ICT Mentorship Core Content - Month 06 - Elements To Successful Swing Trading 

Welcome back folks, this is February 2017, Swing Trading Lesson Number Two: "The Elements to Successful Swing Trading."

Okay, successful swing trading hallmarks:

1. Obvious trend in higher time frame charts: That means it's obviously moving higher or wanting to move higher and left the consolidation or it's trying to move lower or it's already left the consolidation and started moving lower.
2. Institutional order flow on the higher time frame charts must be clear: That means is it giving you clear indications that it wants to trade higher or lower?
3. Interest rate markets support the trade: Are we seeing higher interest rates? Are we seeing lower interest rates? Are we starting to see the divergence and the yields that would indicate a shift that's most likely going to occur in the near future?
4. COT data (Commitment of Traders report): Is it confirming? Now it's not required or necessary, but this can enhance the probabilities of the trade.
5. Opposing PDA or premium to discount arrays are obvious in the charts: That's on the monthly, weekly, and daily.
6. Seasonal tendencies: Again, this is not required but it does enhance the probability of the trade panning out profitably.
7. Supporting inter-market analysis confirms your idea in the trade.

Now, obviously, this is a very broad overview and it's not every single hallmark, but in my trading for swing trades, these are the types of things I like to look for. The larger amount of things on this list that I can accumulate to build the idea that my trade is valid, the more likely the trade does pan out. There's going to be times where you don't have every one of these things on the list in your favor, but the trade will still be viable. If you stick to trades that have these hallmarks in them, swing trading will be a lot easier for you, your accuracy will be stunning, you'll be really cherry-picking the best scenarios, and the trades will pan out in your favor.

Before we continue, I want to preface it by saying that this is going to be one of those teachings that are going to probably be frowned upon. This is going to be the low-end delivery of February in most people's eyes in this community. And the reason why this is the one that has the homework in it—no one likes homework, remember what was like to be in grade school—but for me to take you to the next level of understanding, number one, we have to test where you are at in your understanding. We have to reveal to you where you are in your understanding, and by giving us a basis on which to relate that to.

Before I give you the swing trading model, I want you to be engaged in these ideas. I'm going to share with you in this teaching for the elements of successful swing trading. I'm going to give you broader reviews and ideas to stimulate your thought process. Okay, and the homework is going to be at the end of the last slide, but I want you to understand while we go through this, I want you to think about these things because it's going to help you with the homework assignment at the end. If you're not paying attention, it's not a lot of charts in this one, it's all theory. I want you to think about what I'm asking you to do because I'm going to fill in all the gaps that you create for yourself or what you have right now in your understanding as it relates to swing trading when we get to lesson three.

Okay, institutional sponsorship. When you're looking to buy, are there signs in relative strength analysis to support the trade? That is to suggest that if you're buying Euro Dollar on a lower low, the Dollar Index, is it seeing a lower high? That would be weakness on the dollar, failing to make a higher high and the lower low on your dollar would be running out the sales stocks before the move higher. And when shorting, are there signs in relative strength analysis to support the trade? An example of shorting Dollar Swissie on a lower high, is the Dollar Index seeing that higher high?

So, it would be SMT diversions, ideas to measure institutional sponsorship, bank accumulation and distribution. That's seen by studying the price action. And while price is moving higher, are all the downed candles becoming support and seeing higher prices thereafter? And are the swing highs breaking and seeing higher highs after the swing high is broken? And in down markets or bearish markets, are the up candles becoming resistance and seeing lower prices thereafter? And are the swing lows breaking and are we seeing lower prices as a result?

Basically put in common terms, are we seeing higher highs and higher lows when it's bullish and our resistance level is breaking and new support levels being found? The way we look for bank accumulation is we look at every down candle to support new buying because the new buying is going to occur when the market recedes backward or retraces and goes lower. When this happens, that gives them buying opportunities to buy at a discount. They did not buy or do not buy, rather at premium prices. They have to buy when the algorithm permits them an opportunity to buy at a lower price.

