ICT Forex - How To Find Explosive Price Moves Before They Happen

Finding Explosive Price Moves Before They Happen

In this teaching, Larry Williams' technical analysis method of using the Commitment of Traders (COT) report to find explosive price moves before they happen is discussed. The focus is on monitoring the CFTC weekly net traders position chart and looking for 12-month commercial extremes.

Using the COT Report

• The COT report is a long-standing staple in technical analysis that can be used to monitor the net traders position chart.

• By following this on a longer-term timeframe, it can help give warning signs when there's a potential impending reversal which sometimes can be explosive in nature.

• We monitor 12-month commercial extremes that qualify support and resistance on a higher time frame chart.

• The zero line delineates anything above the zero line as buying and below as selling.

Key Levels and Support/Resistance

• Key levels where commercials reflect NIT extremes qualify support and resistance on a higher time frame chart.

• This gives insight into supporting resistance levels that are key from a higher time frame standpoint.

Potential Future Explosive Price Moves

This section discusses how to use information from the COT report to build an idea around potential future explosive price moves.

Long-Term Shift in Direction

• Potentially in an area where we could come back down lower, indicating a longer-term shift in direction on the Euro.

• Commercial traders are already hedging in some bearishness on the euro dollar.

Weekly Range Contraction

This section discusses the weekly range contraction and how to use it to identify potential explosive price moves.

Using Open High Low and Closed Bar

• The weekly range contraction uses the open high low and closed bar.

• (timestamp not provided in transcript) This can help identify when a market is about to make a big move.

Trading Techniques for Bullish and Bearish Markets

In this section, the speaker discusses trading techniques for bullish and bearish markets. They explain how to identify a large range day or directional bias that lends well to their technique.

Identifying Range Expansion and Contraction

• The speaker explains that range expansion is when there is a large range day or directional bias in the market.

• The opposite of range expansion is contraction, which can be identified by looking at candlestick charts.

• Smaller bodies precede larger bodies, so if we see smaller bodied candles forming after larger ones, it could indicate a large range day coming up.

Weekly Range Contraction

• We're looking for candles that begin to compress ranges and have smaller bodies.

• When anticipating power three, we look for small down moves followed by buying and holding for the close near the top of the range.

Daily Range Contraction

• Similar to weekly range contraction, we look for small body candles after compression in daily ranges.

Identifying Large Expansions in Daily Ranges

In this section, the speaker discusses how to identify large expansions in daily ranges using candlestick charts.

Identifying Compression in Daily Ranges

• Compression can be identified by looking at small body candles after a swing high or low.

• If a daily range contracts smaller and tighter, it indicates there will be a large expansion.

Using Power Three

• Power three can be used to determine the next move if it's directly determined to higher or lower.

Inside Days and Range Expansion

In this section, the speaker discusses inside days and range expansion. He explains that he does not care about the wicks when classifying inside days, but rather focuses on range expansion and contraction. The speaker also shares his rule of thumb for looking back at the last five to seven days for range contraction and expansion.

Inside Days

• An inside day is classified based on range expansion and contraction, not wicks.

• The speaker's rule of thumb for looking back at the last five to seven days for range contraction and expansion helps filter for volatility on a daily chart.

Range Expansion

• Large range days indicate that there will be an upcoming series of movement or directional change.

• Small ranges relative to what has happened recently indicate that there will be another series of movement.

• When things are getting quiet, it means traders are going to get bored with it, so it's time to prepare because when they're not paying attention, it takes off.

Trading Strategies

• As a trader, one should have an expectation for magnitude and velocity in addition to knowing where to buy or sell.

• Traders should look for large range days forming before big moves happen because they are most likely going to be in while it's expanding up long or expanding lower (bearish).