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ICT 2024 Mentorship \ Lecture #21 August 30, 2024
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ICT 2024 Mentorship \ Lecture #21 August 30, 2024

Good Morning and Market Overview

Initial Thoughts

  • The speaker greets the audience, mentioning they almost missed the start time due to watching YouTube videos.

Market Charts Setup

  • The speaker sets up a 15-second chart on the right and a one-minute chart on the left for analysis.

Holiday Weekend Notice

  • A holiday weekend is approaching, leading to no live streams on Monday or Tuesday. This allows the market to stabilize post-holiday volume.

Market Analysis and Gaps

Opening Range Gap

  • Discussion of an opening range gap from 9:30 to 10:00 AM, indicating volatility in market behavior.

Fair Value Gaps

  • The speaker notes that fair value gaps should be monitored for three days; their importance diminishes after this period.

Trading Insights and Strategies

Missed Opportunities

  • Reflecting on missed trading opportunities due to distractions, particularly regarding a significant sell-off that occurred while they were unavailable.

Key Levels of Interest

  • Questions whether traders will leave unexploited levels above 19,694 going into the holiday weekend, hinting at potential market movements.

Concept Clarifications

Trading Concepts Misunderstood

  • Emphasizes that many concepts are often misattributed or repackaged; encourages viewers to trace back original ideas for clarity.

Immediate Rebalance Strategy

Market Analysis and Price Action Insights

Observations on Candle Behavior

  • The recent candle closed at a critical level, indicating the need for upward momentum; otherwise, it could signal potential issues.
  • A decrease in liquidity may occur as traders opt out of participation, affecting algorithmic trading dynamics and order matching.

Importance of Opening Range

  • Maintaining position above the opening range gap is crucial; failure to do so may lead to a deeper retracement into this area.
  • The behavior of price action around yesterday's fair value gap highlights its significance in market analysis.

Community Engagement and Learning

  • Interaction with viewers reveals mixed feedback; some negative comments reflect a lack of understanding or engagement with trading concepts.
  • Acknowledgment of community members' successes reinforces the effectiveness of shared trading strategies.

Holiday Weekend Trading Dynamics

  • Price action leading into holiday weekends tends to be erratic and disorganized, requiring patience from traders.
  • Monitoring new price levels is essential as they can indicate future movements; awareness of gaps above and below current prices is vital.

Navigating Market Levels

  • Understanding price points without relying solely on charts allows for anticipation of market movements based on raw data.
  • The chaotic nature of pre-holiday trading can create uncertainty; maintaining composure is key during these times.

Analyzing Fair Value Gaps

  • Initial drops into previous fair value gaps are common, followed by rallies that engage buy-side liquidity.

Understanding Price Dynamics in Trading

The Role of Premium and Discount Levels

  • Traders often speculate on price levels, suggesting that certain levels will be hit and reacted to. The focus should be on whether these levels repel or support price movements.
  • It's crucial to determine if a level acts as a discount that can hold the price up or if it is easily breached, indicating weakness in market sentiment.

Analyzing Market Behavior

  • Engaging with price setups becomes easier when traders understand their biases and recognize setups that contradict their initial trading premise.
  • Keeping charts uncluttered allows for better measurement of current prices against noted levels, enhancing decision-making during trades.

Observing Price Movements

  • Significant price moves are required to break through clustered new day and week opening gaps, which serve as indicators of market strength or weakness.
  • If the market struggles to reach these gaps, it suggests a lack of momentum and potential downward pressure rather than an imbalance between buyers and sellers.

Weekend Trading Considerations

  • Upcoming holidays influence trading behavior; traders may adjust strategies based on anticipated lower activity during holiday weekends.
  • Observing how prices behave leading into holidays provides insights into potential high-probability trade setups earlier in the week.

Preparing for Future Trades

  • As holiday weekends approach, it's essential to consider how they impact trading dynamics even for those outside the U.S., affecting overall market behavior.

Market Dynamics and Trading Strategies

Understanding Market Gaps and Trading Conditions

  • The speaker addresses complaints about video length, emphasizing that viewers can choose to watch other content if they prefer shorter videos.
  • Discussion on market conditions where there are few layered gaps close to current trading prices, questioning whether this simplifies or complicates trading for the day or week.
  • A cleaner market environment allows for more significant price movements, likening it to early morning traffic on an interstate highway before congestion begins.

Identifying Market Consolidation

  • The speaker explains how a hard consolidation market impedes price movement, creating "speed bumps" that affect algorithmic trading flow.
  • When markets aggressively move through these layers without respect, it indicates a strong directional bias and potential imbalances in liquidity below the current price level.