When we see lower bear markets trending lower, we wouldn't be focusing on these up candles because we know that the market rallying is going to give them a short-term premium to sell more into and establish new shorts or add new shorts to the bearish model that's unfolding in the marketplace. That's going to promote resistance ideas and are we seeing support levels giving away? Are we seeing lower prices and a failure to break through resistance levels and new creation of resistance levels in the form of up candles? We measure accumulation from the banks by buying at down candles and we measure bank distribution at up candles as resistance.

Okay, when you're looking for your setups, you want to be looking for markets that have clear price action and very discernible levels, regardless of what asset class you're trading. The PDAs are obvious and they're easy to identify. That means above us, we can clearly see any voids, mitigation blocks, breakers, fair value gaps, rejection blocks, or old highs or lows. And below us, we would see mitigation blocks, breakers, liquidity voids, fair value gaps, bullish order blocks, rejection blocks, and old lows or old highs in that spectrum of the PDAs.

The more obvious they are in terms of the current price action you're trading at for that asset class under study, the more discernible, more clear, and obvious they are, the better that trade's going to be. Price not traded at in recent weeks or months left in imbalance basis monthly and weekly, those levels are going to be a high draw on price, especially as it relates to monthly and weekly levels. So price is going to return back to fair value, or it's going to seek a new level of imbalance. If price is at equilibrium, we're going to be looking for an opportunity to see that price move to an imbalance. Preferably, we want to see it move out of a consolidation, and then it will move to an imbalance level. If it's moving higher, it's going to go to a premium. If it breaks out a consolidation lower, we're looking for it to go to a deep discount. That's an imbalance on the buy side, and an imbalance on the sell side would be moving to a premium.

The cleanest price action or the most favorable markets to trade in, there's less chance for our erroneous price action to distract us or fool us. I've been doing this for two decades or more, and I have learned the hardest lesson is to demand the cleanest price action in your charts. The more obvious price action is, the more favorable the outcome is going to be. It's simple as that. The times that I forced the idea, the times that I made the idea come to fruition in my own mind, instead of just simply looking at the chart and saying, "Okay, is this outcome favorable? Is it likely? Is it probable? Or am I just really forcing something?" The times that the trade just literally leaps off the chart, those instances, that's when the trade is most probable. It's going to be the easiest ones to take too because they're very easy to see. If you have to study the chart and look for it, and you hem and haw about it, and you argue with yourself, "Is this really that? Is this an order block or is this a liquidity point?" If you're having to convince yourself, chances are it's probably not a good trade. Pass on it.

And is price respecting institutional levels? That means the big figure levels, zero-zero levels, the 50 mid-figure levels, the 80 level, the 20 level, or the small round numbers, 30, 70s. We're going to be looking at in lesson three, we're going to be talking about specific rules and rule-based conceptual methods, but in our trading in every discipline, not just swing trading, we have to have rule-based conceptual methods, and every trade has to pass through a rule-based filtering process.

Now, the rules are standardized and they're static, and that means they cannot be changing on each and every trade setup. Whatever we do, we do the same procedure every single trade setup. When the trade setups fail the filtering process, the trade is passed on, period, no exceptions. We do not make the rule exceptions. Well, ICT said he liked that trade. If your rule-based idea says you can't take that trade and you hear me say, I like to take that trade, you don't side with ICT, you side with your rule-based ideas. When the trade setups pass the filtering process, the trade is executed on, risk and equity management permitting.

Just because we see a setup there, we may already have a trade or two trades open, and our risk parameters will not permit us to have more allocation exposed to the marketplace. We cannot assume more risk than a specific percentage. Just because the trade is there doesn't mean we break our money management rules just to take the trade. We either have to weigh out whether or not that new trade is more valid than the ones that we have existing, or if it's a better potential payer. So in other words, if you have a trade in, say, Gold, we're long, and we think 1240 is going to unfold, but then we look at the soybean market and we think soybeans are going to go up a full dollar, well, that means it's probably going to be a better payout with the soybean market because it may explode faster, and you get more velocity with your money. So if that happens, we may see an opportunity that transpires over a shorter period of time in soybeans than we do in gold. And you have to weigh these factors out every time you take a trade. For instance, you may see an opportunity in the euro dollar and you're already short dollar swissy. You have to take these in consideration. Which one has the more likely probable outcome that would be profitable for you? If you see a better setup and you want to cut the trade that you have on now to take on a new trade, that's the way you would do it. But you cannot take a new setup just because it's a good setup. You can't keep that open risk in the other trades. You have to take something off or pass on the trade, but you cannot take the setup if your risk and/or equity management doesn't permit it.

