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ICT Charter Price Action Model 3 \ Trade Plan & Algorithmic Theory
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ICT Charter Price Action Model 3 \ Trade Plan & Algorithmic Theory

Price Action Model #3: Swing Trading Plan

Overview of the Trading Plan

  • The objective is to focus on trades that yield 100 to 300 pips each.
  • This model builds upon previous trade plans, creating a comprehensive understanding of market perception.
  • Each new plan adds to an existing framework, illustrating how all models are interconnected and modular.

Personalization in Trading Styles

  • Traders should adapt their trading style based on personal circumstances and preferences, not just market conditions.
  • Acknowledges that not everyone can dedicate time to watch live charts due to other commitments like jobs or businesses.
  • Understanding various trading styles (scalping, day trading) is essential for future opportunities in trading.

Comprehensive Learning Approach

  • Completing all 12 price action model trade plans will provide a full spectrum of trading disciplines and concepts.
  • It’s emphasized that there isn’t a perfect trade; rather, traders must learn to apply different tools and strategies as needed.
  • The approach allows for flexibility—traders can use scalping techniques within this swing trading model or extend it for long-term positions.

Fractal Nature of Price Action

  • Price action is described as fractal; principles learned at one level can be applied across different time frames (e.g., weekly vs monthly).
  • Encourages using short-term concepts from previous models to enhance understanding and application in swing trading contexts.

Experience Over Theory

  • Emphasizes the importance of personal experience in understanding when to engage in different types of trades (day trader vs swing trader).
  • Acknowledges the challenge in articulating complex ideas but stresses that comprehension comes through practical engagement with the material.

Engagement Strategies in Market Analysis

Holistic Approach to Market Engagement

  • Emphasizes the importance of a well-rounded analysis approach, integrating both top-down and bottom-up perspectives to identify high-probability trading opportunities.

Scalping in Various Market Conditions

  • Acknowledges that not all markets favor long-term positions; highlights the necessity of adopting a scalper's mentality during periods of consolidation or market reversals.

Teaching Methodology: Intra-Day Charts

  • Discusses the rationale behind using intra-day charts for teaching, stressing their role in understanding price action through repetitive exposure to similar trade plans.

Learning Through Repetition

  • Advocates for repeated engagement with trade plans (at least 12 times) to enhance retention and subconscious recall of critical trading protocols when observing live price action.

Trade Plan Cycle Overview

  • Outlines the cyclical nature of trade planning, which includes preparation, opportunity discovery, trade planning, execution, and management as essential components for successful trading strategies.

Preparation for Trading

Economic Calendar Utilization

  • Stresses the need to review the economic calendar weekly, focusing on medium and high-impact events that could influence market behavior and structure.

Monthly Range Consideration

  • Highlights that while developing a trade plan, traders must consider monthly ranges alongside weekly candles to ensure alignment with broader market trends.

Data Range Analysis

Lookback Period Strategy

  • Describes a systematic approach where traders initially analyze 20 days of data; if insufficient insights are gained, they extend their lookback period to 40 or even 60 days.

Identifying Highs and Lows

  • Emphasizes determining the highest high and lowest low within selected lookback periods (20/40/60 days), which serves as crucial reference points for entry and target setting in trades.

Liquidity Draw Analysis

Next Draw on Liquidity

  • Explains how traders should identify potential liquidity draws based on previous highs/lows or gaps in value; this is vital for anticipating price movements within defined ranges.

Monthly Bias Alignment

  • Reinforces that traders should align their strategies with monthly range biases by identifying premium PD arrays when bullish or discount arrays when bearish during their analysis.

Economic Events Impacting Trading

Anticipating Price Movements

  • Discusses waiting for convergence between anticipated price movements towards PD arrays that support monthly bias along with significant economic events from the calendar.

Central Bank Influence

Delivery Opportunity Discovery

Understanding Seasonal Tendencies in Swing Trading

  • The focus for swing trades is on identifying current seasonal tendencies relevant to price action studies, particularly for specific markets like the Euro.
  • Emphasis is placed on recognizing high-probability seasonal tendencies that indicate potential bullish or bearish trends during specific times of the year.
  • Traders should consider the current month and season (e.g., spring decline or fall rally) when analyzing market conditions and seasonal influences.
  • At the time of recording (March 2020), attention should be directed towards understanding which seasonal tendencies are likely to dominate in April and May.
  • The strategy involves focusing on high-probability setups rather than random trades, requiring thorough analysis and patience.

