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ICT 2024 Mentorship \ CFDs Vs. Futures \ September 20, 2024
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ICT 2024 Mentorship \ CFDs Vs. Futures \ September 20, 2024

Understanding CFDs and Futures Trading

Introduction to CFDs and Futures

  • The speaker discusses the differences between Contracts for Difference (CFDs) and futures, emphasizing that CFDs are not legally traded in America.
  • For those outside the U.S., the speaker aims to teach how to participate in futures trading by reading price action without engaging in CFD trading.

Mechanics of Futures Trading

  • The speaker explains that futures contracts operate around the clock with specific settlement times, highlighting the importance of understanding these mechanics.
  • A focus on micro e-mini NASDAQ contracts is introduced, with a mention of technical difficulties experienced while trying to share a recording of a live trade execution.

Bridging Gaps for Non-U.S. Traders

  • The speaker notes that while they do not encourage Forex or CFD trading, non-U.S. traders can still study price action through available resources.
  • Emphasis is placed on studying price action rather than providing direct trade or investment advice, aiming to bridge knowledge gaps for those transitioning from Forex to futures.

Understanding Contract Value and Risk Management

Mini vs. Micro Contracts

  • The mini contract for NASDAQ has a value change of $20 per handle move (four ticks), while micro contracts have a value change of $2 per handle move.
  • This structure allows students to focus on learning without risking significant capital, making it more accessible for beginners.

Critique of Overleveraging

  • The speaker criticizes overleveraged trading practices often seen in phone account companies, labeling such activities as gambling rather than informed trading.
  • Personal anecdotes about family members' experiences with overleveraging highlight the risks involved when lacking proper skills and knowledge.

Market Behavior Insights

Anticipating Market Openings

  • A tweet indicates expectations for a "limp opening," suggesting low market excitement due to minimal gap changes from previous settlement prices.
  • Explanation of how yesterday's settlement price influences today's opening range gap is provided, illustrating key concepts related to market behavior during openings.

Understanding Opening Range Gaps

Understanding the Opening Range and Fair Value Gaps in Trading

Introduction to Opening Range

  • The speaker discusses the concept of the opening range, specifically between 9:30 AM and 10:00 AM, which they refer to as a critical interval for trading analysis.
  • They highlight that this period includes an "opening range gap," marked by a significant candlestick and a line representing yesterday's settlement price at 4:14 PM Eastern Time.

Importance of Fair Value Gaps

  • The first fair value gap is identified at 9:34 AM, emphasizing its significance in algorithmic trading strategies during the initial trading session.
  • The speaker notes that while they will share insights in future mentorship sessions, viewers do not need to purchase their books for understanding these concepts.

Market Dynamics and Algorithmic Behavior

  • The discussion includes how different indices (US100, US500, US30) behave similarly despite being CFDs (Contracts for Difference), which mimic exchange behavior.
  • A recommendation is made to follow trader Tom Hugard for real-time trading insights parallel to major US indices.

Analyzing Market Conditions

  • The speaker reflects on chart observations from Twitter regarding volume imbalances between candlesticks during consolidation periods.
  • They introduce the term "time distortion," explaining that it refers to waiting for specific market times (e.g., 9:50 AM).

Challenges in Trading Sessions

  • It’s noted that small opening gaps can lead to challenging market conditions, especially on Fridays after large range days.
  • A specific example illustrates an opening range gap of only 20 handles, indicating a weak market condition due to prior volatility.

Market Reactions and Trader Psychology

  • As the market opens at 9:30 AM, it rallies briefly before taking out short-term buy-side liquidity. This action traps traders who are positioned incorrectly.

Market Analysis and Trading Strategies

Understanding Market Gaps and Weekly Ranges

  • The market is expected to continue rising, but there’s a focus on trading yesterday's gap which did not reach its midpoint.
  • On Fridays, there's often a pullback of 20-30% of the weekly range; this is referred to as TGIF (Thank God It's Friday).
  • A small opening gap indicates low participation initially, leading to potential back-and-forth trading within that gap.