Okay,

Probabilities reward diligence. Limiting setups to three to one reward the risk permits a as low as 34 accuracy to be net profitable. Now, it's not wildly profitable but marginally profitable, and that means you're making money when you're wrong 66 percent of the time. Now for some of you, that sounds like a good idea. If you're new and you know what it was like to be a new trader, you were probably like a 99 accuracy in terms of being wrong, and believe me, I know what that felt like.

When we see setups that pay out three to one, or we look for setups that we're willing to hold for three times what our initial risk was, we're giving ourselves the potential to do very well and not require a great deal of accuracy. But if we can frame our setups with rewards of five times our risk, we have a higher odds of being profitable and we can endure losses much easier. Now the setups that we have the most movement potential offer the better risk-to-reward ratios. Now obviously it's common sense, but I did say that we would mention in every teaching discipline we would mention some form of money management and risk management. Now this is the only thing we're going to be talking about, but I want you to think about this because it's going to be part of your homework.

And that brings us to our homework, which is a mock trading plan. Now a mock trading plan is something that you are going to be formulating yourself. You're going to create it yourself, you're going to map out everything from the beginning process to the end and what you do throughout the trading process of being in the trade. What starts the trade, what executes the trade, what makes your stop loss what it is, when do you move your stop loss, when do you take your profits, when do you collapse a trade? How do you pick the trade? How do you frame the trade?

Okay, I already know some of you have no idea what to do with this, okay, but I still want your involvement because it's going to help you jump a big huge step forward in your understanding. When I give you lesson three, I'm going to actually walk you through the process of building a swing trading model from the ground up. But the first thing you want to be doing is you want to be outlining what you right now in your present understanding, what you would look for for an initial opportunity. What frames that opportunity? What would you see as an opportunity? You need to make that in a form where you can put it to paper. You're going to write it out. What makes your opportunity an opportunity? What are you looking for in the chart?

And then secondly, what would you identify as a trade setup for a valid swing trade? It's one thing knowing what you're looking for, but then how do you frame it as a swing trade? And again, I don't expect everyone to know how to do this, obviously, because you paid to learn, but I want you to do the work to try your best right now with what you know to try to formulate a mock trading plan. That's all we're doing is it's an exercise, okay?

Thirdly, how would you determine your profit objectives? What makes the objective a goal in terms of if it gets to that level, I'm going to take profit? What is that? How are you defining it? And it has to be in a static form where every trade will be filtered in that same capacity, every single setup, every trading opportunity, is the same way. How are you looking for the setups to be profitable? What makes that a profitable trade?

How would you frame the risk management? How much are you going to risk per trade? How much of your account are you going to have at total exposure? And when are you going to move your stop? Are you going to take partial profits? I want to see this in writing. I want you to share it with me either by way of the forum, preferably, or if you're just really, really shy, you just want to send it to me in an email, that's fine. But if you're going to do it in an email, just know that I'm not going to probably get to it right away. I'll look at it over the course of the coming months. But for now, just to be interactive for those that have the willingness to do it, you know, consider the form and what would your filter process consist of? Like, how are you going to go through what you understand about the marketplace and ICT concepts? How are you filtering the markets? How are you filtering your trade ideas? What is the step-by-step process that you're going to go through to eliminate the opportunities that don't have the highest probabilities or to move to the executable stage on your trades? What is that process going to be?

