2022 ICT Mentorship Episode 3

Introduction to ICT Mentorship Session

Overview of the Session

• The session is part of the ICT mentorship series, focusing on internal range liquidity and market structure shifts.

• Homework was assigned via the community tab, encouraging participants to analyze a specific chart for market structure shifts and liquidity.

Chart Analysis

• Participants are directed to examine a 15-minute chart of the E-mini Nasdaq 100 futures contract for March delivery in 2022.

• Key points include an old low representing sell stops and relative equal highs indicating buy stops.

Understanding Market Structure Shifts

Distinction Between Breaks and Shifts

• Emphasis on not forcing market structure shifts; they should be anticipated based on evidence rather than assumed.

• Clarification that intraday market structure shifts differ from breaks, which may lead to longer-term movements.

Identifying Market Structure Shifts

• Focus on recognizing fake runs above key price levels as indicators of potential bearish market structure shifts.

• Importance of understanding algorithmic perspectives in identifying these shifts accurately.

Analyzing Price Action

Insights into High-Frequency Trading Algorithms

• Transitioning to a two-minute chart reveals significant price action patterns related to high-frequency trading algorithms.

• Encouragement for participants to approach charts with fresh eyes, setting aside preconceived notions about technical analysis.

Key Observations in Price Action

• Discussion on how short-term highs and lows interact with sell stops and retail support ideas.

Understanding Market Dynamics and Trading Strategies

The Nature of Market Movements

• The speaker emphasizes that market movements are influenced by various theories and systems, but ultimately, the buying and selling pressure does not dictate price direction.

• Personal opinions from experienced traders or relatives should not overshadow one's own analysis; it's crucial to independently evaluate market conditions.

• The speaker believes that understanding these concepts will provide a significant advantage in trading, allowing individuals to confidently dismiss naysayers.

Anticipating Market Structure Shifts

• A key lesson involves recognizing when a market structure shift is anticipated without forcing trades prematurely.

• Traders can identify potential buying opportunities even before short-term highs are broken, highlighting the importance of context in trading patterns.

• Breaking a short-term high indicates liquidity has been taken from the market, which is essential for understanding subsequent price movements.

Practical Trading Insights

• The discussion includes practical examples using micros (low-value contracts), illustrating how small price changes can lead to significant profits in trading.

• The speaker challenges listeners to backtest their strategies against his teachings, encouraging them to validate or refute his claims through personal experience.

Chart Analysis Techniques

• Emphasis on self-verification: traders should analyze charts themselves rather than relying solely on external validation or teachings.

• A clean chart with minimal annotations is preferred over cluttered visuals filled with unnecessary indicators that do not impact algorithmic trading decisions.

Order Block Theory and Its Origins

• The speaker critiques common trading theories like order block theory, claiming originality in its development and teaching since 2010.

• Identifying sell stops below certain levels can indicate potential buy opportunities as markets react to liquidity zones.

• Monitoring candle formations after breaking key levels helps traders identify fair value gaps for potential entry points into trades.

Understanding Order Blocks and Market Structure

The Concept of Order Blocks

• The speaker emphasizes the uniqueness of their teaching on order blocks, asserting that they are correcting misconceptions to help others teach accurately.

• A fair value gap is introduced, with a specific price level identified for limit orders, highlighting the importance of understanding market structure.

Personal Trading Experience

• The speaker recounts a learning experience using the Thinkorswim platform, where an accidental order was placed due to a misunderstanding of the platform's features.

• They describe a series of trades involving reversing positions based on market movements, illustrating practical application of trading strategies.

Teaching Philosophy and Accessibility

• The speaker clarifies that their mentorship program is currently closed but stresses that valuable insights are being shared freely in this session.

• They encourage viewers to engage seriously with the material, indicating that those who invest time will find success while acknowledging that not everyone may be suited for this approach.

Market Dynamics and Liquidity

• Discussion shifts to market structure changes; buy stops above swing lows indicate bearish trends when triggered.

• The speaker notes that their teachings apply across various asset classes beyond futures, emphasizing their extensive experience in trading.

