2022 ICT Mentorship Episode 10

Implementing Economic Calendar Events

Importance of the Economic Calendar

• The economic calendar is crucial for traders, especially when speculating in markets. Understanding its events can prevent unexpected volatility during trading.

• Traders should be aware of the economic calendar on days they plan to trade live funds to avoid surprises from sudden market movements.

Using Forex Factory's Economic Calendar

• The speaker recommends using forexfactory.com for its user-friendly color scheme and clear categorization of events (medium impact as orange, low impact as yellow, high impact as red).

• While Forex Factory is suggested, any economic calendar will suffice as they generally provide similar information regarding market-impacting events.

Timing and Market Reactions

• Key trading times are highlighted, particularly 8:30 AM when significant news often hits the market. This time marks a transition where various reports may influence price movement.

• Price action typically shows a buildup or drop before major reports are released, leading to significant moves once the data is public.

Understanding Daily Bias and Price Action

• A common question among students is about determining daily bias—whether it will be an up day or down day. The speaker emphasizes that studying price action reveals these trends over time.

• The concept of "daily range" is introduced; understanding this helps traders identify whether the market is in a premium or discount state based on equilibrium levels.

Analyzing Market Imbalances

• The discussion includes identifying highs and lows within daily charts to understand imbalances and fair value gaps that indicate potential price movements.

• Even if there’s an expectation for prices to decline further, retracements can occur which present trading opportunities despite overall bearish sentiment.

Practical Trading Insights

• The speaker advises against providing specific buy/sell signals but encourages students to analyze charts based on insights shared in previous episodes.

Understanding Market Dynamics and Daily Bias

Framework for Analyzing Market Movements

• The framework involves recognizing when the market breaks below a short-term low, suggesting potential further declines. Any rally or upward closing candle should be viewed as a possible shorting opportunity.

• The analysis focuses on daily lows being taken out, indicating bearish sentiment. The next target is identified as the subsequent low in the sequence.

• A simplistic overview of market behavior shows that if the price opens, rallies slightly, and then closes near its low, it indicates bearish pressure.

Daily Chart Insights

• Understanding daily charts can simplify identifying market bias. If bearish, anticipate daily ranges where candles open with slight rallies before declining.

• Not every candle will consistently close down during bearish trends; however, sustained price swings often show fewer up-closing candles in such conditions.

Emotional Responses to Price Movements

• Traders may overreact to single down days while bullish, leading to confusion about market bias. This emotional response can disrupt trading strategies.

• Reflecting on personal experiences from past trading periods highlights common feelings of uncertainty among traders when faced with unexpected price movements.

Historical Trading Techniques

• The speaker shares insights from their early trading days using classic open-high-low-close bars. Candlestick patterns are preferred for clarity in visualizing open and close relationships.

• Candlestick charts provide better visibility of price action compared to traditional bar charts, making it easier to analyze market dynamics effectively.

Rebalancing and Fair Value Gaps

• Observations indicate that after reaching certain highs or lows within a range, prices tend to rebalance by returning to previous levels before continuing their trend direction.

• Identifying fair value gaps helps traders understand potential areas where prices may return for rebalancing before moving lower again in a bearish context.

Power Three Concept in Trading

• The "Power Three" concept includes accumulation, manipulation, and distribution phases within the daily range. Recognizing these phases aids in understanding market behavior during trades.

• In a bearish scenario, any movement above the opening price signifies accumulation of shorts; this is crucial for determining optimal entry points for trades based on established ranges.

Understanding Opening Ranges and Market Behavior

The Concept of Opening Range

• The opening range is defined as the area below the opening price, which helps traders determine how much leeway they can allow for market movements before making a trade.

• A bearish outlook anticipates that the market will rally above the opening price, providing an ideal scenario for short trades. However, early trades may lead to stop-outs if not executed properly.

Close Proximity Entries

• Close proximity entries are emphasized as a key strategy in trading, particularly for those new to the mentorship community. This method involves understanding market behavior around the opening price.

• New traders may feel overwhelmed by information but must develop a layered understanding of concepts to avoid frustration and maximize learning potential. Patience is crucial in mastering these strategies.