Fair Value Gaps and Their Importance

  • Discussion on extending fair value gaps from previous days for better trading insights; these gaps can remain relevant for up to three weeks.
  • Emphasis on monitoring pre-market activity in relation to fair value gaps established during regular trading hours.

Trading Conditions and Strategies

  • Opening prices are anticipated based on electronic trading hours, with expectations set against yesterday's settlement price.
  • Preference for wider gaps (over 40 handles); smaller gaps lead to alternative strategies or waiting until later in the session.

Utilizing Historical Data for Current Trading

  • The same principles apply across different markets (e.g., CFDs), allowing traders who don’t engage in futures to adapt their strategies accordingly.
  • Importance of referencing past fair value gaps when analyzing current market conditions; algorithms will often refer back to these points.

Addressing Viewer Engagement and Expectations

  • A note about viewer behavior in comments; rude or demanding comments may lead to blocking from the channel.

Understanding Fair Value Gaps in Trading

The Importance of Fair Value Gaps

  • The opening at 9:30 utilizes yesterday's first presented fair value gap, indicating its potential influence on today's trading.
  • Emphasizes the need to extend the previous day's fair value gap on charts to capture significant market movements and opportunities.

Anticipation vs. Reaction in Trading

  • Highlights the difference between anticipating market movements and reacting to them; successful traders predict rather than react.
  • Critiques those who fail to understand market dynamics, suggesting they make excuses for their lack of predictive ability.

Accountability and Learning in Trading

  • Stresses the importance of accountability among traders; those who are knowledgeable can demonstrate their skills confidently.
  • Encourages active practice with reference points from past trades to improve understanding and execution.

Analyzing Market Movements

  • Suggests that traders should analyze how previous fair value gaps influenced current prices, leading to better setups.
  • Discusses observing initial fair value gaps and their interactions with buy-side liquidity during trading sessions.

Misconceptions About Fair Value Gaps

  • Addresses common misconceptions about fair value gaps being ineffective; emphasizes that understanding their logic is crucial for success.
  • Critiques superficial interpretations of candlestick patterns, asserting that not all patterns signify valid trading signals.

Challenges for New Traders

  • Acknowledges the complexities new traders face, particularly on Fridays with small gap openings after large ranges.

Understanding Market Dynamics and Trading Strategies

The Importance of Timing in Trading

  • Effective trading requires knowledge of economic calendars; without it, traders risk significant losses.
  • Current market gaps are influenced by previous trading sessions, emphasizing the need to analyze historical data for informed decisions.

Analyzing Market Gaps

  • Traders often overlook critical setups that occur outside typical retail analysis, highlighting the importance of recognizing these opportunities.
  • The significance of price gaps varies; smaller gaps may indicate less market activity compared to larger ones that have been repeatedly tested.

Market Behavior and Algorithms

  • On Fridays, markets tend to retrace 20-30% of their weekly range, suggesting a predictable pattern that traders can leverage.
  • Price movements are primarily driven by algorithms rather than individual buying or selling actions, which can mislead traders relying on traditional indicators.

Misconceptions About Market Data

  • Depth-of-market data does not reflect true market-making; understanding this distinction is crucial for effective trading strategies.
  • The concept of a "free market" is challenged; scripted price movements create predictable patterns that savvy traders can exploit.

Behavioral Economics in Trading

  • Recognizing human emotions—greed, fear, impulsiveness—can help traders understand market dynamics better and anticipate movements.

Understanding Market Manipulation and Liquidity Dynamics

The Illusion of Market Signals

  • Discussion on "poofing" and how large institutions have faced issues with misleading market signals, emphasizing the importance of skepticism towards apparent opportunities.
  • The speaker reflects on their initial misunderstanding of liquidity and the confusion caused by tools that claim to show resting contracts at specific price levels.
  • Clarification that a high volume of orders does not guarantee upward movement in prices; understanding market behavior is crucial.

