ICT Month 11 | 2016

Question 2

What knowledge is crucial for a trader to successfully capitalize on Megatrades?

Answer 2

Understanding the impact of Institutional Sponsorship and the dynamics of Supply & Demand in commodities is essential for trading success with Megatrades.

Question 3

In reference to Multi - Asset Analysis when it is going to be easy trading and when hard trading.

Answer 3

• When 4 classes in sync → easy trading.
• When 4 classes NOT in sync → hard trading SM could be waiting and NOT ready to invest.

When markets are efficient then they create BIG market moves which are easy to see.

Question 4

How can Megatrades be identified, and what are the main drivers behind these movements?

Answer 4

Megatrades are historically easy to spot in price action each calendar year and are primarily driven by huge Institutional Sponsorship and the forces of Supply & Demand.

Question 5

What are Megatrades, and why are they significant in the financial markets?

Answer 5

Megatrades are significant annual market movements characterized by large price swings or trends that can yield massive potential gains, outperforming other markets.

Question 6

Why do Fundamentals Matter when it comes to commodities?

Answer 6

Commodities require a measure of Fundamental consideration in our analysis.

We do not hjave to wade through dry, boring crop reports or cattle head reports.

A simple newspaper headline migh be all that is needed to draw a Fundemental conclusion.

The idea of market that has been quite for a while and suddenly there is a discussion by a way of headline for instance back in 90s there was parasite that was infesting crops and also the heat waves. The grain markets went into premium.

Ahead of those big moves there are always going to be BIG headlines that there may be trouble looming for those crops and it was dryness & drought mainly in the US and also there was also some bug (parasite) that was trying to damage the crops & it is in the middle of summer that is going to ignite big moves

ICT likes commodities futures magazine to get its fundamental analysis. They [magazines] are usually saying that the market is hot to trade WHEN it is at the point of reversal.

If I see headline news or special focus on specific commodity that they are hot that tends to be a good condition for megatrades to form. That builds idea of sentiment and it is the idea to be extremely bullish or extremely bearish. It is ideal to get those headlines when the technical is in alignment with a big move.

Question 7

How should I seek Megatrades?

Answer 7

The process:

1. Search Headlines for commodities
   
   1. Something like the grains are in trouble because of dryness or to much rain
   2. Shortage of Oil Production
   3. There is war [something comint up effecting oil prices]
2. Select premium Markets
   
   1. NO need but I want to rather chose markets with premium
3. Confer with USDX Direction
   
   1. Dollar Up → commodities Down
   2. Dollar down → commodities up
4. Use Relative Strength in each sector
   
   1. Compare the lows for the SMT in the SECTOR that is going to indicate professional accumulation
   2. Same thing when looking for the highs; some kind of SMT heavy distribution
5. Filter leader from each Sector
6. Try to follow one leader from each sector
7. Use Option prices for paper trades too

Question 8

What is a quick and easy first step to identify potential explosive Bull Markets in commodities?

Answer 8

Consult the delivery month closing prices and note if any commodity has a premium over distant months, as this is a primary indicator for searching for explosive Bull Markets each year.

Question 9

What does a premium in commodity prices indicate about the market’s potential price movement?

Answer 9

A premium in the market is an indication of a potential explosive vertical parabolic price move.

Question 10

How does the presence of a premium affect the duration and direction of price action in commodity markets?

Answer 10

Markets tend to have longer periods of going up in explosive price action when there is a premium. Without a premium, markets can drop quickly.

Question 11

Is a premium required to have a bullish outlook on a commodity?

Answer 11

No, a premium is not required to be bullish on a commodity; it merely adds to the likelihood of a strong price rally.

Question 12

How does the movement of the US Dollar (DXY) generally affect commodity prices?

Answer 12

Generally, when the US Dollar is declining, commodity prices tend to rise, and when DXY rises, it pressures commodity prices lower.

Question 13

Can commodity prices and the US Dollar move in the same direction, and if so, for how long?

Answer 13

Yes, there can be periods lasting as long as a year when commodity prices and the US Dollar move in tandem

Question 14

How can you identify a commodity that is under professional accumulation?

Answer 14

Look for commodities that create a higher low compared to others, as this is an indication of accumulation and professional buying.

Question 15

Example: What does the higher low in the price of Wheat compared to Soybeans indicate about its market strength?

Answer 15

Wheat’s higher low indicated that it was the stronger commodity in the Grain market, suggesting professional accumulation and a higher likelihood of rallying the most.

Question 16

Why is a diversified approach across all commodity sectors recommended?

