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ICT Mentorship Core Content - Month 03 - Market Maker Trap Trendline Phantoms
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ICT Mentorship Core Content - Month 03 - Market Maker Trap Trendline Phantoms

Introduction to Trendline Phantoms

In this section, the speaker introduces the concept of trendline phantoms or false trend lines. They discuss diagonal trend line support and resistance and how retail traders often extend imaginary lines into the future and attribute support or resistance theories to them.

Diagonal Trend Line Support

  • Retail traders observe the market making higher highs and higher lows, creating an imaginary diagonal line that seems to repel price higher.
  • Traders extend these imaginary lines into the future and consider them as support levels.
  • When price hits the extended imaginary diagonal line connecting higher lows, retail traders tend to buy.

Diagonal Trend Line Resistance

  • Retail traders observe the market making lower highs and lower lows, creating an imaginary diagonal line that seems to propel price lower.
  • Traders extend these imaginary lines into the future and consider them as resistance levels.
  • When price hits the extended imaginary diagonal line connecting lower highs, retail traders tend to short sell.

Critique of Trend Line Theory

The speaker shares their perspective on trendline theory, stating that there is no statistical edge in using diagonal support or resistance trendlines. They explain that price does not have awareness of trendlines but rather moves based on liquidity in the marketplace.

Lack of Statistical Edge

  • The speaker has been trading for 24 years and has not found any statistical edge in using diagonal support or resistance trendlines.
  • They highlight that while it may seem logical based on past examples, it becomes challenging when determining which reference points to connect with trendlines.

Price Awareness

  • Price does not have awareness of trendlines drawn on charts.
  • Price movement is driven by liquidity in the marketplace, such as buying interest, selling interest, protective stops, or new orders.
  • The speaker emphasizes that price only respects where the actual liquidity is, not the trendlines drawn by traders.

Banks and Trendline Theory

The speaker discusses how banks do not associate value or prognostication based on trendline theory. They explain that trendlines are subjective and future price movement cannot be accurately predicted based on past reference points.

Lack of Association by Banks

  • Banks do not place value or prognostication on trendline levels based on diagonal support or resistance.
  • Trendlines are subjective and connect past reference points that have no bearing on future price movements.
  • Banks focus more on sentiment shifts and levels replicated at the fund level.

Smart Money vs. Large Funds

  • Large funds are targeted by smart money in the marketplace.
  • Price movement is influenced by the control of smart money entities, which can be bullish or bearish based on their books.
  • Retail traders often become casualties in the war between smart money and large funds.

Flaws of Trend Line Theory

The speaker concludes that trend line theory is flawed at its core due to its subjective nature and lack of association with banks. They emphasize that trend lines provide too many false signals and should not be relied upon for trading decisions.

Subjectivity and False Signals

  • Trend lines give too many dangling carrots, leading to false signals for traders.
  • Drawing trend lines does not guarantee accurate predictions of future price movements.
  • Relying solely on trend lines can result in poor trading decisions.

This summary covers key points from the transcript using timestamps provided.

Understanding Market Maker Strategies

This section discusses how market makers can capitalize on the fallacy of retail traders and price action.

Market Maker Strategies

  • Retail traders often rely on trend line support during periods of higher lows and higher highs.
  • Market makers take advantage of this by creating liquidity at these levels, even though the underlying sentiment may be bearish.
  • Retail traders tend to buy when there is no support, leading to price collapse and losses for them.
  • When a third touch of an uptrend line occurs in price action, it signals a potential high between the second and third touch points. Traders can aim for a bearish short position or wait for a brief rally above that high for a turtle soup setup.
  • Lower time frames often show clear uptrend diagonal support lines, which market makers use to set traps for sell scenarios.

Identifying Bearish Trend Line Resistance

This section focuses on how retail traders adopt trend line resistance during periods of lower lows and lower highs.

Bearish Trend Line Resistance

  • Retail traders use trend line resistance when price is making lower lows and lower highs.
  • Market makers take advantage of this by creating liquidity at these levels, even though the underlying sentiment may be bullish.
  • Retail traders tend to sell when there is no resistance, leading to price rallies and losses for them.
  • Traders look for a reason to be contrarian when trend lines appear obvious as they see it as a trap.
  • The second point where the trend line forms plays an important role in identifying potential buying or selling opportunities.

Analyzing Trend Lines as Support or Resistance

This section discusses the uncertainty associated with using trend lines as support or resistance and the importance of analyzing market clues.

Trend Lines as Support or Resistance

  • Trend lines can be seen as flipping a coin, where heads represent buying and tails represent selling.
  • Trading based on chance is not recommended; instead, traders should look for market clues provided by smart money entities.
  • Smart money utilizes liquidity from willing or uninformed traders to engineer efficient price movements.
  • Confidence in trend lines providing support or resistance comes from analyzing market clues rather than relying solely on chance.

Examples

This section provides examples to illustrate the concepts discussed earlier.

Examples

  • The examples demonstrate how trend lines can be used to identify potential buying or selling opportunities based on market maker strategies and retail trader behavior.
  • Traders should pay attention to the second point where the trend line forms, as it often indicates significant buy or sell levels.

Timestamps are approximate and may vary slightly.

New Section

The speaker discusses the importance of identifying a specific candle and its low as a reference point for future trading.

Identifying Reference Candle

  • The speaker highlights a specific area on the chart and mentions the importance of referencing the low of a particular candle.
  • This reference point is used to track price movements in the future.
  • Price rallies up to the level of 52.34, which is identified as an important level based on previous price action.

New Section

The speaker introduces a 15-minute timeframe chart from December 11, 2015, and identifies a high that corresponds to the previously mentioned reference level.

