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ICT Mentorship Core Content - Month 1 - Equilibrium Vs. Discount
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ICT Mentorship Core Content - Month 1 - Equilibrium Vs. Discount

Understanding Equilibrium vs. Discount in Trading

Introduction to the Mentorship Session

  • The session is the fourth of eight installments in the ICT mentorship, focusing on equilibrium versus discount.
  • Initial concepts may seem elementary for some participants, but deeper insights will be provided to enhance understanding of optimal trade entry.

Key Concepts of Trade Entry

  • Introduced a simple idea in 2010 regarding swing projections and retracements for identifying optimal trade entries, which gained popularity due to its simplicity and effectiveness.
  • Emphasizes that Fibonacci indicators are tools for understanding market reach rather than magical solutions; traders must engage in prognostication.

Foundation for New Traders

  • Aimed at new traders, the session provides foundational knowledge necessary for technical analysis and trading strategies.
  • Encourages participants to note unfamiliar terms during the presentation as they will be explained later in the mentorship.

Understanding Market Movements

  • Questions what factors lead a trader to believe that a market will rise; emphasizes understanding institutional order flow as a critical first step.
  • Highlights that significant price movements are driven by larger players (banks), who dictate price changes based on their financial interests rather than supply and demand alone.

Importance of Price Analysis

  • Stresses that retail traders often rely on patterns and indicators but should focus primarily on price action itself for effective trading decisions.
  • Discusses analyzing major price swings within charts, using historical data from August 14th to September as an example of significant movement.

Establishing Equilibrium

  • Defines equilibrium as the current market range being traded; highlights its importance in determining potential buying opportunities.
  • Explains how strong impulsive moves indicate displacement caused by large financial entities entering the market with conviction.

Impulsive Price Moves Explained

  • Clarifies that impulsive price swings signify substantial movements influenced by banks or institutions aiming to maximize profits through strategic pricing adjustments.

Understanding Market Dynamics and Price Movements

Accumulation and Positioning by Banks

  • Banks are strategically buying at lower prices to later sell at higher market prices, effectively liquidating their positions.
  • As prices rise, banks look for liquidation areas above previous highs where they anticipate buy stops from large managed funds.

Identifying Institutional Levels

  • The mentorship will cover how to identify institutional fund levels and where significant market moves occur based on stop loss orders.
  • New participants may find the concepts challenging; thus, a gradual introduction to technical analysis is essential.

Impulsive Price Swings

  • Understanding impulsive price swings is crucial; these are characterized by strong movements away from established lows.
  • A price leg's formation can only be recognized in hindsight, emphasizing the importance of studying past price actions.

Equilibrium and Retracement

  • To identify a swing high, four candles must form: one before the high, one at the high, and one after that is lower.
  • Equilibrium represents a midpoint in price movement; it’s identified using Fibonacci levels (specifically the 50% level).

Trading Strategy Context

  • Once equilibrium is reached after an impulsive move, traders should seek buying opportunities without entering prematurely.
  • The focus remains on identifying when markets are at discount versus premium pricing levels for optimal trading conditions.

Market Behavior Post Equilibrium

  • After reaching equilibrium, if conditions are favorable, there may be opportunities to go long without paying inflated prices.

Understanding Market Equilibrium and Trading Strategies

The Concept of Fibonacci and Market Low

  • The speaker discusses using Fibonacci levels based on a significant price low that has not been violated, indicating a potential market rally.
  • Emphasizes the importance of excluding Sunday candles from analysis as they represent non-events in trading.

Observing Market Behavior

  • Highlights the necessity of patience in trading; traders should wait for clear signals rather than rushing to make trades.
  • Describes how the market's downward movement provides an opportunity to study price action without immediate trading decisions.

Equilibrium and Fair Market Value

  • Once the market reaches equilibrium, it is considered fair value, allowing banks to buy without being at a premium.
  • Uses an analogy comparing market prices to grocery shopping, explaining that anything below equilibrium is viewed as a discount.

Dynamics Below Equilibrium

  • Notes that markets typically do not remain below equilibrium for long periods, especially if there is bullish sentiment.
  • Discusses how impulsive price swings can indicate potential buying opportunities when prices return to or drop below 50% of previous highs.

Trading Strategy Insights

  • Encourages focusing on higher time frame ideas for better directional bias and flexibility in trading strategies.
  • Reinforces that optimal buying occurs at or below equilibrium levels, emphasizing the significance of understanding discount pricing in bullish markets.

Price Movement and Trade Execution

  • Explains that when prices are discounted in a bullish context, they tend to rebound quickly due to bank activity.
  • Advises marking areas of equal highs on charts as these points often lead to significant price movements once cleared by buyers.

Example Trade Scenario

  • Illustrates a hypothetical trade scenario where entering around 95.50 could yield substantial profits (300 pips), demonstrating effective use of equilibrium concepts.