Answer 16

Diversification increases the odds of capturing a Megatrade in one or more sectors, as not every sector or selected leader will perform well.

Question 17

How can sector leaders be compared to identify which ones have more strength?

Answer 17

Compare which commodity leaders are breaking the highs earlier than others and observe the lows for SMT to identify failure swings and signs of professional accumulation.

Question 18

What does it indicate when a commodity breaks highs before others?

Answer 18

It suggests massive accumulation and is a sign that the commodity may be experiencing professional buying, indicating strength.

Question 19

What is the importance of identifying failure swings in the lows for SMT on commodities?

Answer 19

Failure swings in the lows can indicate where accumulation is happening, which helps fine-tune the search for strong commodities.

Question 20

What is the ideal focus when selecting commodities for potential Megatrades?

Answer 20

Ideally, focus on one leader from each sector and measure their performance based on their ability to break highs first and show failure swings on the lows.

Question 21

How can the treasure seeker mindset benefit commodity trading?

Answer 21

Treating the search for annual big movers like a treasure hunt can make the process more enjoyable and prevent it from becoming tedious or boring.

Question 22

What is the ultimate goal when adopting the treasure seeker mindset in commodity trading?

Answer 22

The goal is to find big moves that happen in a short time, covering a lot of ground quickly, which can be likened to discovering hidden treasure.

Question 23

How do quarterly shifts impact Megatrades?

Answer 23

Quarterly cycles can create intermediate-term turning points in the markets, which are crucial for identifying explosive market moves.

Question 24

Why are seasonal tendencies important for Megatrade selection?

Answer 24

Seasonal tendencies often align with explosive market moves, making conditions more favorable when they are in alignment.

Question 25

What is the significance of the US Dollar Index (USDX) in currency market movements?

Answer 25

Every significant move in the Forex market is rooted in the price action of the USDX, which must support the trade idea for it to be a qualified Megatrade setup.

Question 26

Why is it important to focus on major currency pairs for Megatrade selection?

Answer 26

Major currency pairs determine the major moves in the market, and understanding them is essential for identifying Megatrades, even in cross pairs.

Question 27

How do futures contracts aid in the analysis of Megatrades?

Answer 27

The price action of futures contracts for major currencies can lead to opportunities that unfold as Megatrades.

Question 28

What indicates heavy accumulation in Relative Strength Analysis?

Answer 28

Markets putting in higher lows and breaking premium arrays suggest relative strength and accumulation.

Question 29

How should I seek Megatrades?

Answer 29

Simple process:

1. Searching Strong [&Weak] Currency Futures
2. Study Forex Pairs Respectively
   
   1. If EUR and CAD are bullish then look at EURUSD and USDCAD
3. Cofer with USDX Direction
4. Use Relative Strength in Each Currency
5. Filter leadership Currencies
6. Try to follow one or two Currencies
7. Use Option prices for paper trades too.

This is overview that will be refined in detail in the August pdf files for Commodity Top Down Analysis.

I get the strong and weak currencies. Then find the strongest in the stronger section and the weakest in the weak section.

Strong easy trading thru premium Arrays and supporting discount.

Weak ones just vice versa.

Question 30

What does it mean Pairing strong Currency with weak currency?

Answer 30

If I am going to be looking for stronger dollar then currency going lower all the foreign is going to be lower and one currency is going to be trading against that [being strong] and I would be pairing that strong currency against weaker currency. → opportunity.

This is how banks look for big moves.

Question 31

What is the purpose of filtering leadership currencies?

Answer 31

To identify the strongest in the strong section and the weakest in the weak section for trading.

Question 32

What are the base points for me to catch the mega trades on stocks?

Answer 32

• Quarterly Shifts
• Seasonal Tendencies
• The Major Market Direction
• The Fundamental Screen
• Relative Strength Analysis

Question 33

How to anticipate Megatrades in Stock markets?

Answer 33

The process in simple trems.

1. Anticipate new earnings leaders
2. Plan Seasonal tendency overlaps for annual movements
   
   1. Beginning of the year
   2. September October November → bullish
3. Refer to direction of Major Stock Indices
   
   1. What is market direction → higher or lower
   2. That is important for megatrade.
4. Perform Fundamental Screening
   
   1. Select Strong Industry Group → Select Strong Industry Sectors → Select leading stocks in those industry sectors.
   2. The high flying stocks that go up are the ones that make tons and tons of money. [highly profitable stocks], they want to see increase in sales each quarter, previous years quarter, annually increasing, is there new product coming up → all leading to company profitability
5. Use Relative Strength to filter leader Stocks
6. Use Option prices for paper traders too

Question 34

What importance do quarterly shifts play in stock megatrades?

