ICT Month 12 | 2016 Flashcards
How can a trader effectively utilize a monthly analytical process, incorporating seasonal tendencies, market shifts, and key price levels, to establish a long-term bias for market direction?
The process for determining the monthly bias in market analysis involves a series of steps that are conducted at the beginning of each month. This structured approach is designed to provide a long-term perspective on market trends and key levels:
Seasonal Tendency: Begin by examining the typical market behavior for the current and upcoming month.
Quarterly Shifts: Consider the possibility of a market cycle or shift every 3 to 4 months, which may signal a continuation or reversal of trends.
Interest Rate Differentials: Use interest rate differentials as a price reference for currencies, and bond markets for stocks, to assess the direction of fundamental rates.
Market Profile: Analyze current price action and the recent trend, whether it’s consolidation or a directional move.
Intermarket Analysis: Evaluate other closely correlated markets to support or challenge the primary analysis.
Market Structure: Determine the current market phase in terms of making new highs or lows, incorporating Smart Money Tactics (SMT) as needed.
PD Array Matrix: Classify the market as trading at a premium or discount.
Key Price Levels: Identify significant price levels that may serve as potential entry points or targets.
Monthly Bias Determined: Conclude with the establishment of a long-term directional bias.
This monthly bias then informs the analysis on a weekly time frame chart for a more intermediate-term perspective.
How can traders integrate a monthly HTF analysis with seasonal tendencies to discern the long-term directional bias and key levels for an asset or market?
he presentation aims to establish a framework for analyzing the long-term impact of market conditions on an asset using a monthly perspective. The process involves:
Assessing the influence of the monthly chart on the asset or market.
Determining the directional bias on the high time frame (HTF) monthly chart.
Classifying price delivery (PD) arrays to aid in identifying key levels.
Conducting a comprehensive institutional analysis on a monthly basis.
This approach is centered around the identification of seasonal tendencies, which serve as the starting point for the analysis. The focus is on long-term trends and patterns, primarily utilizing the monthly chart.
How can a trader leverage historical seasonal tendencies to identify markets with a higher probability of moving in a predictable pattern during specific months of the year?
The starting point for market analysis is identifying the seasonal tendencies associated with the current or upcoming calendar month. The focus is on markets that have historically shown a propensity to move in a consistent manner during the same time each year. This approach is based on the seasonal patterns that have been observed and taught for the four asset classes analyzed over the past year.
The goal is to concentrate on the seasonal tendencies that are particularly strong or relevant for specific months. By recognizing these patterns, a trader can prioritize markets that, according to historical data, are more likely to exhibit similar movements due to seasonal influences.
Steve More is noted for providing valuable insights into seasonal tendencies, and by focusing on markets with historically consistent seasonal movements, the probability of successful trades can be enhanced.
How can traders use the analysis of the 9 to 18-month trend on the monthly chart to anticipate potential quarterly shifts and make informed decisions about buying or selling opportunities?
assess the quarterly shift by examining the long-term trend over the past 9 to 18 months. This involves:
Identifying whether the market has been predominantly bullish or bearish during this period.
Justifying the potential for the upcoming quarterly shift to present a buying opportunity in a bullish trend or a selling opportunity in a bearish trend.
Refraining from attempting to predict the end of the long-term trend, instead focusing on the high and low points within the 18-month range to gauge market direction.
Recognizing that long-term trends typically persist for extended periods.
In cases where the 9-18 month trend is unclear or the market is consolidating, preparing for the possibility that the direction of the past 3-4 months may reverse.
This analysis of the 9 to 18-month range on the monthly chart helps to form an understanding of the market’s behavior on a larger scale.
How can traders integrate interest rate differentials with seasonal tendencies and quarterly shift expectations to form a fundamental bias for currency pairs in Forex trading?
ICT incorporates the concept of interest rate differentials into the market analysis by comparing central bank interest rates across different countries. This information is sourced from financial websites such as Investing.com, which provides a comprehensive list of central bank rates. The strategy involves pairing a currency from a country with a high interest rate with one from a country with a low rate to establish a fundamental bias for a Forex pair.
The ideal scenario is when the seasonal tendency and the expectations for the quarterly shift are both in agreement with the interest rate differential trade idea. This alignment strengthens the fundamental bias, suggesting a pairing of a strong currency with a weak one based on their respective interest rates.
How can traders use the classification of recent market highs and lows, in conjunction with SMT divergence and correlated market analysis, to align their trades with the prevailing market structure and enhance their trading strategy?
In defining the current market structure, ICT focuses on classifying the recent highs and lows and examining their relationship to the market’s correlated assets to identify Smart Money Tactics (SMT) divergence. This involves:
Comparing recent highs to previous highs to ascertain if long-term, intermediate, or short-term highs are influencing the current price. In the presence of a long-term or short-term high, especially when aligned with bearish seasonal and quarterly expectations and weak currency indicators, there is a tendency to look for short opportunities.
Comparing recent lows to previous lows to determine if long-term, intermediate, or short-term lows are dominating the price action. If a long-term or intermediate-term low is established, and there are signs of bullish seasonal tendencies, a trending market profile, and bullish quarterly shifts, then bullish opportunities are sought.