Market Manipulation and Distribution

• Initial rallies after an opening often represent manipulation, where prices rise only to fall again—this is referred to as a "sucker play." Smart money typically sells at or just below the open, leading to distribution cycles throughout the day.

• Recognizing when a low of the day has formed is essential; this often occurs towards the end of trading sessions (around 3:30 PM - 3:45 PM). Traders should be cautious of sudden continuations that can disrupt their positions.

Analyzing Candle Patterns

• Understanding candle patterns is vital for predicting market behavior; traders should focus on whether candles indicate an upward or downward bias relative to their opening prices rather than trying to predict exact closing prices. This simplifies decision-making processes in trading strategies.

• A swing low formation requires only three candles—one lower than its neighbors—to identify potential bullish reversals without overcomplicating analysis with excessive indicators like Williams fractals. Simplifying analysis aids quicker decision-making in volatile markets.

Trading Opportunities and Bias Recognition

• After identifying swing lows and observing subsequent candle movements, traders can anticipate potential bullish trends based on previous patterns and behaviors observed during trading sessions. Understanding these dynamics allows for better positioning within expected ranges of movement in future trades.

Market Dynamics and Trading Strategies

Understanding Market Retracement

• The market may retrace after a high, indicating potential missed opportunities or losses. Observing how far it can go down is crucial for traders.

• A common strategy involves anticipating the market to open near its low and then rally higher, which reflects the concept of "Power Three" accumulation of longs.

Power Three Accumulation

• The pattern of opening near the low, trading down, and closing high continues across multiple candles, demonstrating consistent bullish behavior.

• After taking out short-term highs, traders should watch for possible retracements or consolidations as part of the ongoing cycle.

Identifying Liquidity Zones

• Relative equal highs indicate buy-side liquidity; stops resting above these levels suggest potential upward movement in price.

• Traders maintain a bullish bias until significant resistance is encountered at previous highs, even if they experience losses along the way.

Daily Range Analysis

• Consistent patterns emerge where trades open near lows and close on highs. This reinforces maintaining a bullish outlook despite occasional setbacks.

• The importance of recognizing imbalances in price action is highlighted; understanding fair value gaps can guide trading decisions.

Fair Value Gaps and Market Behavior

• When prices trade into fair value gaps, traders expect a return to lower levels. This requires careful observation of candle patterns for short positions.

• Each candle's behavior—opening with a rally followed by selling off—illustrates the dynamics between accumulating shorts and distributing them effectively.

Navigating Price Action Cycles

• Back-and-forth price action can lead to confusion; however, recognizing key reversals helps in making informed trading decisions.

• Transitioning to candlestick analysis simplifies understanding market movements while reinforcing concepts like Power Three accumulation.

Sustaining Moves Within Daily Ranges

• Holding through daily ranges is essential for capturing significant moves; many traders miss opportunities by not participating fully in sustained trends.

• Misinterpretation of market signals (e.g., mistaking bearish signals for bullish ones based on fair value gaps) can lead to poor trading outcomes.

Session-Specific Trading Insights

• Analyzing hourly charts reveals how markets react within specific sessions (e.g., European vs. New York), emphasizing timing in executing trades.

Market Dynamics and Trading Strategies

Understanding Market Rebalancing

• The market has rebalanced and consolidated, awaiting a push higher before news impacts the movement.

• A paint roller analogy is used to explain price movements; gaps in pricing occur when there’s insufficient time for buyers to enter efficiently.

• Efficient markets tend to revisit previous price levels, akin to evenly applying paint on a wall.

Price Action and Market Structure

• Long candles often indicate a tendency for prices to retrace back over their range, suggesting potential trading opportunities.

• Acknowledges the inherent risks in trading; losing trades are part of the process, emphasizing statistical odds and sound money management as tools for success.

Daily Trading Cycles

• Discusses the morning session dynamics leading up to 8:30 AM, indicating a rally followed by a drop that necessitates examining lower time frames.

• Introduces the "Power 3" concept: accumulation, manipulation, and distribution within daily ranges.