Algorithms and Price Delivery

  • Introduction to the concept that algorithms dictate price movements, with an emphasis on anticipating market reactions based on narratives.
  • Identification of short-term lows as indicators for potential market direction, highlighting the significance of these points in trading strategies.
  • Explanation of macro directives within trading programs, which process information rapidly to influence price delivery.

Perception vs. Reality in Trading

  • The speaker argues that what appears as market indecisiveness is actually a calculated strategy by algorithms following predetermined directions.
  • Assertion that individual traders lack control over significant price movements; instead, they are participants in a larger system manipulated by major players.

Case Studies: GameStop and Other Stocks

  • Analysis of events like GameStop's surge, where collective action from retail investors aimed to disrupt hedge funds' positions but did not alter underlying market mechanics.
  • Commentary on how hedge funds operate within the system without full control over pricing; they are described as gamblers rather than manipulators.

Market Dynamics and Predictions

  • Warning against engaging with stocks driven by social media hype (e.g., Reddit), labeling them as Ponzi schemes due to artificially inflated prices.
  • Comparison between traditional news drivers (like non-farm payroll data) and speculative stock movements seen in meme stocks, indicating similar manipulation tactics at play.
  • Reflection on past predictions regarding Bitcoin's value trajectory, illustrating a consistent ability to foresee significant price changes based on observed patterns.

Understanding Market Dynamics and Liquidity

The Impact of Lower Prices on Buying Behavior

  • As prices continue to drop, buyers are encouraged to purchase, thinking they are getting a better deal. This creates a cycle where lower prices attract more buyers.
  • Traders often rely on support levels that may not hold, leading to confusion about market direction and the effectiveness of traditional trading strategies.

Algorithmic Trading Insights

  • Knowledgeable traders who understand algorithmic behavior can profit from downward movements without relying on outdated methodologies like Elliott Wave or Gann theories.
  • The focus should be on time and price dynamics rather than traditional patterns; these methods are seen as ineffective in understanding market movements.

Liquidity Pools and Market Manipulation

  • Price patterns do not influence market behavior; instead, they reflect the actions of traders responding to artificially manipulated markets.
  • During specific time frames (e.g., between 9:30 and 10:00), there is an expectation for prices to move lower, targeting untraded liquidity pools.

Trading Strategies Based on Fair Value Gaps

  • Traders should focus on areas with resting sell stops below current price levels, as algorithms will target these liquidity pools.
  • Understanding how algorithms operate allows traders to anticipate price movements based on previous session data rather than real-time buying/selling pressure.

Breakaway Gaps and Volume Imbalances

  • A breakaway gap indicates a significant shift in market sentiment; recognizing this can help traders position themselves effectively.
  • By analyzing volume imbalances within candlestick formations, traders can identify key levels that the algorithm is likely using for decision-making.

Conclusion: Simplifying Market Analysis

  • The essence of successful trading lies in understanding macro-level trends rather than getting caught up in retail trading concepts like moving averages.

Understanding Market Dynamics and Trading Strategies

The Flaws of Traditional Indicators

  • The speaker criticizes the concept of a "Golden Cross," arguing it offers no real advantage in trading decisions, emphasizing that price movements are not influenced by such indicators.

Anticipating Market Movements

  • The discussion focuses on entering trades based on specific candlestick patterns within defined fair value gaps, indicating a strategy to sell short during market upticks.
  • It is explained that large fund traders must wait for an uptick to sell short, highlighting the complexities of high-frequency trading algorithms and their operational constraints.

Fair Value Gaps and Trading Opportunities

  • The speaker describes how anticipating market behavior around fair value gaps can lead to profitable trades, particularly when prices break lower after reaching these levels.
  • A unique trading pattern is introduced where the market's behavior at fair value gaps is emphasized as a critical component for successful trading strategies.