Algorithmic Trading Insights

  • Recognizing when the market disregards expected resistance levels is crucial; traders should look for aggressive moves as signs of bullish or bearish sentiment.
  • If bearish, traders want to see rapid declines through support levels, indicating a lack of concern from algorithms about those barriers.

The Role of Algorithms in Price Action

  • The speaker discusses the unseen forces behind algorithmic trading—those who control them remain anonymous and influence market behavior significantly during key events like economic announcements.
  • Manual interventions by these entities can lead to unexpected price actions that defy typical expectations based on buying and selling pressure.

Market Events and Broker Behavior

  • During high-impact news events (e.g., FMC rate announcements), brokers may restrict client access to prevent risk exposure while managing their own positions against retail traders' expectations.
  • This creates scenarios where many traders focus on similar outcomes simultaneously, leading brokers to hedge against potential losses from over-leveraged positions taken by clients.

Personal Trading Approach

  • The speaker shares insights into their personal trading setup using limited screen space but emphasizes maintaining clarity in charts for effective decision-making.

Understanding Trading Psychology and Market Dynamics

The Impact of Personal Experience on Trading

  • The speaker expresses a disinterest in personal identity, emphasizing that their past experiences resonate more with others than their trading teachings. This highlights the importance of shared struggles in trading.
  • A specific market analysis is presented, noting the inability to reach certain price highs, indicating a cautious approach to market movements during trading hours.

Analyzing Price Action and Setups

  • Discussion on bullish sentiment and the significance of identifying key price action points for effective trading strategies. Emphasis is placed on understanding where trades bounce or reverse.
  • The speaker encourages traders to recognize familiar patterns in price action over time, suggesting that these observations can serve as foundational elements for developing trading models.

Journaling and Positive Reinforcement

  • Importance of maintaining a journal to track old data and conditions that lead to successful trades. This practice helps reinforce positive self-talk and builds confidence in recognizing patterns.
  • Observing live price action enhances one's ability to identify favorable conditions for trades. Awareness is crucial; otherwise, opportunities may be missed.

Managing Emotional Responses in Trading

  • Caution against sharing trade predictions on social media due to potential emotional repercussions if outcomes do not align with expectations. This can create unnecessary pressure.
  • Sharing opinions publicly can amplify emotional stakes in trading decisions, leading to increased anxiety about being right or wrong.

Navigating Market Conditions

  • The speaker discusses how journaling can mitigate negative emotions associated with trading failures by reinforcing positive experiences instead of focusing on public validation.
  • Engaging with social media regarding trade successes or failures can disrupt mental clarity and focus needed for effective decision-making.

Understanding Market Behavior

  • Commentary on market dynamics reveals inherent chaos within price movements, which may confuse traders trying to make sense of erratic behavior.
  • Analysis of current market conditions indicates congestion caused by various factors like premium openings affecting trader sentiment and decision-making processes.

Conclusion: Key Takeaways from Trading Insights

  • Traders are encouraged to remain aware of their emotional states while navigating complex market environments. Recognizing when markets feel choppy or uncertain is essential for making informed decisions.

Understanding Trading Mindset and Market Conditions

The Impact of Personal Well-being on Trading

  • The speaker reflects on feeling tired after a holiday weekend, emphasizing the importance of rest before engaging in trading activities.
  • Acknowledges the pressure to meet audience expectations during live streams, highlighting how personal life can affect trading performance.

Key Insights on Trading Behavior

  • Discusses that only a small percentage of individuals who study trading will succeed due to lacking the right mindset.
  • Mentions observing market conditions for liquidity and inefficiency, indicating a strategic approach to trading.

Trading Strategies Around Holidays

  • Describes the challenges of trading on Fridays leading into long weekends, advising against heavy trading due to low market participation.
  • Clarifies misconceptions about his advice regarding not trading on certain days; emphasizes context is crucial for understanding his strategies.

Analyzing Market Volatility

  • Explains typical market behavior on bullish weeks, suggesting Fridays often have limited volatility and may not reach new highs.
  • Stresses the importance of probability in decision-making when choosing trades based on daily or hourly liquidity pools.

Professional vs. Faux Professional Mindsets

  • Highlights that professional traders avoid heavy engagement during low-volume periods like holidays, contrasting with less experienced traders who chase every market movement.
  • Critiques "faux professionals" who mislead novice traders with superficial knowledge and hindsight bias rather than sound risk management principles.

Importance of Market Awareness

  • Emphasizes the need for awareness regarding economic events and their impact on market activity during holiday periods.

Understanding Market Dynamics and Trading Strategies

The Importance of Market Conditions

  • Emphasizes the significance of understanding market conditions rather than focusing solely on contract volume or price levels. Proper comprehension of the "stage" for price movement is crucial.
  • Highlights that without recognizing the conditions that lead to clean price runs, traders may fall into repetitive trading patterns, leading to overtrading and poor decision-making.

