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ICT Mentorship Core Content - Month 05 - Money Management
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ICT Mentorship Core Content - Month 05 - Money Management

Money Management and Higher Time Frame Analysis

In this lesson, the speaker discusses money management and higher time frame analysis. The focus is on long-term trading, assuming that everyone learning the concepts is contemplating medium to long-term trading or position trading.

Importance of Long-Term Trading

  • It is important to work in the long-term time frame for at least a year.
  • This helps gain experience in the marketplace, which is essential for managing other people's money or working for a prop firm.
  • Controlling drawdown is crucial when managing funds. A maximum drawdown of 15% annually is a realistic objective.
  • Having a steady increase over a calendar year attracts investors.

Managing Equity Base

  • Showing consistent equity curve with little drawdown and infrequent erratic periods in trading attracts investors.
  • Allocating only 30% of total equity to the marketplace can help avoid margin calls, over-leveraging, and wild dips in equity while still carving out an excellent equity curve.
  • Using two percent of allocated equity instead of total equity helps avoid margin calls.

Importance of Cash Reserve

  • Investors like to see that you have cash reserves in your account as it provides opportunities to take advantage of good deals without spreading yourself too thin.

Trading Mentorship Overview

In this section, the speaker provides an overview of the trading mentorship program and explains how to determine maximum risk exposure.

Determining Maximum Risk Exposure

  • Determine maximum risk exposure as a percentage of equity.
  • Focus on low-end risk exposure with respectable returns over a calendar year.
  • Set one percent as the most risk per trade based on 30% of your total equity base.
  • Use only three thousand dollars for your trading account to meet margin requirements for trades.

Managing Other People's Money

In this section, the speaker discusses managing other people's money and how it can be used to seed personal investing.

Managing Other People's Money

  • Managing other people's money can be stressful but can lead to quick profits.
  • Use profits from managing other people's money to seed personal investing.
  • Trade independently apart from other people's money and focus primarily on yourself.

Targeting Three-to-One Reward-to-Risk Setups

In this section, the speaker discusses targeting three-to-one reward-to-risk setups using higher time frame analysis.

Higher Time Frame Analysis

  • Target three-to-one reward-to-risk or higher setups using higher time frame analysis.
  • Low risk high reward permits very low accuracy but requires patience on this time frame.
  • Having low risk high reward allows equity for more setups.

Expectations and Long-Term Trades

In this section, the speaker discusses expectations and long-term trades.

Expectations

  • Focus on a hands-on annual percent return of 18 to 25%.
  • Reach out to other people through different mediums and build business relationships with folks that would want to manage their money.

Long-Term Trades

  • Contemplate taking long-term trades once January's content is complete.
  • Look for hard time frame trades and let them pan out.

Understanding Give and Take in Trading

In this section, the speaker discusses how to handle the give and take of trading, especially when trading larger positions. He suggests allocating only 30% of your equity towards long-term trades to have equity and margin for short-term trades. The speaker also explains how to use inter-market analysis to hedge against drawdowns.

Handling Give and Take in Trading

  • Realize that there will be some give and take in trades over a period of time.
  • Allocate only 30% of your equity towards long-term trades.
  • Use the remaining equity and margin for short-term trades.
  • Understand inter-market analysis to trade markets that are closely or inversely correlated.

Hedging Against Drawdowns

  • Hedge against drawdowns by trading other pairs that are inversely related.
  • Trade the opposite of what you're seeing retraced in one pair with another pair.
  • Use simple inter-market analysis to understand which pairs are inversely related.

Stop-Loss Orders Are Not a Measure of Ability

In this section, the speaker emphasizes that stop-loss orders should not be used as a measure of ability. He explains that stop-loss orders have become a way for traders to compare themselves with others, but they do not belong in long-term trading.

Stop-Loss Orders Should Not Be Used as a Measure of Ability

  • Stop-loss orders should not be used as a measure of ability in long-term trading.
  • Limiting trade ideas based on a set number of pips is not effective for long-term trading.
  • Use about 35 pips as a general rule-of-thumb for maximum stop loss on intraday trades.
  • If daily chart is your executable time frame, use more than 30 pips since it may not be enough sometimes.

Long-Term Position Trading

In this section, the speaker discusses long-term position trading and how it differs from short-term trading. He emphasizes the importance of patience and discipline in managing trades on higher time frames.

