insights are shared about initial price runs being misleading; caution is advised against chasing rapid movements due to past experiences with losses from impulsive trading decisions.

Liquidity and Market Behavior

• Mention of liquidity above current price levels suggests potential volatility if prices break through established resistance zones.

Market Dynamics and Stock Influence

Understanding Market Gaps and Price Action

• The discussion revolves around the potential movement of stocks in relation to market gaps, emphasizing that if a stock can move through these gaps easily, it may indicate a strong upward trend.

• The speaker highlights the importance of live price action and acknowledges natural latency in trading, suggesting that real-time comparisons are crucial for understanding market behavior.

The Impact of Individual Stocks on the Market

• A focus is placed on Nvidia's significant influence over other stocks, illustrating how one company's performance can affect the entire market sentiment.

• The speaker questions the connection between unrelated companies like Proctor & Gamble and Caterpillar with Nvidia, arguing that such influence makes market manipulation easier.

Electronic Trading and Market Manipulation

• The transition to electronic trading has changed how markets react; previously significant events were needed for movement, but now minor influences can sway entire sectors.

• There's an assertion that only a few stocks can disrupt or inspire market sentiment due to this new trading environment, leading to easier manipulation without traditional market makers.

Technical Analysis Insights

• Observations are made regarding higher highs in NASDAQ compared to ES (E-mini S&P 500), indicating potential waning momentum rather than an outright reversal signal.

• The concept of Smart Money Techniques (SMT) is introduced as a tool for analyzing market movements based on technical indicators.

Personal Reflections on Trading Strategy

• A personal anecdote about receiving an unexpected package illustrates the speaker's relaxed approach towards trading decisions amidst external distractions.

• Emphasis is placed on waiting for trustworthy signals from the market rather than forcing trades; patience is highlighted as key in avoiding FOMO (Fear of Missing Out).

Conclusion: Patience Over Urgency

Understanding Trading Dynamics

The Nature of Market Fluctuations

• The speaker emphasizes the importance of not micromanaging every market fluctuation, likening it to allowing a child to play freely without constant supervision.

Engaging with Market Predictions

• A viewer expresses confusion over the speaker's approach during live streams, noting that predictions are often made post-factum rather than beforehand. The speaker clarifies that they focus on significant indicators and potential impediments to trading decisions.

Learning vs. Just Consuming Information

• There is a critique of individuals seeking quick summaries or "Cliff Notes" for trading strategies instead of engaging deeply with the material. The speaker stresses the necessity of understanding trading concepts thoroughly, as they are teaching their son how to trade effectively.

Analyzing Market Levels

• The discussion shifts towards specific market levels, particularly aiming for a target at 694. The speaker anticipates potential sell-off opportunities if this level is reached.

Comprehensive Perspective in Trading

• Emphasizing the need for a holistic view when trading, the speaker warns against limiting analysis to short time frames (like 30 minutes), advocating for an understanding of daily trends and movements.

Liquidity and Market Behavior

Understanding Liquidity Pools

• Observations are made about market behavior regarding liquidity pools and how traders often go after larger pools where deeper pockets exist, rather than targeting individual stop losses directly.

Risk Management Considerations

• A question is posed about risk management—specifically whether one would feel comfortable placing stop-loss orders at certain levels amidst volatility. This highlights the importance of personal comfort in risk-taking.

Trading Strategy and Timing

Identifying Opportunities

• The speaker reflects on waiting patiently for optimal trading conditions rather than rushing into trades due to fear of missing out (FOMO). They express confidence in capturing moves later in the day if necessary.

Silver Bullet Moments in Trading

• Mentioning specific times during trading hours (like from 3:00 PM to 4:00 PM), the speaker notes these periods often present unique opportunities ("silver bullets") that can be capitalized on effectively.

Rule-Based Trading Approach

Trading Psychology and Strategy

Importance of Preparedness in Trading

• Emphasizes the necessity of having a well-thought-out trading plan rather than acting on impulse. Traders should rely on back-tested and forward-tested data.

• Warns against trusting gut feelings or hunches, reflecting on past mistakes made due to impulsive decisions.

The Balance Between Caution and Action

• Shares advice from Larry Williams about moving slowly when making money but quickly when protecting it, highlighting the importance of timing in trading strategies.

• Discusses the challenge of knowing when to enter trades versus sitting still, stressing that understanding this balance takes years of experience.