Answer 34

The Impact of Quarterly cycles & Earnings in the markets can never be overstated. Quarterly shifts that occur in stocks are closely correlated to earnings

Every three months or so the markets will tend to form an intermediate term turning point.

The overlapping of Megatrade conditions - coupled with this effect is crucial to finding the next explosive market moves.
Greed is the number 1 drivers for companies. Earnings watch every 3 months and anticipate next big movers based on their earnings.

Question 35

What importance does Seasonal Tendency play in stock megatrades?

Answer 35

Seasonal Tendencies are important for Megatrade selection as well.

We have covered all the salient Seasonal Tendencies for each market and asset classes.

Generally makes a low at the beginning of the year, trades up into Spring. Consolidation all the way into the fall and then the best buying opportunity around September October time period or late as November. Fall months [Sep, Oct, Nov] in that quarterly shift or earnings season there could be enormous rally.

Stocks not always lockstep with seasonal tendency best time is during the start of the year and Fall months going into the end of the year.

The Seasonal Tendency may or may not be a factor on all explosive moves - but most tend to be in alignment with this market phenomenon.

Couple of Quarterly earnings and Seasonal Tendency and if looking at march those releases of earnings will generate a lot of movement in price. Much in the same was third quarter for stocks [fall] they will be huge generator of end of the year rally.

Coupling Quarterly Earnings + Seasonal Tendency

Stock seasonal tendenyc is closely correlated to YM Seasonal tendency.

Question 36

What importance does Major Market Direction play in stock megatrades?

Answer 36

Every significant mover in the Stock Market is going to have its momentum increased by the General Market Direction. Are the three averages ES NQ and YM moving up or moving lower all together.

Strong stocks can rally higher without assistance of Major Market, but typically accelerate when the broad markets move higher. If I am fish in the stream it is easier to swim with the current DO NOT be the SALMON.

The search for Megatrades in stocks will depend, on the support of the trade idea in the Major Market Direction - or it is not a qualified Megatrade candidate.

Stock market is a Ponzi scheme and it is continuously poised to go higher, I can see Institution foot prints as they are easy to see but I have to WAIT for those conditions.

All three averages [NQ ES and YM] moving higher that will support buying opportunity inside the stock market. Some stocks will move ahead of general market but look for conditions when general market is poised to trade higher.

When poised to trade higher and seasonal tendency overlapping and quarterly earnings increase I can anticipate price trading higher

Question 37

What importance does Fundamental Screener play in stock megatrades?

Answer 37

Having a systematic approach to screening Stocks “Fundamentally” is advantageous to your bottom-line.

It is best to keep the screening process short & simple to avoid wasted time and energy. Use today’s Institutional tools.

ICT is rarely looking at fundamentals on stocks. He only looks for shortcuts by smarter folks than them. I can use my smartphone for this as there is resource at my fingerprints.

The process should be doable do not have too many tasks when selecting stocks to trade.

quarterly numbers, annual numbers → those two are important.

Investors Business Daily. → follow the magazine as they do number crouching for me.

Screening process should be short and simple, and use the tools for this

Keep it short and rather do not overcomplicate it and let others make the calculations of fundamentals.

Question 38

What importance does Relative Strength Analysis play in stock megatrades?

Answer 38

In the stock market, it’s beneficial to focus on sectors that are performing well in a bullish market. Within these sectors, identify the strongest industry groups that are trending upwards. The key to success is to pinpoint the leading stocks within these strong industry groups—this approach is considered highly valuable.

When selecting stocks, prioritize those that are not only showing strength within their sector but are also leaders within their industry group. Combining this with Smart Money Tool (SMT) observed in the indexes like NQ, YM, and ES can be particularly advantageous.

For example, if a stock like Facebook is showing a higher low while the YM index is making a lower low, this indicates strength in Facebook relative to the general market. This strength is further confirmed if there’s index SMT, where different indexes like NQ, YM, and ES show divergent patterns, such as NQ making a higher low while the others make lower lows. This divergence is a bullish signal.

In summary, the strategy involves conducting a Strength Analysis, considering Quarterly Earnings and shifts, and selecting leading stocks. Applying SMT and assessing the fundamental strength of a stock are crucial steps in this process.

First I always look for Index SMT and then look for the stocks that are leaders!!!