Analyzing Market Structures

  • Identification of discount arrays under 20-day averages is crucial when a bearish bias exists; similarly, premium arrays are identified within 20-day to 60-day ranges during bearish conditions.
  • The discussion includes using a "coot hedge program" to interpret commitment of traders' data, focusing solely on commercial positions rather than large or small speculators.
  • A methodical approach involves analyzing net positions over a 12-month lookback period to determine whether commercials are hedging long or short based on recent trading activity.
  • The central line derived from net position ranges helps assess market sentiment without relying heavily on classic trader position charts, which may not reflect true market dynamics.
  • Reference is made to previous content from June 2017 regarding coot hedge program insights related to bonds, stocks, and commodities.

Seasonal Tendencies as a Trading Strategy

  • Current net short positions among commercials can still indicate bullishness if they remain above the Net Zero line in traditional graphs; this highlights the complexity of interpreting trader behavior.
  • Understanding fluctuations in trader positions over time emphasizes the importance of considering seasonal patterns as part of broader market analysis strategies.
  • Seasonal tendencies provide a roadmap for potential market movements but should not be viewed as guarantees; they serve as one component among many in decision-making processes.
  • Combining seasonal tendencies with data range analysis and economic calendars enhances probability assessments for trade entries and exits.
  • Price action analysis reveals key moments such as liquidity pools and structure breaks that inform trading decisions alongside coot hedge program insights.

Practical Application in Price Action

Market Structure and Liquidity Dynamics

Monthly Range Expansion and Liquidity Targets

  • The expectation is for the monthly range to expand downwards, providing opportunities without needing the market to close at its low.
  • Sell stops are identified near the high of the range, targeting relative equal lows over a period of weeks or months.
  • Relative equal lows must be within a 60-day look-back period; otherwise, alternative targets must be considered.
  • Setups with relative equal lows within 20 to 40 days have higher probabilities of reaching targets quickly compared to those on a 60-day look back.
  • Identifying premium arrays inside the 20-day data range is crucial when anticipating bearish movements.

Bullish Market Scenarios and Trade Planning

  • In bullish scenarios, premium arrays above the look-back periods (20, 40, or 60 days) should be targeted as potential entry points.
  • The analysis focuses on commercial activity rather than large specs since they mirror commercial actions by providing liquidity.
  • When identifying discount arrays during bullish trends, it’s essential to consider short-term highs that indicate market structure breaks.
  • If relative equal highs exceed the maximum look-back period of 60 days, they become less viable as targets; focus shifts to old highs or fair value gaps instead.
  • Consistency in following rules is emphasized; avoid impulsive decisions based solely on perceived patterns like double tops.

Optimal Trade Entries and Economic Calendar Considerations

  • Focus primarily on trading setups within the 20 to 40-day ranges while using the 60-day look back as a secondary option for best-case scenarios.
  • Acknowledgment that market conditions can change rapidly due to external factors (e.g., news events), affecting trade expectations significantly.
  • When planning trades, seek convergence between manipulation and price movement opposite your bias during anticipated volatility from economic events.
  • Short entries should be framed when prices rise into premium PD arrays that align with standard deviation criteria during key trading sessions (London/New York).

Scalping Protocols and Risk Management in Trading

Implementing Scalping Protocols

  • Discusses the implementation of scalping protocols to reduce risks, emphasizing the use of shorter time frames (5 and 1 minute) compared to a 15-minute chart.
  • Highlights the importance of entering long positions when prices reach a discount PD array that aligns with standard deviations, specifically no more than -3 standard deviations.

Analyzing Price Movements

  • Explains how to analyze price swings on a 15-minute chart, pulling Fibonacci levels from significant lows during key market openings (London and New York).
  • Stresses the need for alignment between Fibonacci retracement levels and standard deviation thresholds to identify optimal trading opportunities.