Trades that align with the direction of the current market structure are preferred. The goal is to buy in scenarios where the market structure and other indicators are bullish and to sell in scenarios where they are bearish, without deviating from this strategy. Additionally, when assessing highs and lows, the presence of SMT divergence is also considered as it can provide further insight into market dynamics.
How can traders use intermarket analysis to seek confirmation of market structure signals in their primary market by examining the technical conditions in correlated markets, and how might extraordinary events like war alter these expected correlations?
In the context of intermarket analysis, when a bullish market structure is identified in a primary market, the analysis seeks confirmation by looking at positively correlated markets for similar bullish signs and negatively correlated markets for bearish signs. For instance, a bullish U.S. Dollar Index (DXY) would typically suggest a bearish technical outlook for gold. Conversely, if the market structure is bearish in the primary market, the expectation would be to find bearish signals in positively correlated markets and bullish signals in negatively correlated markets, such as a bearish Euro (EU) correlating with a strong DXY and, consequently, a weaker gold market.
However, it’s important to note that in exceptional circumstances, such as during war or other significant geopolitical events, market behavior may deviate from these typical correlations, and unexpected price movements can occur.
How can traders determine whether a market is consolidating, trending, or retracing, and what strategies should they employ in each market profile to optimize their trading decisions?
Consolidating Market:
If yes, anticipate potential expansion and look for pre-breakout evidence.
If no, the trend may be at an extreme, suggesting a likely retracement.
Trending Market:
If yes, seek continuation trades and avoid trying to pick tops and bottoms.
If no, search for signs indicating a directional breakout, possibly using intermarket analysis.
Retracing Market:
If yes, identify signs for potential continuation trades after the retracement.
If no, assess whether the market is consolidating or trending and apply the relevant strategies.
How can traders utilize the PD Array Matrix to identify premium and discount price ranges and integrate this with seasonal, technical, and fundamental analysis to locate institutional focus points and develop robust trade ideas?
Institutional Focus Points Analysis with PD Array Matrix:
Analysis of Price Action:
Break down the selected price range into areas of premium and discount.
Identify the most obvious premium and discount arrays within the price range.
Trade Idea Development:
Use the identified PD arrays to construct potential trade ideas.
Integrate the PD arrays with previous analysis points, including market structure, intermarket analysis, and market profiles.
Combining Analysis:
Look for signs of seasonal tendencies that support the trade idea.
Incorporate technical analysis and fundamental analysis through interest rates.
Blend all three aspects (seasonal, technical, and fundamental) to formulate a comprehensive trade idea.
Focus Level Determination:
Utilize the PD array matrix to pinpoint the levels of institutional interest where trades may be most favorable.
How can traders calibrate the PD arrays to the nearest significant price levels to identify the ‘low hanging fruit’ and establish monthly key levels for informed trading decisions?
Key Price Levels Identification:
Selection of Market Structure:
Determine the specific segment of market structure to base trade ideas on.
Calibration of PD Arrays:
Round each PD array to the nearest .10 or .05 level, whichever is closer.
For premium arrays above the current market price, round down to the nearest calibrated level.
For discount arrays below the current market price, round up to the nearest calibrated level.
Identification of Monthly Key Levels:
After calibration, identify the monthly key levels that will serve as significant points for potential trades.
How can traders synthesize relative strength, Commitment of Traders data, market sentiment, market profile, intermarket analysis, and market structure to define key price levels and establish a weekly trading bias for intermediate-term top-down analysis?
Intermediate-Term Top-Down Analysis Process:
The Relative Strength
Evaluate relative strength when the monthly timeframe is ambiguous.
Commitment of Traders
Analyze currency and commodity markets for commercial traders’ extremes, which often precede market tops and bottoms.
Market Sentiment
Consider the prevailing sentiment among retail traders, typically aiming to take a contrarian approach
Market Profile
Examine the weekly market profile for signs of consolidation, trending, or retracement.
Integrate various market opinions, not just technical analysis, to inform decisions.
Intermarket Analysis
Compare weekly movements of negatively and positively correlated assets to gain insights into the target market
Market Structure
Incorporate institutional order flow by identifying key candlestick patterns that indicate support and resistance levels.
PD Array Matrix
Define the price range on the weekly timeframe and identify premium and discount arrays.
Key Price Levels
Calibrate the identified price levels to pinpoint precise buy and sell zones.
Weekly Bias Defined
Establish a directional bias for the week based on the above analysis.
How can traders utilize relative strength analysis across different asset classes to identify leading and lagging markets for developing trade ideas in an intermediate-term top-down analysis?
Relative Strength Analysis for Intermediate-Term Top-Down Analysis:
Asset Class Analysis:
Begin with a relative strength comparison across commodities, stocks, currencies, and bonds when monthly data is inconclusive.
Commodities, Currencies, and Stocks:
Identify markets leading in strength by noting those that avoid making lower lows.30 industry groups as ranked by Investor’s Business Daily (IBD).
