ICT Month 10 | 2016 Flashcards
What does the COT Data tell me?
It helps me visually see the hedging programs by the commercial Traders.
What hedging programs are there that exist?
- 4 Year
- 3 Year
- 2 Year
- 12 Months
- 6 Months
How can I find short term hedging programs held by commercials.
Short term buy program can be found by looking back 12M or 6M and then breaking the chart based on the highest and lowest reading by the commercials and calibrating my new 0 line.
Basically dividing the range into premium and discount.
When COT data is suggesting commercials are bearish what am I waiting for?
When commercials are net short, I am still waiting for the Institutional Order Flow to get in sync. Price will tell me everything by itself.
Just because they are net short that does not mean I should go sell I have to WAIT for Institutional Order Flow to get in sync.
Anything above 0 obviously bullish. And below 0 clearly bearish But I can do both, sell above the 0 line and buy below the 0 line BECUASE I still have to focus on Institutional Price Action or basically what is price telling me on HTF. I can see buy programs kick in inside of a hedging program.
Where are Buy and Sell Program taking place in regards to 0 line?
Buy program above 0 line. Sell program below 0 line.
Commercials are going to be hedging early, BUT they make the highs and the lows in the market place by doing that.
But I have to consider what is Institutional Order Flow telling me. Primary focusing on the range, what is the range of the last 6 months.
When analysing the market how should I approach the COT data?
COT gives me the Buy and Sell program that they are operating in, and inside of that programs there are hedging programs that go on, because SM nature is to lock in prices of manufacturing, etc.
Determine the last 12 months to 6 months range. What is the highest high and lowest low. Determine new 0 point. But remember the Institutional Order Flow is still more important that COT data.
If we get to 4 year 2 year or 1 year extreme there is generally a reversal coming.
What does mean commercials below 0 line?
that is Sell program - does not mean I can not be buying, I have to look at the hedging that commercials have done
What does mean commercials above 0 line
that is Buy program - does not mean I can not se selling , I have to look at the hedging that commercials have done.
How to Blend the IOF and Commercial Hedging?
- If Institutional Order Flow is bullish - blend Discount PD Arrays and 12 - 6 Month net long commercial readings for Long Traders
- If Institutional Order Flow is bearish - blend Premium PD Arrays and 12 to 6 Month net Short Commercial readings for Short Traders.
The best conditions are seen when Both Net Zero agree with institutional order Flow and PD array matrix confluence.
When dealing with commercials which are the 2 main camps?
Agricultural and Financial.
What is Institutionally Sponsored Rally?
The DXY is the KING, what the DYX does sets the stage for everything else
* IF DXY lower commodities go higher
* IF DXY higher commodities go lower
Meaning when looking at institutionally sponsored rallies I look for market that has failed to go lower at the time when DXY would be expected to go lower - basically looking for SMT between DXY and commodities.
The market tends to trade higher energetically as a Leader Market and establishes the underlying direction opposite to DXY.
Short Term Highs are seen broken and declines are shallow in nature. The upswings and up closing candles are typically much larger than those that close lower or move lower.
Key Focal Point is Failure To Trade lower - SMT with the DXY!!!! Focus on those that make SMT with DXY. IF I see that → confirmation of professional confirmation [institutional buying]
What is Sympathetic Rally?
The market tends to trade higher in symmetry to the Leader Market that establishes the underlying direction.
While these markets are potentially profitable our aim is to focus on the Leadership Market for the strongest rallies.
Short Term Highs are seen broken and declines are shallow in nature. The upswings and up closing candles are typically much larger than those that close lower or move lower.
One of the commodities might fail to make a lower low when DXY is starting to go lower and when it does that it is SHOWING leadership [SMT with DXY] → I want to focus on those and not on sympathetic Rally. I want to buy the relative strength leader.
Described with example: Commodity makes a lower low while DXY makes a higher higher. → ideally I do not want to be focusing on these commodities as they are not going to trade that much higher and with that much magnitude.
What is Institutionally Sponsored Decline?
The market tends to trade lower energetically as a Leader Market and establishes the underlying direction opposite to DXY.
Short Term Lows are seen broken and rallies are shallow in nature. The downswings and down closing candles are typically much larger than those that close higher or move higher.
Key is to focus on Failure to trade higher - SMT divergence. Meaning DXY is bullish and it is about to rally making Lower Low then I want to look at commodities that fail to make a higher high → SMT that is key.
What is Sympathetic Decline?
The market tends to trade lower in symmetry to the leader market that establishes the underlying downside direction.
Short Term Lows are seen broken and rallies are shallow in nature. The downswings and down closing candles are typically much larger than those that close higher or move higher.
Ideally focusing on those that are really weak [SMT with DXY] because they are much more going to go lower. The way I determine that which one I should be selling short I determine that by looking at the highs.
What is Seasonal Tendency?
Seasonal tendencies are not be all end ALL. It is like a roadmap what should normally be seen in price action that time of the year. NORMALLY not it WILL happen but just something to anticipate.
