38. Advanced Price Action Lecture (Liquidity Dispersal and it's effects)

Understanding Market Dynamics and Order Flow

Introduction to Personal Circumstances

• The speaker shares a personal experience about the unexpected birth of their child, emphasizing the surprise and urgency involved in the situation.

Theories on Order Flow and Liquidity

• The discussion shifts to unique theories regarding order flow and liquidity, claiming that these concepts are rarely discussed elsewhere.

• Emphasis is placed on low probability trading days (Monday and Tuesday), with expectations for significant movement on Wednesdays, particularly around CPI announcements.

Importance of Highs and Lows

• The speaker explains that the high and low of any day, especially during CPI weeks, will have substantial liquidity implications.

• After CPI announcements, market manipulation often occurs as liquidity is injected to influence trader sentiment towards specific market directions.

Trading Strategies Post-CPI

• A focus on identifying high-probability trades is introduced; traders can find favorable opportunities without needing higher time frame analysis.

• Key tools mentioned include premium/discount strategies, sequential SMT (Smart Money Techniques), and gaps in price action.

Analyzing Interest Rate Triads

• The conversation transitions to analyzing interest rate triads using one-hour time frames while focusing on weekly cycles for better trade identification.

• Weekly cycles are highlighted as crucial for finding trades aligned with overall market order flow.

Daily vs. Weekly Trading Cycles

• The speaker discusses how understanding weekly cycles can enhance daily trading strategies by recognizing patterns across different time frames.

• Different types of traders (scalpers vs. day traders vs. those preferring longer-term positions) are acknowledged, each utilizing varying cycle lengths for their strategies.

Trusting Unique Concepts in Trading

• Traders who may not be able to monitor charts constantly could benefit from applying unique concepts discussed earlier within the context of weekly cycles.

• Understanding fractals is emphasized; events occurring in one cycle type (weekly/daily/minute/yearly) reflect similar patterns across all other cycles.

Market Analysis and Intermarket Correlation

Understanding Higher Highs in Market Trends

• The speaker discusses the formation of higher highs in various asset classes, particularly noting that a significant higher high was established on Wednesday during interest rate trials.

• A lack of correlation between certain assets is highlighted; while some made higher highs, others did not follow suit, indicating potential market discrepancies.

• The importance of symmetrical price action is emphasized; if all assets had made lower lows, a continued downward trend would be expected. However, the presence of higher highs complicates this expectation.

Analyzing Price Movements and Reversals

• The speaker notes that typically correlated assets (like GU and GBP) diverged in their movements, with one making a higher high while others made lower highs. This divergence led to a price drop.

• Observations are made about candle formations before breakdowns; even on lower time frames like five minutes, patterns can indicate potential reversals or continuations.

Trading Strategies Based on Market Conditions

• The discussion includes strategies for entering trades based on observed price actions within fair value gaps and rejection blocks without needing to rely heavily on lower time frames.

• Emphasis is placed on understanding symmetrical lows and how they relate to market expectations regarding price gravitation towards these levels.

Intermarket Sequential SMT Insights

• The speaker explains the significance of intermarket sequential SMT (Smart Money Techniques), suggesting traders should avoid trading when markets show conflicting signals.

• CPI (Consumer Price Index) data is mentioned as an indicator that often aligns with weekly cycles in market trends, reinforcing the need for awareness of broader economic indicators.

Correlations Between Asset Classes

• A detailed explanation follows about how correlations between different asset classes can inform trading decisions; if there’s no correlation present among key assets, it may signal caution for traders.

• The necessity for consistent movement across related asset classes is reiterated; when prices are out of sync, it indicates potential volatility or risk in trading positions.

Conclusion: Importance of Monitoring Market Dynamics

• The speaker concludes by stressing the importance of monitoring intermarket relationships and ensuring alignment among various asset classes before making trading decisions.

Understanding the Intermarket Relationships

The Role of the US Dollar in Market Dynamics

• The US dollar serves as a crucial link between various financial markets, including Forex and bond markets, acting as a bridge for price movements.