Bearish Market Strategies

  • Outlines strategies for bearish markets, suggesting traders can apply techniques used in shorter time frames (5 and 1 minute charts) while managing risk effectively.
  • Advises targeting sell-side liquidity below old daily lows or fair value gaps within specified data ranges (20, 40, or 60 days).

Setting Profit Objectives

  • Introduces the concept of logical discount arrays as initial profit objectives based on recent price movements over the last 20 days.
  • Emphasizes that profit targets should be relative to individual trading goals; suggests aiming for at least 75 pips as a reasonable target for short-term traders.

Daily Chart Analysis for Trade Management

  • Encourages mapping out ideal profit objectives on daily charts rather than relying on shorter time frames to avoid emotional decision-making during trades.
  • Warns against holding onto trades without clear scaling objectives, which could lead to significant drawdowns if not managed properly.

Identifying Liquidity Targets

  • Discusses identifying multiple old daily lows within specific data ranges as potential targets for bullish trades.

Trading Strategies and Execution Techniques

Understanding Market Structure and Trade Execution

  • The expectation of bias in the monthly range suggests multiple old daily highs within the data range, focusing on those that frame potential gains of 100 to 300 pips when bullish.
  • Anticipation of a 15-minute optimal trade entry during retracements at London or New York open kill zones, potentially involving sell stop rates targeting low-level equal lows.
  • After a market structure shift on the 15-minute timeframe, traders can switch to a five-minute chart for scalping setups; understanding core content is essential for effective execution.

Alternative Trade Executions

  • If an optimal trade entry is missed or not filled due to spread issues, alternative executions are available. For bullish scenarios, place a buy stop above the Asian Range High after 2 AM EST.
  • In bearish conditions, note the European opening price and filter shorts accordingly; anticipate retracement formations during key trading sessions.

Short Trade Management

  • When entering short trades, utilize sell limit orders with specific entry prices based on standard deviation and PD array convergence principles.
  • Set initial objectives for profit-taking at 50 pips and consider secondary targets at 75 pips; this structured approach aids in managing multiple orders effectively.

Maximizing Profit Potential

  • Capture larger moves by closing portions of trades (e.g., 80% at a target like 300 pips), allowing remaining positions to run if market conditions remain favorable.
  • Adjust profit objectives based on market dynamics; initial targets may vary from personal preferences (e.g., starting at 50 or moving up to higher targets).

Risk Management Strategies

  • Implement risk management by placing stop losses strategically above recent highs plus additional buffer (e.g., +25 pips); re-entering trades after stops can be beneficial.

Understanding Swing Trading and Entry Strategies

The Nature of Swing Trading

  • Swing trading may require multiple attempts to secure a solid entry; traders should not fear this process as it can become a fundamental approach to their trading style.
  • Accept that the win-loss ratio will likely be lower in swing trading due to longer wait times for setups, which can lead to impulsive decisions driven by fear of missing out on moves.
  • Keeping risk low is crucial in swing trading since the goal is to capture larger market moves without exposing oneself to excessive risk.

Managing Expectations and Emotions

  • Traders must possess a personality trait that allows them to be comfortable with being wrong more often than expected, as swing trades can quickly reverse.
  • Avoid aggressive stop-loss management; getting stopped out prematurely can undermine the analysis that led to the trade setup.

Analyzing Market Conditions

  • A trader's analysis should remain intact even after a stop-out; assess what has fundamentally changed about the market situation before abandoning a trade idea.
  • Recognize that missed ideal entries are common in swing trading, and retracement strategies may need to be employed for re-entry opportunities.

Trade Management Techniques

  • When entering long positions, utilize buy limit orders based on standard deviation and price action analysis, aiming for specific pip objectives (e.g., 50 Pips or 100 Pips).
  • Set distinct parameters for each trade based on personal comfort levels and market structure while ensuring flexibility in profit-taking strategies.

Risk Management and Profit Objectives

  • Always leave room for an order to run beyond initial targets (e.g., 300 Pips), but aim for at least capturing 100 Pips as part of your strategy.
  • Tailor your risk-reward ratios according to personal preferences; ensure you are achieving better than a 3:1 ratio when risking capital.