I went over in vague terms in this teaching here and to stimulate your ideas and thought processes, but how are you in this my homework of trading plan development? I want you to create a swing trading model for you. And it's not that you're going to be trading on it. I'm not asking you to trade it, not even in a demo, but I just want to see where you're at in your understanding. And I want you to have a record of what you think you know right now. And then when we complete this month, how much that increases, okay? Because it's going to give you a big measuring stick to know how much you really gleaned from this month's content.

Now lesson three, I'm going to address all this, and I'm going to actually present a model for contrast. Now don't pass on this exercise. You want to put it to paper form. And if you are willing, please consider sharing it with the ICT forum and others. That way, you can see what other people will have in terms of feedback. And they actually may instill some more ideas because it's going to be, you know, this coming Friday before you actually get lesson three. So I want you to have some time to interact with one another on the forum and also to think about it. But you have a time limit. You have to have it done by Wednesday. You have to have it up there by Wednesday. You have to have it in paper by Wednesday. The reason why? Because I don't want you cheating and missing the lovely opportunity of being able to take that big growth spurt when I give you lesson three.

Now, you're going to use one example in hindsight for your study for illustrative purposes. Now again, you don't have to do this in the form I'm asking you to consider it, but for your own study, you need to find an opportunity in hindsight as an illustrative point of reference using what you think you know about swing trading and all the ICT concepts right now. Have that used for your record. And then when we complete this month, I want you to go through the process of actually, how I show you how to build a swing trading model, what procedure did you go through, what steps you go through? And then we're actually going to go in the marketplace and find a setup and actually execute on it. And we'll see how that pans out going into the coming weeks after we've completed this content. But you're going to have a greater understanding about what it is that you should know once lesson three has been given to you. And then it'll fill in all the gaps. And then once we get into the specific setups, that'll make it really rich for you because then you'll know what the setups I do in terms of swing trading. And it's only two. It's not a whole lot. And then you'll know how to go about it yourself. But if you skip on this lesson, I promise you, you're going to miss the wonderful opportunity of filling in a lot of gaps. If you think you're just going to just watch lesson three and so I'll just go right to the meter belt. No, no, no. It helps solidify and you retain the information and you build the process-oriented thinking by doing this. Trust me, this isn't the first time I've done this. The folks that always try to jump ahead and don't do things like this, they never do as well as the ones to actually do it.

Take some time, put yourself to a pad of paper and a pen and write out the things that would make your swing trading model what it is from beginning to end. What starts the process? What changes the process mid-trade? What cancels the trade if you think the trade is going to be there but something changes, what would change that idea and you mix the trade, you don't want to do it anymore, and you won't execute on it? It kills the whole idea before the actual trade starts. All those ideas have to be in the plan. You have to have that because if you don't have it, you're either going to force the trade or you're going to skip on something and you'll miss an opportunity. So this way when you make a decision, you always know why that decision is made. You're not reacting on emotions, you're not reacting on psychological impact from either me or talking heads on the TV or watching other people on Twitter or on the forums. You're only executing and making decisions based on the information you're receiving from price. And that way you know immediate feedback, you have the right side of the marketplace or you're probably on the wrong side. And then you'll be able to, you know, be more fluid in your trading. You'll know exactly what it is that you're supposed to be doing and why you should be doing it. And if you get stopped out, you're not going to wonder why you got stopped out. You'll know exactly the reason why you got stopped out. And if there's a new opportunity based on that occurrence, you'll know that as well or you'll know how to move to the sidelines.

So I'm going to wish you well in your homework, remind you that you have to have it done by Wednesday. I know it's a rather daunting task for some of you, I know. But certainly try to have it done before Friday, 8 PM, because I don't want you to see the lesson three. And if you do not get it done before Friday, take the time to do this exercise, please. I'm asking you as your mentor, humor me, please. It's for your benefit, it's for your enrichment through the study. Do the mock-up right now from what you understand about the ICT concepts, what would you would be looking for, how you would frame the strategy. And then if it takes you getting to Sunday, then watch lesson three. But please don't do lesson three until you do this exercise. I promise you, you will leap leaps and bounds ahead in your understanding if you do it. Until next week, I wish you good luck and good trading.