I have to also have to have other reasons to pair it with seasonal tendency. If market is not trading with seasonal tendency. Meaning seasonal tendency is bullish but my pair is BEARISH that is telling me that seasonal influences have no impact on price and that means the trend is STRONG and it should trade lower.
Looking at the 40 year and 15 year seasonal tendency. Ideally I want them moving in the same direction.
If the IOF is pointing in the same direction that is when I could be anticipating nice trades to occur.
IDEAL trades when Seasonal Tendency and IOF Are in agreement.
What is carrying charge market?
I look at the closing price [last] in this case. Cash market is usually listed first and then immediately below it is nearby contract delivery month.
The contract after the nearby contract is referred to the next month out.
If there is lsat price increasing there is Carrying Charge Market. If todays price is 940 on nearby contract. Then on Next month in August there should be increase in price to 943.
July: 940-0 (nearby contract)
Aug: 943-4 (next month out)
Sep: 943-4 (month after next month out)
Nov: 945-4
That is increase in price and that is carrying Charge Market. Those commodities are less likely going to see agressive move or repricing higher.
What is premium market [when referring to commodities]?
Aug: 154.800 (nearby contract)
Sep: 154.800 (next month out)
Oct: 152.775 (month after next month out)
Nov: 151.275
I can see the price of Last decreasing and that is very strong PREMIUM market.
but what does that mean? There is something fundamentally strong about this commodity, the demand is high and the supply is short.
There is clear obvious Premium seen and that is seen by Todays price being higher than that of the next month out and the future months
If the future months have the lower price than the nearby month that is a Premium Market. This promotes the idea of commercial BULL markets.
Commercials will be looking to take delivery of it as they have to have it when it is short supply of it. Meaning if they are ready to pay premium price for it now, than there is something fundamentally going on that they have to get this commodity right now.
Premium:nearby month selling at the higher price than the next month out
What is commercial bull market when looking at commodities?
Parabolic run quickly higher, with speed and magnitude, that is usually a signature of Premium Based market.
What does it mean creating a “SPREAD chart” on commodities.
Once the nearby contract is opened of the commodity I should create a spread chart.
Spread chart is the difference plotted between the nearby contract and the next month out of the certain commodity. (doing it on barchart.com)
Doing the spread on the nearby to the next month out!!!! It has to be the minus symbol as that is going to give me the difference.
What to focus when creating “SPREAD chart” on commodities?
I should be focusing on the 0 line as that is representing the amount of spread.
Anything above the 0 line represents the amount of spread that the nearby contract is trading above the next month out.
The larger the spread the stronger the likelihood of commercial bull market or parabolic move higher.
To which commodity I should compare the spread chart?
Compare the spread chart to the nearby contract month.
For example: If I am looking to trade Live Cattle (LE) because I see it has a nice Premium market (fundamentally strong). Then I do the spread chart on the nearby contract (example June) to the next month contract (Aug) (going on barchart.com -> creating spread -> plotting the difference). Once I have the Spread Chart created I overlay it with the Nearby contract of Live Cattle (LE) AND then compare the lows and look for SMT, because PRICE IS PRICE. Look for the SMT between nearby contract and the spread - SPREAD DIVERGENCE
BUT STILL this is not clear indication to BUY I have to have atleast IOF in sync.
Bullish IOF is the stage then the SMT Spread divergence is just my buy trigger
What is bullish Spread Divergence?
The Spread divergence is the SMT between Nearby contract of the commodity and the Spread Chart.
that SPREAD divergence is only seen when institutions are coming in and buying a lot of commodity QUICKLY, aggressively and massively.
Bullish spread divergence between nearby and next month out it gives me strong willingness to support buying. I could be a buyer at any bullish PD array.
I have to see Spread Divergence that IS the confirmation of Institutional BUYING while IOF is suggesting higher prices.
This SM tool works in all commodities.
What if I see bearish Spread Divergence when buying commodity?
if I see bearish divergence - meaning spread making LH while price making higher high - that would be indication that I should look for reasons to trail my SL or just take out the position AND wait for new buy signal.
What is Open Interest?
Open Interest is the total number of outstanding contracts that are held by the market participants at the end of each trading day. Where volume measures the pressure or intensity behind a price trend, open interest measures the flow of money into the futures market.
For each seller of a futures contract there must be a buyer of that contract. Thus a seller and a buyer combine create only one contract. Therefore, to determine the total Open interest for any given market we only need to know the totals from one side or the other, buyers or sellers, not the sum of both.
How can the change in Open Interest be sign for bullish or bearish market in TRENDING CONDITIONS (4 points)?
- If prices are in an uptrend and Open Interest is rising, this is bullish sign.
- If prices are in a downtrend and Open Interest is rising, this is a bearish sign.
- If prices are in an uptrend and Open Interest is falling, this is bearish sign.
- If prices are in a downtrend and Open Interest is falling, this is a bullish sign.
If prices are in an uptrend and Open Interest is rising, this is bullish sign. What does that mean?
There are shorts who are being stopped out, but new sellers are taking their place. As the market continues to rise, the longs get stronger and the shorts get weaker.
If prices are in a downtrend and Open Interest is rising, this is a bearish sign. What does that mean?