Trade Setup Elements

• Key elements for trade setups are discussed, including targeting liquidity levels and understanding market behavior without needing absolute certainty.

• Emphasis is placed on identifying "low hanging fruit" as targets rather than striving for perfection in trades.

High-Frequency Trading Insights

• Transitioning to one-minute charts reveals similar price structures; high-frequency algorithms are noted as significant players in market volume without directly causing price increases.

Understanding Market Orders and Slippage

The Concept of Slippage

• Slippage occurs when a market order is executed at a different price than expected; for example, intending to buy at 14.62 but filling at 14.664 represents negative slippage.

• Positive slippage happens when the execution price is better than expected, such as buying at 14.661 instead of 14.62.

Market Dynamics and Trading Perspectives

• The algorithm offers prices that are constantly increasing, challenging traditional views on buying and selling pressure in trading.

• Despite showing live accounts and executions, skepticism remains among some traders regarding the validity of these concepts.

Analyzing Market Structure

Bearish Order Blocks

• A bearish order block is identified by consecutive down candles that indicate a shift in market structure; it signifies potential sell opportunities.

• The definition of an order block is crucial; it represents a change in the state of delivery within the market.

State Changes in Delivery

• A change in delivery occurs when the opening price of a candle is violated, indicating a shift from offering sell-side to buy-side liquidity.

• This concept emphasizes how markets transition between offering buy-side and sell-side liquidity based on previous price actions.

Misunderstandings in Trading Concepts

Common Misconceptions

• Many traders misinterpret trading concepts due to inadequate understanding or poor teaching methods, leading to ineffective strategies.

• When students struggle with these concepts, they often dismiss them as ineffective without recognizing their foundational principles.

Liquidity Dynamics

• The algorithm's role involves attacking sell stops and providing liquidity based on market conditions rather than individual buying/selling actions.

Equilibrium Levels and Market Movements

Price Movement Analysis

• Markets tend to move towards equilibrium levels (50% retracement), which indicates areas where buyers may enter after reaching discount levels.

Charting Techniques

Market Structure and Liquidity Dynamics

Understanding Market Structure Shifts

• The market structure has turned bullish as the minute chart swing high is broken, indicating a shift in market dynamics. This creates opportunities for traders to capitalize on buy stops.

• Smart money typically sells at higher prices where they previously bought low, creating liquidity pools that attract buyers. This principle underlines the importance of understanding market psychology.

• Misinterpretations of trading concepts are common; not every down closed candle signifies a bullish order block. Accurate context is crucial for effective trading strategies.

Trading Strategies and Order Blocks

• Identifying gaps and specific candles can reveal significant order blocks, which are critical for making informed trading decisions. Traders should focus on these elements rather than relying solely on general patterns.

• The speaker emphasizes their commitment to demonstrating effective trading methods throughout the year, leveraging 30 years of experience in the markets.

Chart Analysis Techniques

• A clean chart without distractions allows traders to remain flexible and responsive to market movements instead of being confined by preconceived notions or annotations.

• Observing sell-side liquidity helps identify potential price movements below previous lows until reaching a discount level, showcasing how traders can anticipate market behavior.

Session Timing and Key Levels

• Understanding key session times (London: 2 AM - 5 AM; New York: 7 AM - 10 AM; Asia: 7 PM - 9 PM) is essential for identifying highs and lows that may influence price action during those periods.

• The speaker advises against trading after noon local time due to unpredictable market behavior, suggesting a focus on afternoon trends from 1:30 PM onwards.

Internal Range Liquidity Insights

• Internal range liquidity refers to short-term highs or lows within a price leg that traders should monitor for potential reversals or breakouts. Recognizing these patterns is vital for successful trades.

Understanding Liquidity Pools and Market Structure Shifts

Identifying Liquidity Pools

• The skill of identifying liquidity pools can be quickly learned by analyzing historical data, particularly focusing on specific times of day mentioned in the lecture.

• Students are assigned to review e-mini futures intraday charts for stop hunts that lead to market structure shifts, logging examples with personal annotations.