Filtering Ideas and Avoiding Momentum Traps

• Highlights the difficulty in filtering trade ideas without getting caught up in market momentum, especially when observing others' successes.

• Questions whether current market conditions present high-probability setups, indicating that low probability scenarios should be avoided for trading.

Analyzing Market Conditions

• Suggests that if a trader is not willing to invest money into a setup, they should refrain from worrying about it; instead, focus on studying market behavior without emotional attachment.

• Describes specific market conditions where price action needs to show strength or risk falling back into previous ranges.

Understanding Retail Trading Dynamics

• Observes retail traders' tendencies to identify diagonal support/resistance lines and how these can create opportunities for more experienced traders to capitalize on their mistakes.

• Refers to lessons from 2017 mentorship content regarding "trend line phantoms," emphasizing how retail traders often misinterpret market signals.

Market Manipulation Insights

• Notes current market manipulation during an election year and anticipates significant price movements post-election based on changing agendas.

Trading Psychology and Market Conditions

Understanding Candlestick Behavior

• The speaker emphasizes the importance of analyzing specific candlesticks in relation to market conditions, indicating that understanding their behavior is crucial for making informed trading decisions.

Recognizing When Not to Trade

• The speaker discusses the challenges traders face when confronted with conflicting market signals, suggesting that sometimes it’s best to refrain from trading altogether.

• There is a warning against the urge to prove oneself through trading actions influenced by social media or community pressures, which can lead to poor decision-making.

The Importance of Trading Discipline

• The speaker argues that if a trader's goal shifts from making money to seeking validation from others, it compromises their ability to make sound trades.

• A call for authenticity in trading practices is made; traders should focus on their own strategies rather than seeking external approval or recognition.

Evaluating Market Conditions

• The discussion highlights the need for careful evaluation of market conditions before entering trades. If conditions are not favorable, it's better to stay out.

• Mentioning potential downside movements, the speaker notes how certain gaps in price action could indicate future trends but stresses caution in interpretation.

Learning from Experience

• An example is given where a trader named Caleb recognizes he cannot take any trades due to unfavorable market conditions, illustrating the importance of self-awareness and discipline.

• Emphasizes that having criteria for trading helps prevent impulsive decisions and encourages patience during uncertain times.

Avoiding Impulsive Trading Decisions

• The speaker shares personal experiences about the pitfalls of impulsive trading and stresses the value of turning off charts when faced with indecision.

• A reminder is provided about how unnecessary back-and-forth trading can lead to significant losses over time due to commissions and emotional strain.

Patience as a Key Trait in Trading

• Discusses how current market dynamics do not favor low resistance liquidity runs, urging traders to wait for more opportune moments instead of forcing trades.

Reflecting on Market Gaps and Opportunities

• Humorously references an Instagram post about someone claiming substantial earnings, highlighting skepticism towards such claims while acknowledging successful outcomes are commendable.

Making Informed Decisions Without Regret

• Encourages viewing potential missed opportunities without regret; staying patient often leads to better long-term results rather than chasing immediate gains.

Understanding Trading Challenges and Strategies

Personal Experience with Trading Difficulties

• The speaker shares their personal struggle with trading, emphasizing that it was not easy for them due to their stubbornness. They suggest that others might find it easier with structured guidance.

Observations on Market Behavior

• The speaker discusses the taste of Deer Park water, using it as a metaphor for market conditions, indicating that sometimes things may not meet expectations (e.g., "this water is tasting like bath water").

Analyzing Market Movements

• A focus on how to manage trades when prices reach certain highs. The importance of measuring strength and speed in price movements is highlighted.

• Emphasis on maintaining bullish momentum after reaching significant price levels; traders should look for quick upward movement without retracement.

Risk Management in Trading

• Discussion about dealing with problematic trading scenarios, including when to move or set stop-loss orders. The speaker stresses the importance of being comfortable with inactivity in trading.

Importance of Patience and Observation

• Reinforces the idea that remaining still can be a winning strategy; one never loses money by not entering a trade prematurely.

Market Dynamics and Liquidity

Continuation Patterns in Price Action

• Analysis of whether the market can continue its upward trend after breaking previous highs. This involves understanding gaps created by new week openings.

Entry Strategies and Cost Management

• Discusses entry strategies using institutional order flow techniques, highlighting the need to cover costs effectively while managing risk.

Momentum Indicators

• Highlights the significance of observing candle patterns post-trade entry; traders should expect momentum to drive higher rather than seeing retracements.