Question 39

What is the importance of Investors Business Daily role in catching the Mega Trades in Stock Market?

Answer 39

To effectively trade stocks using the “silver bullet” model, focus on identifying Smart Money Tactics (SMT) within the stocks. SMT is particularly powerful when it’s observed in stocks that are leading within their strong industry groups.

SMT in stocks acts as a ‘silver bullet’ when the stock is a leader in a strong industry group.

This approach simplifies the fundamental analysis process. To find these leading stocks, you can:

1. Visit the LEADERBOARD, which lists stocks that are performing well.
2. Check the IBD 50, a comprehensive list of the top 50 stocks ranked according to the CANSLIM fundamental ranking system.

The IBD 50 is a key resource for identifying top-performing stocks based on fundamental analysis.

However, accessing the IBD 50 requires a subscription, as it is a paid service. Using these tools, you can streamline the selection of fundamentally strong stocks that exhibit technical divergence, which is essential for the “silver bullet” model of stock trading.

Prior to the Expansion and/or SMT price should be in range of consolidaiton.

Question 40

How does the SmartSelect Composite Rating correlate with long-term stock performance, and what other factors should be considered when using this rating as part of a broader investment strategy?

Answer 40

When analyzing stocks using the full version of the list, a critical factor to consider is the SmartSelect Composite Rating. ICT, a particular strategy or analyst, prefers stocks with a Composite Rating of 98 or higher.

The SmartSelect Composite Rating is a key metric, with a preference for scores of 98 or higher.

This Composite Rating is an amalgamation of various factors, including accumulation and distribution, which helps in assessing the overall strength of a stock.

To apply this strategy, you would also filter stocks based on their share price. In the given example, the focus is on stocks with share prices ranging between $20 and $25.

By combining these tools, you can create a composite rating that aids in the selection of stocks. This method allows for a more comprehensive analysis by incorporating both technical and fundamental aspects.

Based on this approach, here’s a question you might consider:

Question 41

How can an investor utilize SMT to distinguish between merely good stocks on the IBD list and the true leaders within their industry groups?

Answer 41

To identify strong leaders within industry sectors, it’s essential to look beyond just the presence of a company on the IBD list and search for Smart Money Tool (SMT) signals.

The most effective technical pattern in trading stocks is SMT against major averages, such as the divergence between Facebook (FB) and the YM index.

In bullish sectors and industry groups, strong stocks are more apparent, with SMT indicating significant buying interest. Resources like Investorguide.com can be used to delve into major sectors and their industry groups, providing a list of all stocks within a group. For technical analysis, tools like IBD and Telechart are beneficial.

Question 42

What strategies or indicators can investors use to predict the timing of market movements and identify the early signs of institutional buying that precede longer upward trends in stock prices?

Answer 42

The NQ index making a higher low suggests that tech-heavy stocks are likely to perform well, indicating strength in the technology sector. Recognizing the ‘silver bullet’ of index SMT in stocks is crucial, but it’s equally important to time the market’s movements accurately.

Index SMT is a powerful indicator, but understanding when the market is likely to move is key. Spotting divergence among indexes like NQ, ES, and YM at logical intervals, typically every three months, can signal the right time to search for stocks.

Institutional investment patterns indicate that upward trends in stock prices tend to last longer because institutions invest more heavily in stocks they expect to rise, as opposed to shorter durations for shorting stocks.

Question 43

What are the base points for me to catch the mega trades on Bond Markets?

Answer 43

• Seasonal Tendency
• Interest Rate SMT

Question 44

How can traders incorporate seasonal tendencies, particularly the May-June seasonal low in the bond market, into their trading strategies to enhance the selection of megatrades?

Answer 44

Seasonal tendencies play a crucial role in selecting megatrades across various markets and asset classes. While not all explosive moves align with these tendencies, many do follow these predictable patterns.

In the bond market, seasonal tendencies are particularly pronounced. There is often a pattern of weakness at the start of the year, leading to a seasonal low between May and June. This recurring phenomenon doesn’t guarantee a seasonal low every year during these months, but it does suggest a higher likelihood, making it a period worth monitoring for potential trading opportunities.

The bond market often experiences a seasonal low around May and June, which traders can anticipate annually, though it’s not guaranteed.

The anticipation of this weakness early in the year, culminating in a May-June low, is a key setup for traders. Additionally, the bond market tends to exhibit rallies during the September to October and November periods, marked by significant Intermediate-Term Lows (ITLs) that are short-term in nature.

Rallies in the bond market are often observed in the latter part of the year, particularly around September, October, and November.