Delineating High on 15-Minute Chart

  • On December 11, 2015, there is a high on the 15-minute timeframe chart that aligns with the reference level of 52.34.
  • The speaker emphasizes how this low connects with another low and projects out into future price action. This suggests potential continuation towards higher prices.

New Section

The speaker discusses potential challenges due to daily institutional references and identifies areas of liquidity for further analysis.

Daily Institutional Reference and Liquidity Analysis

  • A daily institutional reference is present in a shaded area on the chart, indicating potential resistance or selling pressure.
  • To find new areas of liquidity, attention is drawn to a range between two candles' highs and lows. A specific level at around 50-60 is mentioned as an area to watch for price to come back down.
  • Trend line followers may expect bullish prices, but the speaker suggests considering the potential for price to drop lower based on liquidity analysis.

New Section

The speaker provides an example of how a bullish scenario may not be supported by trend lines and identifies a bearish order block.

Evaluating Bullish Scenario

  • A previous high acts as support, leading to expectations of a higher trade. However, price only moves back up into the last up candle, which is identified as a bearish order block.
  • Using the market efficiency paradigm, this is seen as an opportunity to go short if the market breaks lower.

New Section

The speaker analyzes price movement towards a low and identifies potential trading opportunities.

Price Movement Towards Low

  • Price trades down into a low that has been protected multiple times in the past. However, it does not create a bullish scenario but rather reaches only the midway point or mean threshold of the last up candle.
  • An equilibrium trading reference point is identified where price may come down and close in on a void between two candles' highs and lows. This area presents an opportunity for selling with cell stops below the low.

New Section

The speaker discusses how certain downtrending or bearish trend lines can actually serve as buy scenarios.

Downtrending Trend Lines as Buy Scenarios

  • After a run-up in price, two down candles are observed during the upward move. A specific level at 143.85 is mentioned as an opening price reference.
  • Price hits 43.85 on one of the down candles, which becomes relevant for analysis on a lower timeframe chart.

New Section

The speaker explains how a higher timeframe setup can influence trading decisions and identifies a target level.

Influence of Higher Timeframe Setup

  • A higher timeframe setup is used to identify a stop placement opportunity above an old high. Price accelerates downwards, breaking what would be considered trend line support, and ultimately reaches the target level of 150.60.

New Section

The speaker highlights downtrending or bearish trend lines that can serve as buy scenarios.

Downtrending Trend Lines as Buy Scenarios

  • A significant upward move is observed on the chart.
  • Two down candles are identified during this upward move, indicating potential buy scenarios based on specific levels reached.

False Trend Line and Buying Opportunity

The speaker discusses the concept of a false trend line and how it can present a buying opportunity.

False Trend Line and Buying Opportunity

  • When the price reaches 43.80 or lower, it is considered a buying opportunity.
  • Traders expect the trend line to be false, and they look for the second high as an indication.
  • Short positions are covered, and buy orders are placed above this high.
  • Price rallies away from this level.

Close to High End

The speaker mentions that the price is close to the high end.

Close to High End

  • The price is very close to the previous high end.

Retracement Lower

The speaker mentions the possibility of one more retracement lower.

Retracement Lower

  • There may be one more retracement lower in price.

Buying Opportunity in Last Two Down Candles

The speaker highlights that there is a buying opportunity in the last two down candles.

Buying Opportunity in Last Two Down Candles

  • Traders can consider buying when the price retraces back into the last two down candles.
  • This presents an opportunity for buyers to enter the market.

Expecting Buy Stops to be Tagged

The speaker expects buy stops to be tagged at a certain level.

Expecting Buy Stops to be Tagged

  • Traders anticipate that buy stops will be triggered at a specific level.
  • This level is where they expect to see buy orders being executed.

Buy Stops Hit

The speaker observes that buy stops have been hit at a certain level.

Buy Stops Hit

  • The buy stops are triggered at the expected level.
  • This indicates that price may now be allowed to test lower levels.
  • The previous highs have been taken out due to the buy stop read.

Example of Buy Stops Being Hit

The speaker provides an example of buy stops being hit and its impact on price movement.

Example of Buy Stops Being Hit

  • A specific candle pattern is observed, with a bullish order block followed by a trade above the high of a down candle.
  • In the next candle, there is a trade down into the body of the down candle.
  • This validates the bullish order block.
  • The main threshold for this pattern is around 144 big figure, with an open at 144.46 on the down candle.
  • Traders who saw this as a downtrend may have considered buying when price returned back down, but they would be wrong in their analysis.

Retail Fingerprints and Institutional Order Flow

The speaker discusses how retail fingerprints and institutional order flow can influence trading decisions.

Retail Fingerprints and Institutional Order Flow

  • Traders often make mistakes by following retail fingerprints or classic chart patterns like triangles and false breakouts.
  • However, probabilities shift in favor when traders do the opposite of what retail traders are doing.
  • Institutional order flow and reference points on daily charts can provide justification for trading decisions similar to how banks operate.

Price Efficiency and Balancing Order Flow

The speaker explains the concept of price efficiency and balancing order flow.

Price Efficiency and Balancing Order Flow

  • Price needs to be efficiently balanced by offering on the buy side after being sold off and offered on the sell side.
  • When price rallies back up into previous levels, it is due to institutional order flow closing all the down candles.
  • The rally into a specific level, such as 146 big figure, breaks the supposed trend lines but is driven by institutional order flow.

Conclusion

The speaker concludes the teaching session.

Conclusion

  • Traders can identify retail fingerprints and make trading decisions opposite to what retail traders are doing.
  • Institutional order flow and reference points on daily charts can provide additional justification for trading decisions.
  • The speaker hopes that viewers have enjoyed this teaching session.
Playlists: 2016 ICT Private Mentorship Core Content Month 03
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