Entry Points and Market Timing

  • The importance of precise entry points at the highs of previous fair value gaps is discussed, showcasing a methodical approach to timing trades effectively.
  • The speaker contrasts algorithmic trading with traditional methods, asserting confidence in their strategy over reliance on uncertain patterns or indicators.

Confidence in Trading Decisions

  • A strong belief in one's understanding of market dynamics is presented as essential for success, contrasting this with the uncertainty faced by those relying on less informed strategies.
  • The speaker expresses readiness to demonstrate their knowledge and skills against critics who misunderstand retail trading concepts, reinforcing their position as an expert in the field.

Teaching Methodology and Practical Application

  • Emphasis is placed on teaching practical applications through mentorship rather than theoretical discussions alone, aiming to instill confidence in students' abilities to engage with market dynamics effectively.
  • The speaker encourages viewers to recognize repetitive patterns driven by algorithms that can be leveraged daily for consistent trading success.

Understanding Candlestick Trading Techniques

Learning to Read Candlesticks

  • The speaker emphasizes that while they cannot guarantee profits, they can teach effective candlestick reading techniques that surpass typical instruction.
  • Students will know when they're ready to trade with real money based on their boredom with paper trading and consistent results, rather than being told by someone else.

The Dangers of Influencer Trading

  • Many traders get caught up in the excitement of influencers who occasionally make correct trades, leading them to mimic these trades without understanding the rationale behind them.
  • Viewers often ignore evidence of successful students and instead focus on the occasional successes of live streamers, which can mislead them into poor trading decisions.

Developing Independent Trading Skills

  • The speaker stresses the importance of developing personal trading strategies rather than relying on others' success stories or affiliate links for funded accounts.
  • Once students become profitable, they may face skepticism from others who do not understand their methods or success.

Commitment to Teaching and Learning

  • The speaker highlights their commitment to providing free educational content without any obligation for viewers to return, fostering a genuine interest in learning.
  • As students gain experience and see results firsthand, they develop a strong desire to continue learning about trading.

Technical Analysis Insights

  • The discussion includes practical examples of stop-loss placements based on expectations during trades, showcasing real-time analysis techniques.
  • A specific candlestick is identified as significant due to its position before a price drop; this illustrates how certain patterns can indicate market movements.

Advanced Trading Concepts

  • The speaker explains how measuring candlestick bodies helps identify potential entry points for bearish trades using discount wicks as indicators.

Understanding Fair Value Gaps in Trading

Introduction to Fair Value Gaps

  • The discussion begins with the concept of fair value gaps, emphasizing their importance in trading. The speaker notes that these gaps are crucial reference points for algorithms unless it is a trending day.

Personal Insights on Teaching Trading Strategies

  • The speaker reflects on their reluctance to teach trading strategies, attributing this change to encouragement from their son. They express gratitude for the opportunity to share knowledge despite previous hesitations.

Analyzing US 100 and Price Points

  • A specific analysis of the US 100 index is presented, highlighting the significance of understanding opening prices and settlement prices from previous days for effective trading decisions.
  • The speaker illustrates how tracking price movements can be done without relying solely on futures markets by using key price points.

Importance of Volume Imbalances

  • Emphasis is placed on including volume imbalances when analyzing CFDs (Contracts for Difference). The speaker advises against neglecting these factors as they provide a more accurate market depiction.
  • A detailed explanation follows regarding how volume imbalances manifest between candlestick bodies, which are critical for understanding market behavior.

Practical Trading Advice

  • The speaker shares practical advice about targeting sell-side opportunities based on specific timeframes and price levels, reinforcing that timing is essential in trading strategies.
  • It’s noted that similar principles apply across different indices like US30 and S&P 500 when using CFD formats, stressing consistency in approach regardless of market type.

Conclusion and Future Engagement

  • As the session concludes, the speaker expresses hope that viewers found the insights valuable. They mention plans for future sessions with homework assignments to enhance learning engagement.
Channel: The Inner Circle Trader
Video description

Government Required Risk Disclaimer and Disclosure Statement 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.