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ICT Mentorship Core Content - Month 10 - Bond Trading - Trending Days
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ICT Mentorship Core Content - Month 10 - Bond Trading - Trending Days

Understanding Trending Days in Trading

Introduction to Commodities and Paper Trade

  • The discussion centers around commodities, emphasizing that all teachings should be viewed through the lens of paper trading.

Characteristics of Trending Days

  • Trending days are characterized by volatility, movement, and price expansion, which facilitate easier trading for traders. Understanding these characteristics is crucial for identifying potential trading opportunities.

Price Action Before News Releases

  • Overnight price action can either be trending or range-bound; it does not predict the New York session's news impact. High to medium impact U.S. reports are expected at 8:30 a.m., indicating potential volatility injections during this time.

Volatility Filters and Range Expansion

  • A volatility filter is essential when small ranges on daily charts indicate a potential for range expansion, especially after a series of small range days. This is often coupled with economic calendar events that signal high-impact news releases.

Economic Calendar Impact on Trading Strategy

  • Traders should anticipate expansions from discount to premium arrays based on previous price actions and upcoming economic news releases at 8:30 a.m., which can lead to significant market movements in either direction depending on the context of the price action prior to the news release.

Analyzing Treasury Bond Market Movements

Observing Key Lows in Treasury Bonds

  • Focus on specific lows within the treasury bond market as triggers for significant upward movements; these movements correlate with broader market dynamics observed during key economic announcements like FOMC meetings.

Energy Release Correlated with Economic Events

  • On June 14, 2017, notable energy release was observed in both treasury bonds and euro dollar markets due to an FOMC announcement scheduled later that day, highlighting how pre-announcement conditions can set the stage for explosive market activity.

Morning Session Trading Strategies

  • It’s advisable to trade only during morning sessions leading up to major announcements (like FOMC) while avoiding afternoon trades due to anticipated volatility spikes from those announcements; this strategy helps manage risk effectively amidst uncertain conditions.

Market Dynamics During Economic Announcements

Importance of Timing in Trading Decisions

  • The timing of trades relative to economic events is critical; understanding local times (e.g., Central vs New York) ensures traders are aligned with market openings and relevant data releases that could influence their strategies significantly.

Divergence Between Different Bond Markets

  • Notable divergences between different bond instruments (e.g., lower lows in treasury bonds versus stability in other notes) indicate professional accumulation by buyers who possess insights into future market directions—this behavior signals strong buying interest amid broader trends.

Conclusion: Recognizing Market Signals

Understanding Price Action and Interest Rates

The Importance of the Bond Market

  • Emphasizes the need for sponsorship from interest rate markets when looking for trades, highlighting the bond market's role in price action.
  • Suggests analyzing higher time frame charts (Daily, Four Hour, Two Hour) to gauge potential price movements in treasury bonds.
  • Discusses how observing divergences during specific time windows can indicate upcoming volatility across asset classes, particularly in Forex trading.

Case Study: June 2nd, 2017

  • Notes that on June 2nd, Euro Dollar presented a significant trading opportunity due to high volatility linked to economic events and bond market conditions.
  • Highlights that the Aussie Dollar also experienced substantial upward movement on this day, driven by insights from the treasury bond market.
  • Recommends using resources like barchart.com to analyze daily data for treasury bonds to identify divergences that signal potential trading opportunities.

Trading Strategies and Market Conditions

  • Asserts that understanding interest rates is crucial for short-term traders; without this insight, traders risk poor outcomes due to lack of context.
  • Warns against forcing trades without considering bond market relationships; emphasizes selective trading based on optimal criteria rather than frequent attempts.

Key Indicators of Market Movement

  • Advises focusing on impactful news events and current conditions in the bond market as indicators for expected price expansions in currencies.
  • Describes a common pattern where small ranges in the bond market precede larger moves in currency pairs chasing yield.

Another Example: April 18th, 2017

  • On April 18th, notes a dynamic decline in Dollar Yen attributed to bearish dollar index trends influenced by bond market activity.
  • Stresses that explosive price action requires participation from interest rates; following these can unlock significant trading opportunities.
  • Points out that many traders may misattribute their successes to skill rather than recognizing underlying influences from interest rate movements.

Conclusion: Analyzing Economic Calendars

  • Highlights how high-impact economic events correlate with large movements in both the treasury bond and foreign currency markets during New York sessions.

Understanding the Impact of Interest Rates on Currency Movements

The Relationship Between Interest Rates and Currency Value

  • Decreasing interest rates typically exert downward pressure on the US dollar, prompting foreign currencies to seek higher yields. This dynamic often results in a rally for foreign currencies when bond markets perform well.
  • An example from April 18, 2017, illustrates that as the economic calendar remains consistent, movements in currency pairs like dollar-yen reflect these trends with lower prices during the New York session.

Economic Indicators and Market Reactions

  • A decline in U.S. interest rates leads to a weaker dollar, allowing foreign currencies to gain strength. This relationship provides insights into market directionality and volatility.
  • On March 15, 2017, despite small consolidations in the treasury bond market, there was a notable rally at 8:30 AM New York time due to lower interest rates impacting the dollar negatively.

Specific Market Examples

  • The dollar's depreciation against the British pound during the New York session exemplifies how lower interest rates can facilitate rallies in other currencies.
  • The Federal Open Market Committee (FOMC) announcements often trigger significant market movements; for instance, substantial price changes were observed around 2 PM following FOMC news releases.

Observing Patterns in Bond Markets

  • Consistent patterns emerge where higher treasury bond prices correlate with declining interest rates. This trend allows for upward movement in currency pairs like euro-dollar during trading sessions.
  • Recognizing these characteristics of price action is crucial for understanding stock market behavior and will be revisited when discussing index trading strategies next week.

Homework and Further Analysis

  • Participants are encouraged to analyze historical data from various bonds (5-year to 30-year), focusing on divergences that impact foreign exchange markets.
  • Observing contrasting scenarios where treasury bonds sell off can provide valuable insights into how rising interest rates lead to stronger dollars while weakening foreign currencies.
Playlists: 2017 ICT Private Mentorship Core Content Month 10
Video description

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