2022 ICT Mentorship Episode 9

Power 3: Accumulation, Manipulation, and Distribution

Overview of Power 3 Concepts

• Introduction to the lecture focusing on Power 3: accumulation, manipulation, and distribution in trading.

• Discussion of the daily range in Nasdaq e-mini futures, highlighting swing high and low reference points for analysis.

Market Analysis Techniques

• Explanation of using Fibonacci levels to identify equilibrium; anything below the 50% level is considered a discount.

• Observations on market behavior during Monday's trading session with an indecisive candle indicating potential retracement needs.

Fair Value Gaps and Trading Strategies

• Introduction to fair value gaps as critical areas for price action; referencing lower time frames for detailed analysis.

• Description of typical bullish market behavior where opening prices are near session lows followed by rallies.

Judas Swing Concept

• Explanation of the "Judas swing," a false move often occurring at the start of London or New York sessions.

• Reference to previous examples illustrating how judas swings can create significant trading opportunities.

Trading Session Dynamics

• Analysis of price movements around key times (e.g., 8:30 AM), noting imbalances that may indicate future price actions.

• Emphasis on identifying bullish order blocks based on down-close candles leading into significant price surges.

Closing Price Predictions and Order Blocks

• Discussion about not needing to predict closing prices but rather understanding market dynamics through Power 3 principles.

• Importance of recognizing optimal trade entries based on opening prices and subsequent market behaviors throughout the day.

High Probability Order Blocks

• Identification of complete order blocks through consecutive down-close candles before upward price movement; crucial for establishing bullish narratives.

Market Analysis and Trading Strategies

Understanding Price Levels and Market Movements

• The speaker emphasizes the importance of waiting for confirmation of price levels, particularly after market closes, to avoid premature conclusions about market direction.

• A focus on price action is highlighted, specifically how it interacts with order blocks and fair value gaps during retracements, indicating potential trading opportunities.

• The significance of closing times in trading is discussed, noting that while the official close is at 4 PM, observing activity until 4:30 PM can provide additional insights into market behavior.

Analyzing Order Blocks and Fair Value Gaps

• The speaker points out a specific area on a one-minute chart where price action indicates potential trading setups within an order block and fair value gap.

• A detailed examination of price movements around key levels reveals patterns that traders should monitor for optimal entry points during afternoon trades.

Recognizing Overnight Market Dynamics

• The speaker reflects on unexpected overnight price movements that can catch traders off guard, stressing the need for caution when entering trades based solely on these shifts.

• Emphasizes the importance of not chasing prices after significant overnight runs; instead, traders should wait for consolidation before making decisions.

Strategies for Managing Trades Post-Market Open

• After a big overnight move, it's advised to avoid aggressive trading strategies. Traders should look for significant price moves rather than attempting to capitalize on minor fluctuations.

• Observing previous highs and lows can help identify potential support or resistance levels as the market opens. This analysis aids in determining future trade directions.

Insights from Other Traders' Perspectives

• The speaker shares observations from other traders who analyze equities differently. While they may have varying approaches, their perspectives can offer valuable insights into market sentiment.

• Noting how other traders react to price movements helps inform one's own strategy; understanding their mindset can reveal potential areas of buying pressure or stop-loss placements.

Identifying Key Market Patterns

Trading Strategies for Equities

Understanding Market Movements

• If there is a significant overnight move in equities (like Nasdaq, Dow, and E-mini S&P), avoid trading during the New York session. Wait until after lunch at 1 PM New York time to engage.

• Anticipate potential breakouts of New York session lows or lunchtime lows, as these can indicate market direction. The previous highs formed before 7 AM are crucial reference points.

Analyzing Fair Value Gaps

• Recognize that the high end of a fair value gap indicates potential resistance levels. The market may trade up into this range high while respecting established price levels.

• Observe how price action interacts with sell-side liquidity within fair value gaps. This interaction is not random; it follows algorithmic principles that dictate market behavior.

Managing Trading Risks

• In choppy market conditions, traders risk losing trades and potentially depleting their accounts if they chase moves without proper strategy. High-frequency traders should scale back and focus on better setups.

• Avoid chasing overnight runs; instead, wait for low points where stop losses are likely placed by other traders. This approach helps in identifying more favorable entry points.

Liquidity Engineering Insights

• Understand the psychology behind retail trader behavior—many will place stop losses just below recent lows to protect profits, creating opportunities for liquidity engineering by larger players.

• The afternoon session often creates new lows that take out sell-side liquidity before rallying again, indicating a strategic manipulation of market movements.

Afternoon Trading Dynamics

• At around 2 PM NY time, expect the market to trade down into balance areas where liquidity rests below relative equal lows. A drop here suggests limited chances of returning to those lower levels soon.

• After taking out sell-side stops below equal lows post-lunch, anticipate further upward movement rather than a return to previous low points due to trader psychology and positioning strategies.

Identifying Entry Points

• Watch for swing highs breaking above prior levels with energetic trading; this can signal potential buying opportunities when combined with fair value gaps.

Trading Strategies and Market Insights

Entry Points and Risk Management

• The low of the candle is identified at 14,528.5, suggesting a potential limit buy order at 14,528.25 or aiming for the round number of 20.

• Establishing a stop-loss is crucial; with an entry point and stop-loss set, the risk can be quantified (e.g., risking 14.25 points on six contracts).

• A risk-to-reward ratio of approximately 3.5:1 is highlighted, emphasizing the importance of calculating potential gains against risks.

Managing Expectations in Volatile Markets

• Traders should not expect to enter positions without experiencing drawdowns; market conditions often lead to temporary losses before profits.

• The discussion emphasizes using fair value gaps as a basis for trading decisions during volatile afternoon sessions.

Understanding Market Sentiment

• Reference points can help gauge underlying market sentiment; missing overnight trades does not preclude future opportunities.

• Caution against chasing markets after significant moves is advised, as this behavior often leads to losing trades.

Navigating Sideways Market Conditions

• Sideways consolidations can erode account balances if traders do not have clear strategies or discipline in their trading approach.

Analyzing Chart Patterns

• A one-minute chart analysis reveals swing highs and fair value gaps that inform entry points for trades.

• Clarification that breaking below certain levels does not invalidate fair value gaps; price action must be respected within context.

Trusting Your Trading Setup

• Emphasizes the need for traders to trust their setups and allow stops to function properly without emotional interference.

Utilizing Educational Resources