Risk Management

  • Long-term position trading requires a different approach to risk management than short-term trading.
  • Aiming for a 3:1 reward-to-risk ratio is reasonable when trading on higher time frames.
  • Look for higher levels of reward-to-risk ratios on these charts.

Trade Management

  • Resist the impulse to move your stop loss to break even or reduce risk on a lot higher time frame long-term position trading.
  • Exiting at logical targets and looking to re-enter at a later time is important in long-term position trading.
  • Taking off some of your position at logical areas of resistance can help you avoid sitting through drawdown on your P&L.

Final Thoughts

  • Long term position trading is not about getting rich quick but rather getting rich steady.
  • Velocity, or how fast you put your money to work and make a profit, is not present in long-term position trading. However, it can still be profitable if it fits your psyche as a trader.

Money Management for Long-Term Position Trading

In this section, the speaker discusses the importance of money management in long-term position trading and how it can become harder if you are not in alignment. He emphasizes that every mentee should apply long-term position trading to some degree for the remaining portion of the mentorship.

Entry Technique

  • The entry technique for long-term position trading is rather simplistic.
  • Some mentees will start using it more frequently than the speaker does.
  • The style of entry used by the speaker will be taught when they get into all the entry techniques and concepts.

Broad Brush Ideas About Money Management

  • Before getting into trade entry, stop loss orders, and risk management, one must have some broad brush ideas about money management.
  • Having a submission to time allows one to improve their overall analysis because what is seen on higher time frames directs lower time frames to move as they do.
  • Long-term position trading requires a great deal of time, so having that mindset going into it is crucial.

Number of Trades per Year

  • There are very few trades going on in higher time frames.
  • Generally, there are only two or three good position trade setups a year.
  • Over January to December, there may be two simple easy-to-find long-term trade setups. If lucky and dialed in with market conditions being symmetrical, there may be a third setup for the year.
  • Rarely has the speaker seen four setups in a full January to December where he has been able to participate.

Goal and Homework

  • The objective is to be better than ICT (Inner Circle Trader) and carve out a rate of return over the full calendar year while keeping drawdown low.
  • The goal is not how much one can earn but how much one can manage in terms of drawdown while still carving out a rate of return over the full calendar year.

Managing Other People's Money

In this section, the speaker discusses how to manage other people's money effectively and maximize returns while minimizing risk.

Low Frequency Trading

  • Short-term or swing trading during drawdown periods can help maximize opportunities for high odds potential setups.
  • Keeping frequency low and focusing on high odds potential setups with light risk can lead to a steady 18-20% return on equity per year.
  • Large fund managers are not trading every single day, allowing them more personal time.

Risk Management

  • The more times you take a trade with other people's money, the more times you're exposing them to risk.
  • Consistent drawdown periods can erode into what their equity base was when they allowed it to you.
  • Clients want consistency and infrequent risk exposure.

Building Equity Base

  • Working with a fund level that has the ability to bring in other people's money builds equity base larger.
  • A larger equity base allows for significant returns even with a two percent management fee.
  • As new funds come in, your account will continuously grow, pushing your pay up every time.

Conclusion

  • By aiming for easy low hanging fruit and having a steady eddy approach, clients will love you and throw new money at you.
  • It is not about how much money you have right now but how well you can manage money going forward.

Building a Fund Management Business

In this section, the speaker discusses how to grow a fund management business by providing excellent service to clients and maintaining consistent returns.

Providing Excellent Service

  • Clients will talk about your business through word of mouth.
  • New money is very talkative and will reach out to you if they hear good things about your business.
  • Focus on managing money well and providing excellent service to clients.

Consistent Returns

  • Don't change your trading strategy just because more money is coming in.
  • Aim for a specific rate of return and maintain consistency.
  • A 16% return on $10 million is respectable and hard to find elsewhere in the market.

Managing Money Well

  • Clients allow you to work for them by managing their money well.
  • Work smart, not hard. Only put money at risk when it's favorable.
  • It takes very little effort to do well on higher time frames.

Conclusion

  • Long-term trading takes little effort but can yield great results.
  • Good luck and happy trading!
Playlists: 2017 ICT Private Mentorship Core Content Month 05
Video description

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