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ICT Mentorship Core Content - Month 10 - Premium Vs. Carrying Charge Market
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ICT Mentorship Core Content - Month 10 - Premium Vs. Carrying Charge Market

Introduction

The speaker introduces the topic of commodity trading and reminds viewers to read the disclaimers.

Lesson Four: Premium vs Carrying Charge Markets

The speaker discusses premium versus carrying charge markets in commodity trading.

Using Barchart.com for Analysis

  • Barchart.com is a free resource that provides information on contract delivery months for commodities.
  • Traders should periodically look for markets that are developing a premium, which can be found by analyzing the nearby and next month out contracts.

Carrying Charge Markets

  • A carrying charge market occurs when today's price viewed in the nearby contract does not have a premium.
  • In this type of market, there is less likelihood of a rapid increase or aggressive repricing of the commodity.

Premium Markets

  • A premium market occurs when the nearby contract is selling at a higher price than the next month out contract.
  • Traders can determine whether there is a strong or significant premium by looking at prices beyond the next month out.

Understanding Premium and Carrying Charge Markets in Commodities

This section explains the difference between premium and carrying charge markets in commodities, with a focus on supply and demand factors.

Premium Market vs. Carrying Charge Market

  • A premium market is when the price of a nearby contract is higher than the delivery months that are after it in terms of the calendar going forward.
  • A commercial bull market occurs when commercials, large dominant users of a commodity, are looking to take delivery of it right now immediately because they have to have it and there's a short supply of it.
  • Commodities that have a premium built-in tend to move quickly and cover a lot of distance in a short amount of time.
  • Cotton is an example of a commodity selling at a premium, which creates conditions ripe for a commercial bull market.

Case Study: Cotton Market

  • The daily chart for cotton shows that there is currently a premium market.
  • To gauge institutional buying with a premium market, develop a spread chart by plotting the difference between the nearby contract and the next month out.

Understanding Cotton Spread Trading

In this section, the speaker explains how to use a spread chart to trade cotton and identifies bullish divergence as a buy signal.

Using the Spread Chart

  • To use the spread chart, click on the minus symbol to see the difference between nearby and next month out.
  • The chart shows the spread between July and October months for cotton.

Significance of Zero Line

  • Anything above zero line represents amount of spread that nearby contract is trading above next month out.
  • Larger spreads indicate stronger likelihood of commercial bull market or parabolic move.

Bullish Divergence

  • Look for bullish divergence between price action of nearby contract and spread.
  • Lower lows in price action with increasing or diverging bullish spread is a buy signal.
  • Overlaying spread chart with nearby July contract for cotton helps identify bullish divergence.

Institutional Order Flow

  • When market has premium and underlying bullishness, trading into discount array like a little shoulder block or closes can trigger run on sell stops followed by run into bullish order block.
  • Seeing these indications in price gives strong willingness to support idea of being a buyer.

Understanding Commodities Trading Fundamentals

In this section, the speaker discusses how understanding the fundamentals of a commodity market can help traders develop a strong bias for when to buy or sell.

Key Points:

  • When there is a premium in the marketplace, it does not confirm institutional buying. Traders should take this with a grain of salt.
  • The spread should increase with the advancement in price. If there is a divergence bearishly where the spread fails to make a higher high with a higher high in price, traders should look for reasons to trail their stop loss or take some profits and wait for a new buy signal.
  • Commodities are tangible real things that are needed to operate in this world. Understanding the fundamentals of commodities trading is important because they are the world's grocery store.

Conclusion

In this section, the speaker concludes by stating that traders now have a way of framing institutional buying and selling and knowing when they're going to be doing explosive moves in the marketplace.

Key Points:

  • Using premium-based ideas helps traders trade with fundamentals.
  • Fundamental analysis is necessary for commodities trading since commodities are tangible real things that people consume or need to operate in this world.
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.