Fair Value Gaps and Market Bias

• When trading near high ends of fair value gaps on daily charts, expect bearish bias due to prior market structure shifts.

• Anticipates down-close days based on market behavior; significant moves can occur without necessarily closing at lows.

Practical Trading Insights

• Highlights the importance of understanding opening prices in relation to daily chart patterns; suggests short selling after upward movements post-opening.

• Emphasizes studying historical data alongside real-time price action for better decision-making in trading strategies.

Tools for Effective Learning

• Recommends using screen recording software (like Camtasia) for reviewing market actions over extended periods instead of relying solely on replay functions from platforms like TradingView.

Understanding Market Dynamics and Trading Strategies

Analyzing Opening Prices and Fair Value Gaps

• Camtasia records the screen even if it goes blank; focusing on opening prices to anticipate sell opportunities.

• Identifies a sell opportunity at the equities opening, emphasizing the importance of recognizing imbalances in price ranges.

• Highlights the significance of using a 15-minute time frame for day trading and scalping, as it provides comprehensive insights into market movements.

Time Frame Selection for Trading

• If forced to choose one time frame, the 15-minute chart is preferred due to its versatility for various trading styles (swing, short-term, day trading).

• Stresses that while traders may prefer different time frames (e.g., one minute), understanding the broader context from a 15-minute view is crucial.

Liquidity and Price Action Insights

• Discusses sell-side liquidity with reference to relative equal lows; encourages verification against personal charts for accuracy.

• Observes price action rallying into fair value gaps on daily charts, indicating potential market behavior ahead of news releases.

Anticipating Market Reactions

• Notes that price movements before news releases suggest market participants are pricing in expectations, hinting at future bearish trends.

• Describes how established shorts above opening prices can lead to downward pressure following news events.

Trade Structure and Market Behavior

• Emphasizes managing trades around fair value gaps while being prepared for volatility during price runs.

• Explains identifying shifts in market structure through sudden momentum changes in candle formations rather than gradual declines.

Chart Analysis Techniques

• Introduces a top-down approach using multiple lower time frames (from five minutes down to one minute), focusing on finding fair value gaps effectively.

• Clarifies that if no trade setups exist across higher time frames down to two minutes, then no trade should be executed based on logic.

Observations on Price Distribution

• Discusses candle characteristics across different time frames; emphasizes looking for clear price action signals indicative of market strength or weakness.

Liquidity and Trading Strategies

Understanding Liquidity After Rebalancing

• The speaker discusses liquidity dynamics post-rebalancing, indicating potential for a short trade if the market breaks down.

• Introduces the "breaker pattern," characterized by a high, low, and higher high, suggesting that this pattern could lead to upward market movement.

• Emphasizes the importance of trading within the lower half of the breaker candle to optimize entry points for trades.

Teaching Breaker Patterns

• Acknowledges both new and experienced traders in his audience, reiterating that detailed lessons on breaker patterns are available on his YouTube channel.

• Highlights specific fair value ranges based on candle highs and lows as critical reference points for trading decisions.

Entry Techniques and Market Movements

• Advises against waiting for higher price levels before entering trades; instead, he recommends using straightforward entry techniques to capitalize on market movements quickly.

• Mentions aiming for relative equal lows at 14381 as a target level during trading.

Risk Management in Trading

Challenges with Discount Brokers

• Discusses issues with discount brokers allowing small capital accounts to trade mini contracts, warning that this can lead to significant losses.

• Shares personal experiences of rapid market moves causing unexpected stop-outs due to slippage when holding multiple contracts.

Importance of Adequate Capital

• Stresses that $10,000 is an insufficient minimum balance for trading effectively in volatile markets like NASDAQ; suggests $15,000 as more appropriate.

• Warns against following advice from unqualified teachers who promote risky trading practices without proper risk management education.

Conclusion on Risk Awareness

Teaching Trading with Transparency

Legal Considerations in Teaching Trading

• The speaker emphasizes the importance of using a demo account for teaching to avoid legal liabilities, as they are not licensed to provide trade advice.

• They plan to share detailed results from their live trading account at the end of the year, ensuring full transparency by showing every trade made.

