61. Advance Price Action Lecture

Market Analysis and Price Movements

Understanding Sequential SMT and Market Trends

• The discussion begins with an emphasis on observing the highs in the 15-minute time frame, indicating a sequential Smart Money Technique (SMT) between morning and PM sessions, which correlates with current price declines.

• The speaker notes that after surpassing all-time highs for the E-mini S&P and NASDAQ, a drop in prices is expected as these indices attempt to align with the weaker Dow.

• Acknowledgment of prior market direction suggests that it was clear prices would fall after reaching new highs, leading to a return within established ranges.

• Two potential scenarios are presented: either an immediate drop or a retracement back into range before a possible reversal due to cracking correlation.

• The concept of sequential SMT is further explained through comparisons of lows from Monday and Tuesday's trading in the S&P 500 versus NASDAQ, highlighting discrepancies in price movements.

Intermarket Dynamics and Price Action

• The speaker identifies that while the NASDAQ did not take out previous lows, it still shows signs of falling due to overall weakness indicated by Dow performance.

• Discussion includes intermarket sequential SMT dynamics where indices may rise despite being overvalued due to underlying factors affecting their movement.

• Introduction of "P&D differential" (premium and discount differential), which occurs between different trading pairs, often initiated by Friday's price action.

Weekly Low Analysis

• Observations on index futures indicate that last week's low occurred on Monday across various pairs despite lagging performance from the Dow.

• Sequential SMT is reiterated as significant when analyzing monthly openings; specific attention is given to high points taken out without corresponding lows being breached across asset classes.

Premium vs. Discount Dynamics

• Simplifying premium-discount differentials involves using weekly lows; Friday’s low serves as a benchmark for understanding current market positioning relative to previous weeks' performance.

• Notable consolidation patterns below last week’s low are observed for Euro and British Pound against other currencies like the Dollar Index, indicating opposing market behaviors within premium/discount contexts.

Expectations Based on Market Behavior

• The analysis concludes with expectations for higher prices following periods of consolidation below previous lows, suggesting potential expansions followed by retracements based on historical patterns observed during similar conditions.

Market Analysis and Price Movements

Understanding Recent Price Expansions

• The price movements observed between Monday and Wednesday indicate a significant rise, particularly in the E-mini S&P 500 (E) and NASDAQ indices. This expansion is noteworthy as it did not breach the previous Friday's low.

• The absence of a drop below last Friday's low suggests bullish sentiment, leading to sequential growth in both the S&P 500 and NASDAQ.

• While the Dow Jones index shows consolidation, it is less relevant for current trading strategies compared to the more dynamic movements in other indices.

Liquidity Considerations

• Focus on high points where price trades above established highs indicates potential for retracement back into a defined range, highlighting areas of sell-side liquidity.

• Trading within established ranges is preferred due to increased liquidity pools available for targeting; this makes navigating trades easier compared to operating outside these ranges.

Strategies Around CPI Events

• Anticipation of Consumer Price Index (CPI) movements should be based on prior price actions. Acknowledging that CPI typically leads to straight-line expansions can inform trading decisions.

• Historical patterns show that CPI does not usually take out previous lows before expanding upwards; instead, it tends to move directly upward or downward based on market conditions.

Intermarket Dynamics

• Sequential intermarket analysis reveals relationships between different asset classes. For instance, when comparing S&P 500 performance against previous data, divergences can signal upcoming moves.

• Observing how various currencies like the Euro and British Pound react relative to U.S. dollar strength provides insights into broader market trends and potential expansions.

Weekly Open Insights

• Establishing a "true week open" serves as a critical reference point for traders. It helps frame expectations around market behavior throughout the week based on initial price actions observed during streams or analyses.

Understanding Price Action and Market Dynamics

Weekly Cycle and Price Expansion

• The weekly cycle consists of days where price expansion occurs due to the premium and discount differential, leading to potential market movements.

• Price alignment is not always consistent; for instance, different assets like the Euro and S&P 500 may move in opposite directions during certain periods.

Sequential SMT and Market Behavior

• The Great British Pound's price action indicates a return within its range after taking out a high, while other currencies like the Euro did not follow suit.

• A reversal in price often follows specific patterns: rallying, consolidation, taking a high, then dropping.

Importance of Premium/Discount Differentials

• Premium/discount differentials are crucial for understanding market synchronization between closely related pairs or triads.

• Imbalances left unfilled can indicate future price movements; CPI (Consumer Price Index) impacts should be anticipated before they occur.

Liquidity Considerations

• Significant liquidity exists above recent highs formed by CPI data, which typically gets revisited throughout the week.

• Observing sequential SMT alongside intermarket correlations is essential for identifying potential reversals.

Key Conditions for Reversal

• For effective trading strategies, it’s advised to wait until prices return within established ranges before making moves.

• Anticipating market behavior relies on understanding true opens and how they relate to sequential SMT dynamics.

Final Thoughts on Market Analysis

• Continuous study of market conditions is vital; upcoming models will provide further insights into these dynamics.

• Three critical elements must align for a reversal: presence of a true open, sequential SMT signals, and intermarket SMT occurring simultaneously.

Practical Application in Trading Strategies

• Comparing various financial instruments (e.g., GBP T-Bond futures and EM markets) helps identify key trading opportunities based on current pricing structures.

Understanding Trading Strategies and Market Manipulation

Key Concepts in Trading

• The importance of clarity in trading strategies is emphasized; traders should not be confused about using AR blocks or fair value gaps based on market conditions.

• Focus on the last down close candle before a significant swing move, as it plays a crucial role in determining market sequences.

• Sequential SMT (Smart Money Technique) and internal sequential SMT are introduced, highlighting their relevance without needing to reference higher time frames.

Weekly Trading Range Insights

• The speaker discusses the significance of establishing the true week open for effective trading, suggesting that manipulation occurs when price actions diverge across assets.

• Clarification on what constitutes manipulation: it's not merely price movements but rather how different assets behave relative to each other during these movements.

Correlation Between Assets

• A specific example is given regarding the correlation between EM mini S&P 500, Great British Pound, and tun features, indicating that such correlations can signal higher probability trades.

• Noting that cracking correlations can occur across multiple asset classes enhances understanding of market dynamics and potential trading opportunities.

Fractal Nature of Markets

• The discussion touches upon tracking multiple asset sets simultaneously for better analysis and decision-making in trading.

• Emphasizes the fractal nature of markets where patterns repeat over various time scales, from milliseconds to years.

Final Thoughts on Trading Techniques