• Price reversals are often tied to intermarket sequential (SMT) signals; understanding these can help traders anticipate market behavior.

• Traders should observe correlations between different assets, such as the US dollar index making higher lows while other pairs make lower highs.

Trading Strategies and Market Signals

• Recognizing patterns in asset movements is essential; for instance, if the dollar index shows strength while other assets weaken, it indicates significant market dynamics at play.

• Low probability trading occurs when the US dollar moves in sync with interest rate triads; this suggests market uncertainty and potential manipulation.

Economic Calendar and Weekly Cycles

• Expect consolidation and erratic price swings following significant movements in the US dollar, indicating possible manipulation rather than clear trends.

• Weekly cycles often reveal one or two sequential SMT occurrences that traders should monitor closely for better decision-making.

Misconceptions About Market Timing

• A common belief that 70% of time frames align with weekly highs/lows is challenged; actual patterns depend on daily conditions rather than fixed percentages.

• Wednesdays and Thursdays tend to show more reliable high-to-low transitions within weekly cycles, especially when no major news events occur earlier in the week.

Utilizing Bond Markets for Sentiment Analysis

Understanding Price Action and Market Structure

Key Concepts in Price Action

• The importance of reading price action is emphasized, particularly regarding the significance of lows and highs in market trading.

• Focus on high and low points around CPI (Consumer Price Index) announcements to identify real premium and discount levels in the market.

• A basic understanding of true opens is crucial; traders should recognize that two sequential true opens are necessary for effective order flow analysis.

Sequential SMT and Market Dynamics

• For price action to be readable, it must trade below at least two true opens, highlighting the need for sequential SMT (Smart Money Technique).

• The relationship between higher time frame sequences and lower time frame sequences can create pressure reversals in the market.

Liquidity Distribution Insights

• An introduction to liquidity dispersal is presented, indicating its complexity and potential impact on trading strategies.

• Observations about market behavior show that when liquidity isn't evenly distributed among indices like NASDAQ, S&P 500, or Dow Jones, it can lead to varied performance outcomes.

Analyzing Market Behavior

• A breakdown of liquidity distribution illustrates how different indices may hold varying percentages of total available liquidity.

• The discussion highlights how NASDAQ's performance can indicate broader market trends based on its ability to maintain higher highs or lows compared to other indices.

Market Structure Shifts

• Notable shifts in market structure occur when prices close above previous highs or lows; these movements signal potential changes in trend direction.

Understanding Market Dynamics and Price Movements

The Concept of Non-Randomness in Market Events

• The speaker asserts that market events are not random; similar conditions lead to similar outcomes, emphasizing the predictability of price movements.

Analyzing Monthly Cycles and Price Levels

• Discussion on analyzing monthly cycles using a forward time frame, highlighting the importance of previous week lows in determining current market behavior.

• Observations about the Dow's performance relative to previous lows, indicating it has room for improvement or "catching up" to other indices.

Sequential SMT and Price Gravitation

• The speaker notes expectations for price movement towards equal highs based on sequential Smart Money Techniques (SMT), particularly between different months' cycles.

• Highlights a lower time frame cycle occurring mid-week, suggesting significant price action during this period.

Implications of Closing Prices on Future Movements

• Analysis of closing prices indicates potential upward movement or failure swings based on how indices closed relative to each other.

Importance of Key Lows and Liquidity Events

• Emphasizes the significance of specific lows in predicting market behavior, noting that liquidity plays a crucial role in these dynamics.

• Discusses how price movements below certain lows can indicate manipulation rather than genuine reversals, hinting at engineered pathways for price action.

Recognizing Patterns and News Influence

• Identifies patterns where wicks signal potential gravitation points for prices when combined with sequential SMT.

• Stresses that understanding market dynamics requires awareness of scheduled news events that inject liquidity into the system.

Conclusion: Insights into Market Behavior