Mentorship Insights and Learning Framework

Contextual Understanding in Mentorship

• Clarifies misconceptions about past mentorship programs, asserting that context is crucial for understanding market dynamics.

Live Market Analysis Techniques

• Describes methods used during live streams to analyze market behavior, focusing on high versus low resistance liquidity runs.

Developing Trading Skills

• Stresses the importance of developing skills to identify favorable trading climates which can lead to high-probability trades.

Navigating Adversarial Market Conditions

Recognizing High Probability Scenarios

• Discusses how traders must remain nimble and aware of adversarial conditions where both long and short positions could lead to losses if not managed properly.

Understanding Trading Dynamics

The Challenge of Price Movement

• Trading becomes increasingly difficult when the market is in a 50/50 state, as it illustrates how challenging it can be for prices to navigate through certain levels.

• While trading is possible, closing positions at strategic points can yield significant gains; however, many traders struggle with timing and decision-making.

Misguided Trading Logic

• Traders often fall into the trap of either holding onto losing trades or waiting for specific targets without considering partial exits, which can lead to unnecessary losses.

• The concept of taking partial profits is emphasized as a consistently profitable strategy that should not be overlooked by traders.

Adapting to Market Conditions

• As market conditions change, traders must remain flexible and adjust their strategies based on real-time observations rather than sticking rigidly to initial plans.

• If a trade begins to falter, it's advisable for traders to reduce their position size or take profits early to alleviate anxiety and maintain control over their trading decisions.

Emotional Management in Trading

• Managing emotions is crucial; feeling anxious about trades indicates a need for better self-control and decision-making processes.

• Regardless of the contract size, cutting positions in half when uncertainty arises helps mitigate emotional stress and reinforces trader autonomy.

Learning from Experience

• New traders should recognize that discomfort is part of the learning process; avoiding unnecessary hardship by managing trades effectively leads to better outcomes.

• Keeping a trading journal is essential for reflection and improvement; successful individuals often document their experiences meticulously.

Market Behavior Insights

Observing Market Efficiency

• Traders are encouraged to watch how price behaves within specific ranges (INE efficiency), looking for momentum above key levels as indicators of potential movement.

Utilizing Fair Value Gaps

Understanding Trading Strategies and Discipline

Importance of Timing in Trading

• The speaker emphasizes the significance of timing when considering partial trades, noting that proximity to previous highs can indicate potential failure points.

• A focus on fair value gaps is introduced, highlighting how down-close candles represent these gaps and should be documented for better understanding.

Analyzing Price Action

• The speaker discusses the importance of observing price action in relation to identified fair value gaps, suggesting that this analysis aids in determining entry points for trades.

• Observing market behavior at short-term highs provides insights into effective exit strategies, reinforcing the need for precision in trading decisions.

Managing Trades Effectively

• The concept of setting personal financial goals (e.g., covering costs like dinner or commissions) is presented as a way to maintain discipline while allowing trades to run their course.

• The speaker encourages traders to develop self-control and resist impulsive actions during live trading sessions, emphasizing the importance of independent learning over copying others.

Developing Trading Maturity

• Limit orders are discussed as a method for executing trades without emotional interference; traders are urged to focus on studying rather than reacting impulsively.

• The speaker expresses a desire for students to graduate from mentorship by mastering their own trading skills instead of relying on his guidance.

Overcoming Psychological Barriers

• A warning against the pitfalls of trading with others' money is given; the speaker stresses that true mastery comes from managing one's own funds responsibly.

• The character portrayed by the speaker serves as a marketing tool designed to engage audiences without resorting to traditional advertising methods.

Learning Through Experience

• Insights from years of experience are shared, with an emphasis on valuing knowledge gained through practical application rather than theoretical understanding alone.

• The lecture format may seem dry but aims at instilling foundational concepts crucial for long-term success in trading.

Teaching Methodology and Goals

• Personal anecdotes about teaching his son illustrate the challenges new traders face regarding patience and impulse control when entering trades.

• Building blocks for overcoming fear and greed are highlighted as essential components in developing a successful trading mindset.

Dining Expectations and Market Behavior

The Anticipation of Dining Out

• The speaker describes the excitement of going to a fancy restaurant after a long week, highlighting the anticipation built up for a special meal.

• Upon arrival, disappointment strikes when informed that the desired dish (lobster) is unavailable, leading to a shift in expectations.

Adapting to Market Conditions

• Just as diners adjust their orders based on availability, traders must adapt their strategies according to market conditions.

