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ICT Mentorship Core Content - Month 1 - Equilibrium Vs. Premium
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ICT Mentorship Core Content - Month 1 - Equilibrium Vs. Premium

Equilibrium vs. Premium: Understanding Market Dynamics

Introduction to the Session

  • This session is the fifth installment of an ongoing mentorship series focused on market dynamics, specifically contrasting equilibrium and premium markets.
  • The previous tutorial covered equilibrium versus discount, establishing a foundation for understanding today's topic.

Defining Premium Markets

  • Premium markets are characterized by price action that indicates trading above a certain range, particularly in commodities. The concept will be revisited later in the mentorship.
  • An impulse price swing is identified as a key indicator; multiple swings can form larger price movements known as impulse legs or swings.

Utilizing Fibonacci Retracement Levels

  • Fibonacci retracement levels are essential for defining ranges; traders often look for optimal trade entries at specific retracement levels (62% to 79%). These levels help identify potential buy and sell opportunities.
  • The importance of recognizing smaller price swings within larger ones is emphasized, as they can provide insights into market behavior and potential entry points.

Equilibrium and Its Implications

  • Equilibrium refers to the halfway point (50%) of an impulse swing; prices must touch this level before moving into premium territory. A market is considered at a premium when it exceeds this midpoint significantly.
  • There’s skepticism about relying solely on traditional indicators like overbought/oversold metrics; understanding current price ranges provides clearer insights into market conditions instead.

Trading Strategies in Premium Markets

  • Traders should focus on selling when prices reach premium levels (above 50%); however, missed opportunities may arise if prices do not return to these critical levels after reaching equilibrium.

Market Dynamics and Trading Strategies

Understanding Market Equilibrium and Discount Levels

  • The market trades above equilibrium, surpassing levels 62 and 79, indicating a condition to discount if it breaks a previous low. This scenario suggests a potential "turtle soup" sell setup aimed at reaching stops above the impulse swing high.
  • When defining ranges, traders should anchor Fibonacci retracement from the highest price down to the lowest. This helps in identifying profit-taking points below established lows in the marketplace.

Analyzing Price Swings and Retracement Levels

  • A bounce up requires observing four candles; once a swing low forms, wait for confirmation on the fourth candle before proceeding. The equilibrium price point is crucial as it indicates potential movement towards higher retracement levels.
  • If Fibonacci is anchored correctly from high to low, optimal trade entries can be identified even when initial retracement levels are surpassed. Traders should look for returns to premium areas above equilibrium for short opportunities.

Premium vs. Discount Markets

  • Selling occurs at premiums defined as prices above the equilibrium or 50% Fibonacci level. Clear price action must be discernible; sloppy movements are less reliable for trading decisions.
  • Profits should be taken at old highs during buying phases; conversely, selling strategies focus on premiums where prices exceed established equilibria.

Consolidation Patterns and Trade Execution

  • In consolidation phases, traders should utilize turtle soup strategies effectively by recognizing premium and discount zones based on significant price swings.
  • The market often hits specific retracement levels (e.g., 79%) before rolling down again. Profit targets should align with previous lows or order blocks identified in prior analysis.

Managing Trades and Stop Losses

  • As new ranges form after swing lows, traders need to adjust their strategies accordingly while maintaining awareness of potential stop-loss scenarios that may occur due to market fluctuations.
  • Utilizing three-candle patterns instead of five (as per Williams fractal method), allows quicker decision-making regarding profit-taking or stop-loss adjustments based on market behavior around old highs.

Recognizing Overbought Conditions

  • In overbought conditions where markets breach old highs while remaining above the 50% level, traders can anticipate turtle soup sell setups targeting profits below recent lows.

Understanding Market Equilibrium and Trading Strategies

Key Concepts of Market Equilibrium

  • The concept of equilibrium is introduced, highlighting the significance of price levels, particularly at 62. A bearish overblock is identified as a potential sell signal.
  • Profit-taking strategies are discussed, emphasizing targeting below previous lows. The importance of anchoring price swings from highs to lows for analysis is noted.
  • The distinction between premium and equilibrium prices is explained. Premium refers to prices above equilibrium within a defined range, indicating favorable conditions for short selling.

Trading Techniques in Premium Markets

  • A method for taking profits on swing lows is outlined. Consolidation patterns are acknowledged but not elaborated upon in detail.
  • The market's movement towards the 62% retracement level and optimal trade entry (OTE) at 70.5% is emphasized as critical points for executing trades.

Practical Application of Trading Strategies

  • Realistic trading expectations are set; while trades may not be large, they can yield significant pips (e.g., over 100 pips from a daily chart).
  • Emphasis on trading without needing extensive movements on daily charts allows traders who cannot engage in day trading to still profit effectively.

Selling into Strength: Professional Trader Mindset

  • New traders are encouraged to adopt a professional mindset by selling at premium prices rather than discounts, akin to selling high-value items like cars.
  • Identifying areas with buy stops above old highs provides opportunities for short positions, reinforcing the strategy of selling into strength.

Risk Management and Trade Execution

  • Specific examples illustrate setting limit orders based on recent price action (e.g., aiming for profits below specific swing lows).
  • Higher time frame concepts are validated; even if new traders find it challenging to monitor lower time frames, the principles remain applicable across different chart durations.

Understanding Ranges and Price Action

  • Traders do not need a definitive bias or trend direction; understanding how to operate within ranges allows profitability regardless of market conditions (trending or consolidating).
  • Importance of selecting relevant swing highs based on surrounding price action when analyzing market movements is highlighted.

Market Reaction and Hypothetical Trading Strategies

Understanding Market Movements

  • The discussion revolves around a hypothetical trading scenario where a market movement could yield approximately 70 pips, indicating potential profit opportunities.
  • A specific market reaction is noted when the price moves 10 pips below a defined range low, suggesting traders should be aware of these critical levels for decision-making.
  • The concept of range is emphasized, with a total range of 60 pips being highlighted; this serves as a framework for understanding price fluctuations in the market.
  • It’s mentioned that to account for spread costs, traders should consider an additional buffer of at least four pips below the identified level to avoid premature exits from trades.
Playlists: 2016 ICT Private Mentorship Core Content Month 01
Video description

2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in September 2016. 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.