Commodity Selection:
Look for long positions in commodities that are making higher lows compared to others in their Futures Group.
Currency Selection:
Seek long positions in currencies that are not making lower lows relative to other currencies, suggesting SMT indications of strength and Smart Money (SM) accumulation.
Leaders and Laggards:
Determine which assets are leading (showing strength) and which are lagging (showing weakness) in their respective classes.
How can traders analyze the Commitment of Traders report to discern the activities of commercial hedgers at extreme net holding levels and use this information to predict potential market highs and lows for strategic trading within the middle price range?
Commercial Hedgers Analysis in Commitment of Traders:
Net Holdings Extremes:
Search for commercials with net holdings at 12-month or 6-month extremes, as well as those at 2-year and 4-year extremes.
Proprietary COT Hedging Program:
Use a proprietary program to detect when commercials are actively buying or selling, with a preference for less obvious buying patterns.
Commodity Net Holdings Comparison:
Compare net holdings within a commodity group, such as grains, to identify significant imbalances that may indicate a major move in a particular commodity like soybeans.
Commercial vs. Large Funds:
Recognize that commercials often create market highs and lows through their hedging activities, which are typically opposite to the actions of large funds.
Aim to identify potential highs or lows signaled by commercial hedgers and trade in the direction of large funds within the established range.
Trading Extremes and the Middle Range:
Understand that commercials tend to be correct at price extremes, while large funds are more accurate within the middle range, except at extremes where they may incur losses.
How can traders combine sentiment analysis from financial news headlines and retail forums with technical indicators like the Williams %R to form a comprehensive market sentiment perspective for informed trading decisions?
Market Sentiment Analysis for Trading:
Financial Publication Headlines:
Review headlines from major financial publications to gauge the market sentiment, particularly looking to take a contrarian position against emotionally charged or descriptive “Big Stories.”
Retail Forum Sentiment:
Monitor discussions on retail trading forums to understand the prevailing sentiment among retail investors.
Technical Sentiment Indicators:
Apply the Williams %R indicator with different periods (20, 14, 10) on the weekly chart to identify which setting aligns best with historical price highs and lows, acknowledging that no method is infallible.
How can traders use market profile characteristics such as consolidation, trending, and retracement and identify potential continuation trades or breakouts?
Market Profile Analysis for Trading:
Consolidation Assessment:
Determine if the market is consolidating, which may indicate an impending breakout and the development of a directional bias.
Trending Evaluation:
Identify if the market is trending, suggesting that continuation trades may be favorable while avoiding attempts to pick tops and bottoms.
Retracement Analysis:
Ascertain if the market is retracing, which could provide opportunities for continuation trades post-retracement, using tools like the PD array matrix to gauge the extent of the retracement.
Directional Breakout Indicators:
In the absence of trending or retracement, look for signs that support a directional breakout, considering intermarket analysis when the price is consolidating.
How can traders utilize intermarket analysis to confirm bullish or bearish market structures by examining the technical conditions of positively and negatively correlated markets?
Intermarket Analysis for Confirming Market Bias:
Bullish Market Structure Confirmation:
In a market with a bullish structure, seek confirmation through positively correlated markets showing strength and negatively correlated markets showing weakness.
Example: A bullish GBPUSD should correspond with a technically weak DXY (U.S. Dollar Index).
Bearish Market Structure Confirmation:
In a market with a bearish structure, look for confirmation with positively correlated markets showing weakness and negatively correlated markets showing strength.
Example: A bearish DXY should align with a strong EURUSD and a strong gold market technically.
How can traders incorporate the classification of recent highs and lows, SMT divergence, and institutional order flow to define the current market structure and select trades that align with the monthly directional bias?
Defining Market Structure and Institutional Order Flow:
Market Structure Identification:
Classify recent highs and lows to understand the current market structure, looking for Smart Money Technique (SMT) divergences between correlated pairs.
Institutional Order Flow Integration:
For bullish markets, identify discount price delivery (PD) arrays that support price and premium PD arrays that are being breached.
For bearish markets, find premium PD arrays that resist price and discount PD arrays that are being breached.
Highs and Lows Analysis:
Compare the relationship of current highs to recent highs to determine if long-term, intermediate-term, or short-term highs are influencing price.
Compare the relationship of current lows to recent lows to determine if long-term, intermediate-term, or short-term lows are influencing price.
Directional Bias Alignment:
Favor trades that align with the current market structure and the monthly directional bias.
How can traders use the PD array matrix to identify key premium and discount levels within a selected price range and integrate this with other analytical insights to develop coherent trade ideas?
Utilizing the PD Array Matrix for Trade Idea Generation:
Price Range Analysis:
Break down the selected price range into premium and discount segments, identifying the most apparent premium and discount arrays within that range.
Array Identification:
Recognize that not every price range will exhibit all possible premium or discount arrays, focusing only on those that are clearly defined in the current price range.
Trade Idea Development:
Construct potential trade ideas based on the identified PD arrays, integrating insights from previous analyses such as market structure, sentiment, and intermarket dynamics.