For traders focusing on megatrades, the primary attention is given to the May-June period when looking for a seasonal low to capitalize on.

Question 45

How can traders utilize SMT and relative strength analysis between different bond maturities to confirm and capitalize on potential megatrades, especially around the anticipated seasonal lows in the bond market?

Answer 45

In the pursuit of megatrades within the Treasury Bond Market, which is known for its historical tendency to trend, the Smart Money Tactics (SMT) play a pivotal role in confirming the occurrence of such trades. While the bond market generally moves in a trend, it can also experience periods of consolidation and can maintain a long-term trend for extended durations.

For effective megatrade identification in bonds, it is essential to perform a comparative analysis of the 5 Year and 10 Year Notes against the 30 Year Bond Market. This relative strength analysis is instrumental in pinpointing the precise moments when smart money enters the market in significant volumes to purchase bonds.

The Treasury Bond Market often exhibits trending behavior, and relative strength analysis between different maturities can reveal smart money activity.

While seasonal lows, particularly in May and June, provide a statistical edge and the potential for a significant rally, the confirmation of such a rally hinges on the observation of SMT across the ZB (30 Year Bond), ZN (10 Year Note), and ZF (5 Year Note) markets.

Seasonal lows offer a statistical edge, but confirmation of a rally requires SMT evidence across different bond maturities.

Question 46

How can traders effectively implement a strategy that leverages seasonal lows and SMT analysis to identify and execute on megatrades in the bond market?

Answer 46

Monitor for Seasonal Lows:

Focus on the May-June period for potential seasonal lows in the bond market.
Watch for Institutional Buying:

Look for high time frame (HTF) price delivery (PD) array signals.
Seek signs of seasonal bullishness followed by indications of HTF bullish sentiment.
Wait for Discounted Bond Prices:

Allow bonds to reach a discounted price as a precursor to higher prices.
Conduct Daily SMT Scans:

Regularly scan for SMT between the ZB (30 Year Bond), ZN (10 Year Note), and ZF (5 Year Note).
Plan for Fall Price Highs:

If entering a long position, anticipate highs forming in September and October.
Prepare for short-term trading after these highs.
Trade with the Trend:

Avoid over-trading; instead, wait for the May-June period to initiate a trend that could last for months.
Recognize that bonds are consistent with both long-term and short-term trading models.
Remember, the bond market is considered less susceptible to manipulation compared to markets like Forex, making it a preferred market for many traders.

Note: This strategy is part of a broader analysis that will be further detailed in upcoming materials.

Question 47

How can traders use SMT divergence among the 5 Year, 10 Year, and 30 Year Bond Futures to detect the presence of Smart Money and make informed trading decisions?

Answer 47

The Smart Money Tactics (SMT) analysis of the bond futures markets indicates a move lower across the three Bond Futures (5 Year, 10 Year, and 30 Year). The analysis involves looking for discrepancies in the price movements of these related futures contracts, which can signal institutional activity.

The 5 Year (ZF) made a lower low (LL), suggesting weakness.
The 10 Year (ZN) made a higher low (HL), indicating relative strength.
The 30 Year (ZB) made an equal low (EL), showing neither strength nor weakness.
This divergence, particularly the failure of the 10 Year to make a new lower low, is a sign of accumulating strength in the bond market. It suggests that while prices are moving lower, there may be underlying buying pressure, especially in the 10 Year notes.

The divergence among the bond futures is a key indicator of Smart Money activity, as large volume buying by institutional investors often leads to a breakdown in the usual correlation between the 5 Year, 10 Year, and 30 Year bonds.

When trading the 30 Year bond, it is crucial to compare its movements with those of the 10 Year and 5 Year to detect when the “Smart Money elephant” steps in. This is what SMT looks like in practice.

Question 48

How can traders utilize SMT divergence on HTF charts to identify potential reversals and Smart Money accumulation patterns in the bond market?

Answer 48

When analyzing the bond market for Smart Money (SM) footprints, traders often work from high time frame (HTF) charts down to lower time frame (LTF) charts. This approach helps in identifying the points of divergence that may indicate a reversal due to SM activity.

On a 2-hour (2h) chart for the 5 Year Futures (ZF), a trader would compare the lows where SMT divergence occurred with subsequent price movements. If the price continues to trade higher after such divergence, it is often interpreted as a reversal signal.

SMT divergence, characterized by a crack in the usual correlation within the bond market, suggests that the instruments are not moving in tandem, which can be indicative of an accumulation pattern by SM.