Backtesting and Economic Awareness

  • Stresses the necessity of backtesting historical price movements and analyzing new day/week opening gaps to understand market behavior effectively.
  • Discusses how external factors like holidays and major news events can significantly impact trading efficiency, urging traders to consider these elements in their strategies.

Managing Trading Behavior

  • Advises on avoiding emotional trading ("going on tilt") by maintaining a disciplined approach, especially during congested market conditions with new gaps.
  • Warns against pushing trades too aggressively in uncertain environments, which can lead to losses despite having a well-honed trading model.

Navigating Market Volatility

  • Notes that Fridays before long weekends often exhibit erratic market behavior; thus, traders should be cautious about entering positions during these times.
  • Shares personal experiences where unexpected market moves occurred on seemingly quiet days, reinforcing the need for flexibility in trading approaches.

Analyzing Price Action

  • Mentions using real-time price action as a teaching tool for students, emphasizing the importance of understanding both technical setups and economic contexts in trading decisions.
  • Points out that low volume days can hinder clean price action; therefore, traders should focus on sessions with robust institutional order flow for better outcomes.

Fair Value Gaps and Historical Analysis

  • Describes current market dynamics involving sell-side imbalances and liquidity levels while referencing fair value gaps from previous sessions as critical indicators for future movements.

Understanding the Hunter's Model

The Hunting Analogy

  • The speaker introduces a metaphor of a father teaching his son about hunting, emphasizing the importance of understanding animal behavior and tracking.
  • The analogy continues with the expectation that deer tracks will be found in familiar locations, illustrating how hunters identify patterns in nature.
  • A "hide" or tree stand is discussed as a strategic setup for waiting on deer paths, highlighting preparation and patience in hunting.
  • This setup serves as a model for understanding market behaviors, where consistent patterns can be observed over time.

Establishing Trading Models

  • The speaker draws parallels between hunting setups and trading strategies, suggesting that traders should look for repeating price action phenomena.
  • Personal preferences among hunters are mentioned to illustrate that traders also have unique models based on their interests and experiences.

Learning from Experience

  • A personal story about a bear encounter emphasizes the unpredictability of both hunting and trading; not all experiences lead to repeated actions (e.g., not wanting to hunt bears again).
  • Traders must analyze past price actions to develop their own models, which will be elaborated upon in future discussions.

Building Confidence Through Knowledge

  • Upcoming lessons promise to provide insights into using higher time frame charts and developing confidence through logical analysis of market events.
  • Emphasis is placed on having multiple models available for different market conditions, allowing flexibility in trading strategies.

Overcoming Challenges in Trading

  • New traders are encouraged to remain calm during setbacks; understanding market logic can help mitigate feelings of frustration after losses.
  • The speaker warns against relying solely on external signals or opinions from others without developing one's own analytical skills.
  • A call for self-sufficiency is made; traders should aim to create their own opportunities rather than passively waiting for guidance.

Recognizing Market Patterns

  • Understanding when setups will form before they occur is highlighted as an advanced skill that separates successful traders from novices.

Catalyst for Trading Decisions

Understanding the Catalyst Mechanism

  • The trading process involves compressing and calculating past price movements to generate an output known as the "catalyst," which helps determine buying or selling actions.
  • The speaker emphasizes a forward-looking approach, seeking setups beyond the current month's calendar, indicating a strategic mindset in trading.

Importance of Economic Calendar

  • It's crucial for traders to review the economic calendar weekly, identifying high-impact news events that could influence market behavior. This preparation aids in making informed decisions.
  • Traders should pay attention to days without significant news leading up to major announcements, as these can create opportunities for better trades later on.

Trading Strategies Around News Events

  • The public often misjudges market conditions during high-impact news days, treating them like gambling opportunities; however, professional traders adopt a more calculated approach.
  • The initial market reaction post-news is often misleading ("the fake one"), and successful traders wait for this volatility to settle before entering positions. This strategy minimizes risk and maximizes potential gains.

Anticipating Market Setups

  • Upcoming lessons will focus on how to anticipate market setups based on price action before they materialize, providing students with actionable insights into timing their trades effectively.
  • Students are encouraged to explore various schools of thought regarding trading strategies rather than relying solely on one method, promoting adaptability in their approaches.

Psychological Aspects of Trading

  • Recent discussions have centered around overcoming psychological barriers that hinder traders' progress; understanding these issues is vital for long-term success in trading environments.
  • Acknowledging personal challenges and character flaws can help traders recognize common struggles within the community, fostering a supportive learning environment among peers.

Learning Resources and Content Review

  • Students are advised to revisit specific educational content from previous years (2016/2017), particularly focusing on foundational concepts such as the PD Matrix introduced during that time frame for deeper understanding of trading dynamics.

