VIDEO
HIGHLIGHT
Log InSign up
ICT Mentorship Core Content - Month 09 - Trading In Consolidations
SummaryTranscriptChat

ICT Mentorship Core Content - Month 09 - Trading In Consolidations

Lesson 4: Trading in Consolidations

In this lesson, the focus is on trading consolidations. The daily and four-hour order flow subordination are important in determining directional bias.

Understanding Daily and Four-Hour Order Flow Subordination

  • Focus on daily and/or four-hour order flow subordination to determine directional bias.
  • Use both the daily and four-hour charts to suggest higher or lower prices for trading consolidations.
  • Look for a consolidation around an hourly chart or a 15-minute time frame to build new positions or orders.

Two Camps of Trading Consolidations

  • Think in two camps when it comes to consolidations: retail traders and smart money.
  • Retail traders look for breakouts to establish a directional bias while smart money engineers or fades breakouts of a consolidation.

Smart Money's Perspective on Consolidation Trading

  • Smart money buys under an old low and sells above an old high when markets are in consolidation.
  • The consolidation itself permits the buildup of orders above and below the current market action, creating near-term open float.
  • When markets move in consolidations, liquidity brackets the market price with open interest above and below the marketplace.

Daily/Four-Hour Order Flow Direction Determines Move Outside Consolidation

  • The direction of daily/four-hour order flow determines the direction of the move outside the consolidation most often.
  • If daily/four-hour order flow is bearish, any move above the consolidation is viewed as smart money knocking out buy stops and accumulating short positions.

Understanding Market Equilibrium and Order Flow

This section explains how retail traders chase expansions that originate from the equilibrium, while smart money fades them. It also discusses how to identify bullish and bearish scenarios based on daily or four-hour order flow.

Expansions Originating from Equilibrium

  • Retail traders chase expansions originating from the equilibrium.
  • Smart money fades these expansions.
  • When the market is bearish on the daily or four-hour in terms of its order flow, this subordination factor is seen in lower time frame charts.
  • If there is a consolidation and price starts to trade away from the equilibrium price point higher, retail traders see it as something bullish and look for expenses usually ABCD type movements.
  • Smart money does not see that; they fade it and go in the opposite direction.

Identifying Bullish and Bearish Scenarios

  • Any short-term high that's broken as price moves away from the equilibrium price point or middle of the consolidation is faded by smart money as a short-term stop run.
  • They then send it to the opposite extreme of the consolidation and just outside of it.
  • Retail thinks in terms of old high classic retail resistance, old low classic retail support. However, smart money focuses on the equilibrium price point because they understand premium and discount, not just simply what price did at an old high/low.
  • If daily or four-hour order flow is bearish, any consolidations/rally away from the equilibrium price point breaking a short-term high will be sold short by smart money.
  • Retail traders will see this as a break-in structure indicating an ABCD correction to upside if they want to trade empowered.
  • Conversely, when daily or four-hour order flow is bullish, if we see a short-term low that's broken on an expansion away from equilibrium, we'll see that as a run on buy stops and not a break in structure for lower prices.

Consolidations

  • When daily or four-hour is bearish and price rallies above the consolidation, retail traders will see this as a bullish breakout and want to buy.
  • Smart money sells that breakout when daily or four-hour is bearish.
  • Conversely, when daily or four-hour is bullish and the price breaks down below the consolidation, retail traders will see that as weakness and look to sell short on weakness.
  • Retail traders are trying to sell that as a breakout entry or a short position.

Trading Consolidations

In this section, the speaker discusses how to trade consolidations when the daily or four-hour order flow is bullish or bearish.

Anticipating Traders' Behavior in Consolidations

  • When the daily or four-hour order flow is bullish and price trades back down to an old low inside of the consolidation, traders will buy there and put their stop loss just below that previous short-term low.
  • When price trades down below the previous low outside of the consolidation while in a bullish order flow, traders will buy up those sell stops.
  • When retail traders see an old high inside a consolidation while in a bearish order flow, they will sell short right there and place their stop loss just above the previous high.
  • When price moves away from equilibrium and breaks a short-term high in a bearish environment, retail traders will look to buy long.

Returning Back to Equilibrium

In this section, the speaker explains how to anticipate price returning back to equilibrium during consolidations.

Price Movement During Consolidations

  • Price expands away from the equilibrium point during consolidations.
  • Many times it snaps back up into the middle range or goes back to equilibrium if the daily or four-hour is bullish.
  • We do not always hold for the opposite end of consolidation; we simply take advantage of moves back towards equilibrium because price always wants to gravitate back towards fair value.

Mimicking Smart Money

In this section, the speaker discusses how mimicking smart money can lead to profitable trading opportunities.

Identifying Opportunities

  • Look for short-term highs just above equilibrium and then a rally above that as an ideal entry point for shorts once that short-term high is broken.
  • If they run buy stops in a daily or four-hour bearish environment, that's where we look to go short and aim for the liquidity resting below the previous low that creates consolidation support.
  • Pair up buying to cover our short with those individuals that have sell stops resting below an old low.

Understanding Market Structure and Order Flow

In this section, the speaker discusses how to use market structure and order flow to identify high probability directional plays in day trading.

Identifying Short-Term Lows

  • When the daily or four-hour chart is bullish, retail traders see a break below an old short-term low as a selling opportunity.
  • Smart money, on the other hand, sees a run on sell stops that creates immediate injections of selling liquidity. They use this liquidity to buy long when price snaps up short-term sell-side liquidity.
  • The speaker advises fading the move that breaks the short-term low that retail traders see as an opportunity to sell short.

Using Price Action Characteristics

  • Retail traders focus on selling weakness and buying strength without understanding fair value or equilibrium.
  • By using generic price action characteristics inside consolidations, traders can anticipate moves outside of them.
  • A short-term low could be an Asian session low or a previous day's low and create opportunities for day trades.

Daily and Four-Hour Chart Directional Bias

  • The speaker emphasizes focusing primarily on daily and four-hour charts for day trades to give high probability directional plays.
  • Any consolidation should respect higher time frame directional bias.
  • Any move below old lows or consolidations should be anticipated as a run-on sell-side liquidity if it's bullish on the daily or four-hour chart.

The speaker concludes by advising traders not to get beat up by trading in consolidations but instead seek liquidity like banks do.

Playlists: 2017 ICT Private Mentorship Core Content Month 09
Video description

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