Addressing Skepticism and Proof of Concepts

• The speaker acknowledges skepticism from viewers and aims to provide undeniable proof that the lessons taught are effective in both demo and live trading scenarios.

• They clarify that their teaching style may not suit everyone but encourages viewers to explore other educators if dissatisfied.

Risk Management and Hypothetical Scenarios

• The speaker discusses inquiries about demonstrating trading strategies with a hypothetical $10,000 account using a discount broker, highlighting challenges in framing risk.

• They describe executing trades based on their teachings while aiming for specific price levels, showcasing practical application.

Demonstrating Real-Time Trading Results

• The speaker addresses potential accusations of manipulating results by stating that they will show real-time trading without edits or alterations during mentorship sessions.

• They explain how they started a paper trading account with $10,000 two weeks prior and outline its performance solely focused on NASDAQ trades.

Insights into Trading Strategies and Market Volatility

• The discussion includes insights on utilizing margin effectively while managing volatility risks associated with market events like geopolitical tensions.

• The speaker reassures viewers about maintaining account safety despite market fluctuations due to adequate margin management.

Developing Personal Trading Models

• Emphasizing the importance of developing personal trading models over time, the speaker outlines key components such as entry/exit strategies and risk management practices.

Understanding Price Action Trading

The Value of Learning Price Action

• The speaker emphasizes the potential of mastering price action trading, suggesting it can significantly alter one's life direction. However, they clarify that profitability is not guaranteed.

• They highlight the repetitive nature of price action patterns, which can create a sense of comfort and familiarity for traders as they learn to recognize these patterns.

Overcoming Initial Struggles

• Acknowledging the initial learning curve, the speaker stresses that understanding price action requires time and effort. They caution against expecting a simple formulaic approach to trading.

• The speaker challenges listeners to consider their long-term progress over a year rather than short-term results, suggesting that consistent returns can be impressive even if they don't meet high expectations.

Realistic Expectations in Trading

• The speaker notes that achieving significant returns on investment is possible but not something they teach students to expect immediately. They emphasize patience and realistic goal-setting.

• Clarifying their own trading practices, the speaker mentions using a paper trading account instead of live accounts due to market volatility and risks associated with heavy-handed strategies.

Market Volatility and Risk Management

• The importance of respecting market volatility is highlighted; even experienced traders can face sudden adverse movements in their trades.

• The discussion includes insights on margin requirements for trading contracts, indicating that increased margins signal potential large market moves ahead.

Identifying Trading Opportunities

• The speaker discusses recognizing fair value gaps in the market as opportunities for profitable trades, likening effective trading strategies to having an ATM machine at one’s disposal.

• They encourage viewers to internalize the concepts presented in their videos while warning against jumping into live trades without proper understanding or preparation.

Discipline in Trading Strategies

• Emphasizing discipline, the speaker advises traders to stick to their models and intentions set before markets open. This discipline is crucial for successful trading outcomes.

Understanding Trading Mindset and Market Behavior

The Reality of Trading Losses

• Many traders enter the market with unrealistic expectations, believing they can easily make money without understanding the risks involved. This mindset leads to significant losses as they fail to manage their accounts properly.

• Acknowledging that losing is part of trading is crucial. Professional traders view themselves as managers of losing trades, focusing on turning losses into gains rather than expecting to win every trade.

Key Concepts in Price Action

• The concepts of bias and power are fundamental in trading. These themes will be revisited in future lessons, emphasizing their importance in understanding market movements.

• When analyzing price action, it's essential to document your expectations and observations on charts. This practice helps train your subconscious mind to recognize patterns over time.

Risk Management Strategies

• Effective risk management is vital for long-term success in trading. Traders must understand that every trade starts as a potential loss due to commissions and spreads; thus, managing these risks is key.

• Overleveraging or overtrading can lead to account blowouts. It's important for traders to assess their strategies critically and ensure they are not taking excessive risks based on emotional reactions or misconceptions about market behavior.

Learning Process and Expectations

• New traders often rush into the market after watching a few educational videos, leading them to believe they can achieve immediate success. However, true mastery requires time, practice, and extensive backtesting of strategies.