Understanding Market Liquidity and Inefficiencies

The Role of Liquidity in Market Functionality

  • Price determination is influenced by market inefficiencies rather than retail-level factors; these principles are fundamental to market behavior.
  • Just as vitamin C fortifies the immune system, liquidity strengthens the market, making it less susceptible to fluctuations and diseases (illnesses).
  • The market can be viewed as a living organism that requires liquidity to function effectively; deficiencies in liquidity create inefficiencies.

Engineering Liquidity and Market Behavior

  • Traders may be encouraged to buy or protect positions at certain price levels due to engineered liquidity, which is a legitimate phenomenon.
  • Misunderstandings about smart money traps stem from a lack of knowledge about market mechanics; recognizing this deficiency is crucial for traders.
  • Traders often react based on common patterns taught by educators, leading them to place stops at predictable levels like old highs or lows.

Price Movement Dynamics

  • Price movements towards areas of inefficiency occur not solely due to buying/selling but because the market seeks liquidity.
  • A single contract traded can influence price movement significantly, demonstrating how minimal activity can impact perceived value.

Misconceptions About Market Makers

  • Many traders misunderstand the role of candlesticks and volume; they do not reflect true market dynamics but rather serve as distractions.
  • The algorithm's purpose is to patch inefficiencies in price delivery rather than target specific stop-loss orders or trader positions.

Critique of Industry Practices

  • There’s skepticism regarding claims made by those in financial roles who assert deep understanding; many simply deal with prices without originating them.

Market Making Insights

The Role of Market Makers

  • A market maker discusses their experience in crude oil trading, emphasizing the unpredictability of market behavior and the challenges faced when trying to predict price movements.

Experience of Floor Traders

  • Mentions the unique perspective of floor traders who operated in pits at CME and Chicago Board of Trade, highlighting their hands-on experience that many current traders lack.
  • Floor traders relied on basic tools like notepads instead of charts, using simple pivot numbers to gauge market shifts without technical analysis.

Market Dynamics and Trading Strategies

  • Describes how floor traders would assess market momentum by comparing current prices with yesterday's high and low, allowing them to make informed decisions based on real-time activity.
  • Explains that during periods of excitement in the pits, traders could capitalize on buying momentum by recognizing key levels such as S1 or R1 relative to previous highs.

Transition from Pits to Electronic Trading

  • Reflects on how modern electronic trading differs from traditional pit trading, suggesting that new traders may struggle without the adrenaline and immediacy experienced in physical trading environments.
  • Emphasizes that while floor traders had an edge due to their proximity to market action, they now face difficulties adapting to a more technical approach required for electronic trading.

Challenges for Former Floor Traders

  • Discusses how former floor traders often fail in electronic markets because they lack the necessary skills for chart-based trading despite having once thrived on instinctual decision-making.
  • Acknowledges that many former floor traders are now forced into a paradigm shift where they must rely on technical indicators rather than their previous experiential knowledge.
  • Highlights the difficulty for these individuals transitioning from being attuned to market pulses directly to relying solely on charts and data analytics.

Conclusion: The Need for Adaptation

Understanding Market Dynamics and Trading Strategies

Critique of Trading Environments

  • The speaker critiques certain traders, specifically those operating behind the scenes, suggesting they lack effectiveness compared to floor traders.
  • Acknowledges that floor traders may struggle with transitioning to technical charting due to their previous advantages in a live trading environment.
  • Emphasizes the challenges faced by former floor traders who now rely solely on charts, indicating a shift in perspective is necessary.

Current Market Analysis

  • Discusses current market conditions characterized by volatility and inefficiencies, questioning whether it’s a suitable trading day.
  • Encourages viewers to assess their own charts rather than relying on external opinions about market setups.

Learning Curve for New Traders

  • Highlights the difficulties new traders face when navigating complex market conditions, using his son as an example of a beginner's experience.
  • Points out that while identifying fair value gaps may seem straightforward, practical application requires extensive backtesting and study.

Technical Insights and Strategies

  • Mentions specific technical indicators like mid-gap closures and their relevance in current trading scenarios.
  • Notes the importance of recognizing key price levels such as Tuesday's low for potential trading strategies.

Personal Reflections on Teaching Trading

  • Reflects on personal experiences with online interactions aimed at inspiring others to adopt effective trading setups without being overly prescriptive.
  • Concludes with thoughts on teaching methods for short-term strategic trades that provide immediate feedback for learners.

Upcoming Plans and Closing Remarks

  • Announces no live streaming sessions will occur on Monday or Tuesday next week; plans to resume with a London session later in the week.
Channel: The Inner Circle Trader · Playlists: ICT 2024 Mentorship
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.