Reassessing After Stop-Out Situations

Understanding Market Movements and Entry Points

The Importance of Entry Points in Trading

  • The assumption is that the market will move upwards by approximately 300 pips. If it only moves 30 to 40 pips from your entry point, you haven't missed the trade; you've just missed one entry point.
  • Learning short-term trading and scalping can help identify ideal entries after determining a swing trade entry based on daily market structure.
  • If the market moves downwards by 30 to 50 pips but analysis suggests a potential for more than 200 pips downward, do not abandon the swing trade idea due to missing an ideal entry.
  • Understanding institutional order flow allows traders to sync with ongoing market movements rather than feeling paralyzed by missed entries.
  • A comprehensive approach to price action helps eliminate fear of missing trades, allowing traders to participate in unfolding swings without needing perfect entries.

Stop-Loss Management Strategies

  • When in profit at various stages (25%, 50%, or 75% of expected objectives), adjust stop-loss levels accordingly: reduce by 25% at 25% profit, by 50% at 50%, and set to break-even at 75%.
  • This universal stop-loss management model emphasizes focusing on future price delivery rather than worrying about stop-loss levels.
  • Observing closed candles can indicate whether institutional order flow is supporting upward movement or if selling pressure is increasing, which may signal a shift in market dynamics.
  • By not fixating on stop-losses and having clear protocols, traders can better manage risk while remaining focused on overall market trends.
  • Every trade begins as a losing position due to spreads or commissions; thus, overcoming this initial loss is crucial for successful trading.

Utilizing Tools for Effective Trading

  • Emphasizing that every trade opens as a loser highlights the importance of strategic planning and execution in trading strategies.
  • Money management principles are consistent across different models; understanding these principles aids in effective risk management during trades.
  • While tools like leverage calculators are available online for free, knowing how to calculate risks manually provides independence from external resources.
  • Familiarity with manual calculations ensures traders understand their financial positions without relying solely on technology or online tools.

Understanding Swing Trading and Risk Management

The Importance of Stop Losses in Trading

  • Utilizing a 25 pip stop loss can significantly enhance profit potential, especially for long-term trades. This strategy allows traders to withstand multiple losses while waiting for larger market movements.

Identifying Strong Currency Pairs

  • In March, the Euro Aussie currency pair demonstrated exceptional performance, moving over 3,000 pips. Understanding relative strength among currencies is crucial for identifying which pairs will outperform others.

Managing Risk After Losses

  • If a trader experiences consecutive losses (e.g., three trades), they should reduce their risk exposure to maintain capital. For instance, after losing 1%, the next trade should be limited to half of that risk.

Adjusting Leverage Based on Performance

  • It's essential to adjust leverage according to recent trading outcomes. After taking losses, reducing risk helps preserve equity and provides time to recover without significant drawdowns.

The Concept of R-Multiples in Trading

  • When risking a quarter of 1% with a 25 pip stop loss on a trade that moves favorably (like the Euro Aussie), the potential R-multiple can yield substantial returns even after previous losses are accounted for.

Strategies for Sustainable Trading

Gradual Recovery from Losses

  • Traders should aim to recover only 50% of their previous losses before returning to higher risk levels. This approach smoothens equity curves and minimizes emotional trading responses.

Controlling Emotional Responses in Trading

  • Successful trading requires discipline and control over emotions. Traders must focus on market conditions rather than personal feelings about past wins or losses.

Avoiding Over-Leveraging After Winning Streaks

  • Following a series of winning trades, it's tempting to increase risk dramatically; however, this often leads to significant losses. Maintaining consistent leverage is vital for long-term success.

Building an Equity Curve Through Discipline

  • A disciplined approach results in an upward-trending equity curve resembling stairs—gradually increasing with minimal drops instead of erratic fluctuations caused by emotional decisions.

Emphasizing Probability Over Emotion in Trades

Understanding the Loser Cycle in Trading

The Psychological Impact of Losing Trades

  • Traders often feel compelled to hide their losing trades, leading to internal conflict and a cycle of negative emotions.
  • To combat this, it is suggested that after five winning trades, traders should reduce their maximum leverage by half for the next trade to mitigate potential losses.