Weak longs are being stopped out, but new buyers are taking their place. As the market continues to fall, the shorts get stronger and the longs get weaker. Put another way - as long as the Open Interest is increasing in major trend, it will have the necessary sponsorship to continue.
If prices are in an uptrend and Open Interest is falling, this is bearish sign. What does that mean?
The old longs, the “smart money” are banking gains as they are liquidating. They are replaced by new buyers who will not be as strong on balance, but the declining open interest is an indication the weak shorts are also exiting. They will be replaced by new shorts who are stronger than the old shorts were.
If prices are in a downtrend and Open Interest is falling, this is a bullish sign. What does that mean?
Smart Money, the shorts are covering or liquidating profitable shorts. They will be replaced by new shorts not as strong as they were, but the declining Open Interest indicates the squeezed longs are bailing. They will be replaced by new longs who were not as weakened by the lower prices as the old longs were. Put another way - when supply of losers is exhausted the downtrend ends.
How can the change in Open Interest be sign for bullish or bearish market in CONSOLIDATING CONDITIONS (4 points)?
- If Prices are in consolidation and Open Interest is rising, this is a bearish sign.
- If prices are in consolidation and Open Interest is falling, this is a bullish sign.
If Prices are in consolidation and Open Interest is rising, this is a bearish sign. What does that mean?
The reason is the “street money” plays the long side. Rising Open Interest in a trading range suggests the Commercial Hedgers and Professionals are taking the short side, and the uninformed speculators will likely fail victim to the downside break in price.
What causes open interest? if the commercials hedgers are the liquidity provider and they offer, the commodity for purchase for trading if they are willing to sell a lot of it that means they do not believe the price is going to go higher otherwise they would hold out and wait for higher prices.
If the open interest is rising they expect prices are NOT going to increase because on balance they are larger as a supplier or seller of commodity than they are a buyer. So open interest increasing provides a measure of their willingness to be a heavy seller. If OI is high that means they have high interest on seeing lower prices.
Open Interest increased while price stayed in a range price will most likely break down and the commercials will be the indication of that.
I want to couple that with COT program → what the commercials are doing they should be net short or increasing their short selling.
Conversely we want to look for Long Term or HTF Resistance levels in Price to anticipate this Open Interest concept. In times where Price is trading at a Key resistance level on a HTF basis - Open Interest will rise while Price is consolidating at or near the HTF Resistance or Premium Array as we outline Institutional Reference Points. This will be Bearish and anticipate a down swing in Price.
If prices are in consolidation and Open Interest is falling, this is a bullish sign. What does that mean?
The reason is the commercials hedgers who are most likely shorting - are covering. The “street money” will be shorting and or expecting a breakout lower in price.
Ideally we want to look for Long Term or HTF levels in Price to anticipate Open Interest concept. In times where price is trading at a Key support on HTF basis - Open Interest will drop while price is consolidating at or near the HTF Support or Discount Array as we outline Institutional Reference Points. This will be bullish and anticipate an up swing in price.
Summarize Open Interest Concept with HTF Key Levels…
Ideally we want to look for Long Term or HTF levels in Price to anticipate Open Interest concept. In times where price is trading at a Key support on HTF basis - Open Interest will drop while price is consolidating at or near the HTF Support or Discount Array as we outline Institutional Reference Points. This will be bullish and anticipate an up swing in price.
Conversely we want to look for Long Term or HTF Resistance levels in Price to anticipate this Open Interest concept. In times where Price is trading at a Key resistance level on a HTF basis - Open Interest will rise while Price is consolidating at or near the HTF Resistance or Premium Array as we outline Institutional Reference Points. This will be Bearish and anticipate a down swing in Price.
When is the Opening Range On Bonds and what are its characteristics?
The Opening Range between 8AM and 9AM tends to create Bond Market High or Low of the Day. It can be a run on Stops or Fair Value setup. It is the location Liquidity Pools behind around for Stock Market Open raids.
Highest Volume: 8AM to 9:30AM NY Time
True Day: 8AM to 15:00 NY time.
What is 8:20 CME Opening?
8:20 is CME opening. → strong influx of New York traders coming in. London traders are still awake looking to take some trading.
When does ICT anticipate signals to form on Bond market intraday?
ICT likes to see signals form at 8:20 to AFTER. They can occur as early as 8AM but generally ICT likes to see signals occur between 8AM and 8:30AM but basically the target time is 8:20AM or CME opening.
What are some characteristics of Bond Market?
- ICT likes the bond market because it DOES NOT Have a LOT of manipulation. There is still a manipulation but generally the LEAST manipulation is on the BOND market.
- Bond market is highly liquid really nice when trending. When it moves in trend it generally stay in that direction. When in consolidation it can be a little choppy but if I know what I am looking for [turtle soup, FVG] using EQ ideas there is no reason why I would NOT be able to trade
- Bond Market generally DOES not have a LARGE daily range. so if I can capture between 5 to 8 ticks there is nothing wrong with that.
- It has respect of Liquidity pools, Liquidity Gaps, FVG it follows the same thing as forex but it will not have that many spikes up or lower. it will still sometime run my stop I still can fail the bond market.