Understanding Market Equilibrium and Fibonacci Analysis

The Concept of Retracements

  • The speaker discusses the absence of significant retracements in the current market analysis, noting that price movements have not returned to a 50% level from previous highs.

Measuring Impulsive Price Swings

  • An explanation is provided on measuring impulsive price swings, emphasizing that despite lower candle closes, prices remained elevated without returning to equilibrium.

Utilizing Fibonacci for Price Analysis

  • The speaker introduces the use of Fibonacci levels to track price movements after breaking previous highs, indicating a need to wait for prices to return to equilibrium before making trading decisions.

Identifying Swing Highs and Lows

  • A method is outlined for identifying swing highs and counting down until prices reach equilibrium or lower lows, which are critical for determining entry points in trading.

Importance of Equilibrium in Trading Decisions

  • The concept of equilibrium at the 50% mark is highlighted as essential for assessing fair market value; trades cannot be executed until this level is reached or breached.

Market Reactions at Key Levels

Algorithmic Buying Behavior

  • Discussion on how algorithms trigger buy orders when prices hit specific levels near equilibrium, leading to immediate market reactions.

Impulse Swings and Market Sensitivity

  • The speaker notes that after an impulse swing away from expected rally areas, it’s crucial to monitor subsequent price actions closely.

Establishing New Fibonacci Levels

  • New Fibonacci levels are established based on recent low-to-high swings, reinforcing the importance of tracking these movements for future predictions.

Optimal Trade Entry Points

Defining Optimal Trade Entry Zones

  • Optimal trade entry zones are defined as being below equilibrium (62% - 70.5%), where traders can capitalize on discounted pricing opportunities.

Price Movement Dynamics Below Equilibrium

  • Observations indicate that when prices drop below equilibrium, they tend not to linger but rather quickly rally away due to increased buying interest.

Analyzing Price Swings and Order Blocks

Reaction Expectations at Discount Prices

  • It’s noted that when prices fall below 50%, they should not remain there long; quick rallies are expected as buyers enter the market aggressively.

Drawing Additional Fibonacci Levels

  • Further analysis involves drawing additional Fibonacci levels from new lows to highs as part of ongoing market evaluation strategies.

Final Thoughts on Market Sensitivity

Understanding Market Dynamics Below Old Lows

Understanding Market Dynamics and Trade Entry

Framework for Trading Decisions

  • The framework provides a general area for buying without needing precise entry points, allowing for fine-tuning through top-down analysis.
  • Emphasizes the importance of waiting for price swings to return to equilibrium before making trades, highlighting patience in trading strategies.

Price Action and Equilibrium

  • Explosive price movements are expected when prices drop below equilibrium, indicating high probability trades that align with bullish market conditions.
  • Understanding market context is crucial; it helps identify when to buy based on relative strength and dynamic price action around equilibrium levels.

Fibonacci Levels and Market Ranges

  • The optimal trade entry concept utilizes specific Fibonacci retracement levels (62%, 70.5%, 79%) as sensitive indicators of potential price reversals.
  • Current market ranges are defined by established highs and lows, with equilibrium levels serving as critical reference points for assessing trade opportunities.

Identifying High Probability Trades

  • Any buying condition occurring below the defined equilibrium level indicates a high probability scenario, suggesting favorable risk-reward ratios.
  • Each impulsive price leg higher must be measured against new equilibrium points to determine potential entry signals effectively.

Managing Expectations in Trading

  • Acknowledges that losses are part of trading; understanding market behavior around stop runs can help manage expectations during downturns.

Understanding Institutional Order Flow and Market Dynamics

The Role of Swing Lows in Trading

  • Identifying swing lows is crucial for understanding how institutional order flow incorporates bullish order blocks, especially when the market retraces into a discount.
  • When the market enters a buying opportunity area, traders should analyze lower time frames (4-hour, 60-minute, etc.) to find potential buying signals.

Analyzing Price Movements and Fibonacci Levels

  • Use Fibonacci levels to measure price swings; if the market does not return to equilibrium or discount levels, it indicates no trading opportunities.
  • Recognizing higher magnitude price swings is essential; even if broken into multiple legs, they must be measured as part of the overall parent price swing.

Equilibrium and Buying Opportunities

  • When prices reach equilibrium after a significant movement, traders should look for reasons to buy based on existing order blocks.
  • A deeper discount can lead to aggressive rallies; identifying these areas helps in determining profit-taking points.

Market Behavior and Stop Loss Runs

  • Observing that markets often rally after hitting old lows suggests stop loss runs are common in bullish trends.
  • Understanding that violations of previous lows typically indicate institutional activity aimed at gathering resting orders below those levels.