Managing Risk and Preserving Capital

  • By reducing risk on subsequent trades, traders can limit losses to a manageable level (e.g., 0.5% or even 0.25%), which helps maintain mental stability.
  • Losses can trigger toxic thinking patterns that distort perception of market movements, causing premature exits from potentially profitable trades.

Strategies for Smoothing Equity Curves

  • A consistent approach is essential; there are no shortcuts or secret techniques—successful trading relies on managing emotions and self-discipline.
  • Fearful trading behaviors can lead to missed opportunities and further losses, reinforcing the loser cycle.

Accepting Losses as Part of Trading

  • Every trade begins with the potential for loss; understanding this is crucial for long-term survival in trading.
  • While not every trader will become wealthy quickly, adopting a disciplined approach ensures longevity in the market.

Building a Consistent Trading Model

  • Over time, traders will identify their strengths in analysis and develop a reliable model that they stick with throughout their careers.
  • It’s important to revisit foundational concepts regularly to reinforce understanding and fill knowledge gaps.

Analyzing Market Trends Using Commitment of Traders Data

Utilizing Historical Data for Trade Decisions

  • Traders are encouraged to analyze charts independently while also reviewing provided educational materials on price action models.

Current Market Analysis Context

  • As of May 2022, there has been bullish sentiment towards the Dollar Index, indicating bearish trends in foreign currencies like the British Pound.

Understanding Commercial Hedging Activities

Market Analysis and Trading Strategies

Bearish Outlook on Foreign Currency

  • The speaker expresses a bearish sentiment on foreign currencies while being bullish on the US dollar, anticipating further declines following negative readings.
  • Emphasizes the importance of understanding market trends through the Commit Trader Hedging Program, suggesting that previous commentaries have indicated lower market prices.

Trading Approach and Personal Style

  • The speaker clarifies their trading style as not suited for intermediate or long-term positions, preferring to teach others how to navigate these strategies effectively.
  • Discusses expectations for a market rollover, indicating that commercial traders will buy back as prices drop, which is a normal market behavior.

Analyzing Currency Pairs

  • Focuses on the British Pound vs. US Dollar monthly chart, highlighting a liquidity pull expected at lower price levels.
  • Identifies sell-side liquidity as a key factor in predicting continued downward movement in currency pairs.

Monthly Candle Expectations

  • Reviews April 2022's trading patterns and anticipates an expansion of the monthly candle towards liquidity pools.
  • Describes optimal trade entry points based on daily charts and emphasizes targeting old monthly lows for potential profits.

Swing Trading Model Insights

  • Outlines a swing trading model aimed at capturing 100 to 300 pips profit by entering trades early in the week (Monday-Wednesday).
  • Provides specific entry points and target levels for trades, encouraging traders to use Fibonacci projections for setting objectives.

Simplifying Trading Strategies

  • Encourages traders to simplify their approach by focusing on directional bias and understanding where markets are likely headed.
  • Suggests using lower time frame strategies after hitting key levels, integrating various models taught previously.

Managing Trades Effectively

  • Advises against prematurely closing trades during minor retracements; instead, hold positions until reaching targeted objectives.
  • Reinforces that successful trading requires understanding market movements without overwhelming complexity; focus should be on clear plans and execution.

Understanding Optimal Trade Entry Strategies

Simplifying Trading Models

  • The speaker emphasizes the importance of clarity in trading strategies, focusing on identifying bias and narrative rather than complicating the model with unnecessary elements.
  • A strong entry strategy is highlighted, combining optimal trade entry with fair value gaps, advocating for simplicity over complexity in execution.
  • Model number three is introduced as straightforward and effective, mirroring previous models discussed without excessive components or moving parts.

Market Analysis Techniques

  • The speaker discusses market pullbacks into ranges with expectations of price movements towards old monthly lows, suggesting a methodical approach to analyzing trends.
  • The Euro is presented as a case study for better predicting lower prices through commitment trader data, indicating its effectiveness compared to other currencies like the dollar index.

Personal Trading Experience

  • The speaker shares personal challenges in maintaining long-term trades due to the dynamic nature of stock index futures compared to other markets.
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Government Required Risk Disclaimer and Disclosure Statement 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.