• The analogy continues with humorous references to less desirable food options (grilled cheese or peanut butter and jelly), emphasizing the need for flexibility in decision-making.

Personal Preferences and Experiences

• The speaker shares personal anecdotes about favorite dining experiences at Ruth Chris, particularly praising their crab cakes and steaks.

• A specific mention of the unique Chesapeake Bay edition crab cake available only at one location adds depth to his culinary preferences.

Trading Strategies and Risk Management

Insights into Trading Techniques

• The speaker clarifies that he has no paid sponsors, establishing credibility by sharing genuine opinions on trading strategies without external influence.

• He discusses various PD arrays in trading, emphasizing their inversion aspects which complicate straightforward bullish or bearish interpretations.

Understanding Market Dynamics

• A breakdown of how traders can view price movements as breakaway gaps provides insight into entry points for trades.

• He explains stop-loss placement using candlestick patterns, stressing the importance of managing risk effectively while trading.

Calculating Potential Gains

• The discussion includes practical examples of trade setups where risk-to-reward ratios are calculated meticulously.

Understanding Risk and Reward in Trading

The Concept of Gearing in Trading

• Acknowledges that one can be incorrect over 70% of the time yet still profit due to a favorable risk-to-reward ratio, specifically a 1:5 gearing.

• Emphasizes the importance of reducing risk as trades move in favor, aiming for a reward of $5 while risking only $1.

Managing Stop Losses Effectively

• Discusses the necessity of determining your first partial target before entering a trade and adjusting stop losses accordingly as profits increase.

• Highlights that moving stop losses to cover commission costs is crucial; simply moving to break even does not account for commissions incurred.

Psychological Aspects of Trading

• Points out that traders can afford to be wrong frequently if they manage their stop losses effectively within a 1:5 gearing framework.

• Suggests that when trades are profitable, traders should cover costs with their stop loss but warns against fear-driven decisions leading to premature exits.

Learning from Adversity

• Encourages self-reflection on trading mistakes as opportunities for improvement rather than avoiding discomfort or challenges.

• Stresses the importance of maintaining the right mindset and learning from past experiences to avoid unnecessary pain and regret in trading.

The Importance of Preparation and Logic

• Warns against relying solely on emotions during trading; emphasizes having logical frameworks prepared for challenging market conditions.

• Notes that without proper preparation, traders may succumb to impulsive decisions driven by fear or overconfidence.

Strategic Entry Points in Trading

• Contrasts impulsive buying at market highs with strategic purchasing at discounted prices after confirming market structure shifts.

• Advocates waiting for price corrections into fair value gaps instead of chasing price movements, which requires patience and discipline.

Building Confidence Through Experience

• Shares insights gained from extensive practice (thousands of hours), reinforcing confidence in recognizing patterns and structures within markets.

Understanding Market Dynamics and Resistance Levels

The Impact of High Resistance Liquidity Runs

• The discussion begins with the importance of recognizing high resistance levels in trading, particularly during the opening gaps of a new week or day.

• Price action is influenced by liquidity runs, which can create significant resistance that hinders quick price movements through these levels.

• Observing how price performs above certain candles is crucial; traders should watch for upward movement to avoid being "held up" by market conditions.

• New daily and weekly opening gaps contribute to high resistance, affecting price behavior and creating complex market dynamics that may not be immediately visible on charts.

• Algorithms play a key role in determining price levels based on historical data, leading to back-and-forth movements until they reach areas of inefficiency.

Strategies for Managing Trades

• Traders are encouraged to take partial profits at strategic points (e.g., highs), which helps mitigate risk while allowing for potential further gains.

• Adjusting stop-loss orders after taking partial profits can help manage fear and anxiety associated with holding trades longer than necessary.

• Understanding premium levels—where prices are moving higher—can guide traders in making informed decisions about entry points and profit-taking strategies.

Engaging with Market Psychology

• The speaker emphasizes the importance of engaging with the audience through memorable anecdotes, suggesting that entertainment can enhance learning experiences in trading contexts.

• A metaphor comparing price action to a fly caught in a web illustrates how market conditions can entangle prices, preventing them from moving freely toward their targets.

Navigating Market Inefficiencies

• The analogy continues as it describes how strong entities (like flies) can escape from restrictive conditions (the web), highlighting resilience within market structures.

• The speaker shares personal experiences related to distractions (like flies at a cookout), drawing parallels between managing external factors and maintaining focus on trading strategies.

Final Thoughts on Trading Conditions