Framework for Anticipating Market Moves

  • Establishing a framework around equilibrium allows traders to identify potential reactions when prices dip below old lows.
  • Studying past market behaviors provides insights into future setups and enhances anticipation of price movements.

Summary of Key Concepts

  • Equilibrium serves as a midpoint within ranges; recognizing impulsive price legs aids in identifying buying opportunities through various trading strategies like order blocks and optimal trade entries.

Understanding Price Action and Fibonacci Levels

Equilibrium and Discount Pricing

  • The concept of equilibrium is defined at the 50% level in price action analysis. Prices below this level indicate a discount, which can signal bullish opportunities.
  • The 62% to 79% Fibonacci retracement levels are identified as deep discounts that traders should look for under bullish conditions, emphasizing their effectiveness compared to other indicators.
  • Bullish divergence and trend-following strategies are discussed, highlighting the importance of sound price action understanding over reliance on mathematical indicators.

Importance of Price Action Foundations

  • Successful trading relies on foundational price action principles rather than solely on historical data or indicators, which may not predict future market behavior effectively.
  • Traders must define price ranges carefully; being patient and waiting for specific signals is crucial rather than chasing every market movement.

Trading Strategies in Discount Zones

  • After an impulsive price swing, traders should wait for a return to equilibrium before looking for buy signals, particularly when prices drop into the discount zone (62%-79%).
  • Understanding the difference between equilibrium and discount pricing helps identify high-probability bullish scenarios where explosive upward movements are expected.

Institutional Order Flow Insights

  • Traders should focus on specific reference points within defined ranges to anticipate institutional order flow, such as stop runs that indicate potential market expansions.
  • When prices fall below previous lows but then show signs of recovery, it presents an opportunity to buy at a deep discount with expectations of significant upward movement.

Managing Profits and Market Dynamics

  • To exit profitable positions effectively, traders should monitor previous highs; taking profits when prices exceed these levels is essential for successful trading.

Understanding Price Action and Market Dynamics

Establishing a Foundation for Price Analysis

  • The speaker emphasizes the importance of analyzing price on higher time frames to manage expectations and develop anticipatory skills for future market movements.

Transitioning Between Time Frames

  • A discussion arises about how switching to an hourly chart can significantly alter the analysis, highlighting the need to adapt strategies based on different time frames.

Identifying Key Price Levels

  • The concept of mapping out price legs is introduced, focusing on identifying swing highs and lows to determine potential entry points.
  • The speaker explains that when prices drop below equilibrium, it indicates a discount market, suggesting a minimum 62% retracement level should be anticipated.

Trading Strategies at Equilibrium

  • Profits should be taken above previous short-term highs; however, caution is advised against chasing prices after they have moved significantly.
  • The speaker shares personal sentiments about certain currency pairs while illustrating how specific price levels (like bearish order blocks) can dictate profit-taking strategies.

Understanding Market Behavior and Liquidity

  • It’s crucial to recognize that markets often return to equilibrium before expanding towards liquidity zones where buy stops are located.
  • The discussion includes how markets operate in intraday price action within defined pip ranges, emphasizing the significance of marking equal high areas on charts.

Interbank Algorithms and Market Movements

  • An introduction to interbank algorithms reveals their role in determining market pricing dynamics, particularly during discounted phases before upward movements occur.

Importance of Discounted Markets

  • Traders are encouraged to seek opportunities below equilibrium (discounted prices), especially around traditional retracement levels like 62% or 79%.

Optimal Trade Entry Points

  • Identifying optimal trade entries involves recognizing when prices dip below equilibrium without spending much time there before rallying back up.

Visualizing Fibonacci Levels

  • Fibonacci tools help visualize key price levels but do not hold inherent magic; they serve as guides for identifying good entry points at discounts.

Understanding Market Dynamics and Trading Strategies

The Concept of Equilibrium in Trading

  • The speaker emphasizes the simplicity of identifying market opportunities, suggesting traders should look for bullish trends without relying solely on Fibonacci levels.
  • A market below equilibrium is considered a discount, which often leads to price rallies after clearing out stop-loss orders.
  • The discussion highlights how markets can drop to clear sell stops before making upward movements, indicating a bullish sentiment.

Mechanisms Behind Market Movements

  • The speaker explains that market makers intentionally drive prices down to trigger sell stops, creating buying opportunities for them by attracting counterparty orders.
  • It’s noted that traders do not need every indicator aligned for successful trades; understanding market conditions (equilibrium vs. discount) is crucial for recognizing profitable entry points.

Key Takeaways on Trading Strategy

  • Emphasis is placed on the importance of grasping fundamental concepts like equilibrium and discounts rather than just looking for specific trading signals or patterns.
Playlists: 2016 ICT Private Mentorship Core Content Month 01
Video description

2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in September 2016. 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.