• The instructor emphasizes the importance of recognizing patterns in price movements, akin to tracking deer in hunting, which requires understanding what to look for.

Simplifying Trading Concepts

• The lesson focuses on simplifying trading concepts by stripping down unnecessary complexities; only essential elements are highlighted.

• The instructor believes this simplified approach is universally applicable and easy enough for anyone, including beginners like his daughter, to grasp.

Backtesting and Chart Annotation

• Students are encouraged to annotate their charts meticulously while backtesting, focusing on buy-side and sell-side liquidity pools across various time frames.

• Emphasis is placed on understanding price movement through detailed analysis of past trades—how many pips were moved and the drawdown experienced.

Importance of a Study Journal

• Maintaining a study journal is crucial; it helps students revisit successful strategies during confusing periods when progress seems stalled.

• Regularly reviewing annotated examples reinforces learning and builds confidence as students recognize recurring patterns in daily trading activities.

Commitment to Learning

• Students must not underestimate their current level of experience; growth takes time and effort. A strong commitment is necessary for success in trading.

• Backtesting diligently is described as a secret ingredient for success; superficial efforts often lead to failure due to lack of depth in practice.

Personal Responsibility in Trading Education

• Effective learning requires organization, effort, and personal responsibility. Those unwilling or unable to develop these traits may need alternative support systems like trade signals from others.

• The instructor stresses that without dedication and patience, individuals may struggle significantly within the trading environment.

Practical Application: Analyzing Current Market Conditions

Live Analysis Demonstration

• Transitioning into practical application, the instructor prepares to demonstrate live analysis using TradingView alongside TD Ameritrade's platform.

Trading Insights and Strategies

Understanding Fair Value Gaps

• The speaker discusses the concept of fair value gaps, emphasizing a desire for price to drop into a specific green area while noting a smaller fair value gap just below it.

• When faced with two fair value gaps, the strategy involves allowing the price to trade down to the lower gap, even if it means sacrificing a better entry point.

• The speaker plans to enter a trade at the higher fair value gap after observing price action in relation to both gaps, indicating personal risk management strategies.

Personal Beliefs and Market Behavior

• The speaker shares their belief based on 30 years of experience that certain trading strategies will work over time, stressing that this is not guaranteed for others.

• Acknowledging market volatility, they express confidence in their approach but caution against expecting consistent results from every trade.

Trade Execution and Monitoring

• If the market moves up before reaching the desired lower gap, the speaker indicates they would refrain from trading further until another opportunity arises.

• They are willing to sacrifice an ideal buy point for potential gains while monitoring candle formations closely during trades.

Emotional Aspects of Trading

• The speaker describes initial feelings of anxiety when entering live trades and emphasizes focusing on chart feedback rather than fluctuating profit/loss numbers.

• They highlight the importance of remaining calm during trades and not overreacting to minor price movements or fluctuations.

Risk Management Strategies

• The speaker mentions experiencing significant drawdown during trades but maintains focus on their predetermined risk threshold (around 3.5%).

Trading Strategies and Execution Insights

Ideal Trading Scenarios

• The speaker emphasizes the importance of practicing trading strategies by aiming for ideal scenarios, suggesting that beginners should focus on simpler trades rather than attempting to reach for high-risk targets.

• A practical approach is recommended: let trades occur at the lower end of a defined range and exit when favorable conditions arise.

Trade Execution and Performance

• The speaker shares their current trading performance, noting an increase in account balance by approximately $1,100 after executing a trade.

• They mention using a trigger on the flatten button to cancel all orders immediately upon reaching specific price points.

Charting Preferences

• The speaker expresses dissatisfaction with TD Ameritrade's charting tools, opting instead for a pop-out feature that provides better visibility of market movements.

• They clarify that they are not hiding any information from viewers; rather, they are adjusting their view for clarity.

Analyzing Market Trends

• Transitioning to the Nasdaq E-mini contract, the speaker acknowledges their ongoing learning curve with the trading platform.