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108-ICT Mentorship Core Content - Month 11 - Commodity Mega-Trades

Last modified by Drunk Monkey on 2022-10-26 08:54
1 00:00:08,099 --> 00:00:15,869 ICT: Welcome back, folks, this discussion is going to be with commodities. So everything I'm going to be talking about here should be viewed in light of paper
2 00:00:15,869 --> 00:00:27,989 trade only. It's important to reduce disclaimers. As a reminder, I'm not a licensed commodity trade adviser. Everything here is for informational purposes
3 00:00:27,989 --> 00:00:28,499 only.
4 00:00:36,480 --> 00:00:46,020 Okay, folks, July 2017, ICT mentorship maker trades, the first lesson we're gonna be talking about the commodity market.
5 00:00:52,619 --> 00:01:04,829 Okay, first, what is mega trades? And what are they? And one of the first things I learned from Larry Williams, was this notion of finding these big moves to
6 00:01:04,829 --> 00:01:13,709 take place every year. And basically what it make a trade is is, and I coined this term, this is something I picked up from Larry Williams, obviously, it was
7 00:01:13,709 --> 00:01:23,279 his catchphrase to use for him. But it's a large price swing, or trend that can produce massive potential gains, that when compared to relative markets,
8 00:01:23,939 --> 00:01:37,079 performs them all. Now, they're easily to spot historically, in your price charts, you can see them every single calendar year. These moves have huge
9 00:01:37,079 --> 00:01:48,869 institutional sponsorship. And it's coupled with strong influences from actual supply and demand factors that fuel these moves. So yes, while I usually snub my
10 00:01:48,869 --> 00:01:59,219 nose at supply and demand as a technical approach to trading, supply and demand as it relates to commodities as an absolute reality, you have to you have to
11 00:01:59,249 --> 00:02:04,559 have a good feel for what the supply and demand factors are for a commodity to have any measure of success.
12 00:02:11,130 --> 00:02:21,750 Now, when we talk about commodities, Arby's is a number of commodities that we can choose from. But one of the things I want to talk about since we're talking
13 00:02:21,750 --> 00:02:32,520 about this particular asset class now, is that, should you be a commodity specialist? Well, when following the commodity markets, in my opinion, it's best
14 00:02:32,520 --> 00:02:40,650 to avoid being a specialist or one market trader. The reason why I say that is because a favorite commodity can provide plenty of setups to consider, but it
15 00:02:40,650 --> 00:02:50,160 might be a sleeper, while other markets are on fire. In other words, if you're looking at one commodity, and that's the one you make your bread and butter
16 00:02:50,340 --> 00:03:01,230 setups on. If you're just looking at that one, you'll never be able to find the bigger moves that take place to have extrapolated price swings, because you're
17 00:03:01,230 --> 00:03:13,680 only focusing on one thing. Now there's nothing wrong with having a special asset class or a special market to do you your bread and butter setups. But if
18 00:03:13,680 --> 00:03:24,480 you limit your scope just to that you're really discounting one of the best opportunities for you to get in here in number one, improve as a trader get a
19 00:03:24,480 --> 00:03:35,970 better feel for the general market. But the bottom line is, is if you can be profitable, trading these types of moves, why wouldn't you want to and
20 00:03:35,970 --> 00:03:47,280 commodities as a whole, offer a very small universe of markets to analyze, to seek mega trades. Kind of like the forex market, I choose to follow just a few
21 00:03:47,460 --> 00:03:55,710 pairs of the majors crosses the dollar. And it takes a lot of the ambiguity away from what I should be doing. If there's not a signal, that's very clear, I'm not
22 00:03:55,710 --> 00:04:06,690 doing anything. If there is a time of year, when I believe that a major trade or large move is going to take place. Then I'll be doing my analysis across the
23 00:04:06,690 --> 00:04:12,630 entire spectrum of that asset class or commodities. You'll be doing it with several different sectors.
24 00:04:17,639 --> 00:04:27,779 Okay, the first category that we're going to be looking at is the agricultural markets. And we're going to first look here for mega trades. And these are
25 00:04:27,779 --> 00:04:39,119 markets that feed the world. And as a result, they will have even greater supply and demand factors that move them droughts, insect damage, frost or bumper crops
26 00:04:39,929 --> 00:04:43,439 will have an enormous effect on prices in these markets.
27 00:04:49,050 --> 00:04:59,580 And the grain markets, we're going to take a look at the grain complex. And the first in the list is soybeans, soybean meal, soybean oil both meal and oil are
28 00:04:59,580 --> 00:05:16,980 derivative As of the soybean itself, wheat, corn, oats, canola, and rice. Now, oats and rice I traded back in the 90s. It's a rather thin market, you can get
29 00:05:16,980 --> 00:05:28,140 hurt in that if it starts to do limit moves. And I did have the unfortunate experience of being caught in some of those things, and it's not fun. So I'm
30 00:05:28,140 --> 00:05:40,290 going to advocate here not even to follow these three specific grain markets. When I was looking at the commodities, years and years ago, back in the 90s, I
31 00:05:40,290 --> 00:05:49,680 would use the SYN markets to look for drops in open interest to to more or less build the idea that thought that grain markets as a whole go higher or lower
32 00:05:49,680 --> 00:06:00,450 based on that. And sometimes it works and sometimes it didn't. So initially, as a new trader, I built a lot more significance around that in my ignorance, but
33 00:06:00,600 --> 00:06:11,580 now I just simply don't even consider these three particular grains to be watched at all. I include them here because of completeness sake. If you look at
34 00:06:11,580 --> 00:06:20,700 the grain complex as a whole, as I taught earlier in the mentorship for the grains, I just like to follow the soybeans themselves. scratchboard trade wheat
35 00:06:20,760 --> 00:06:25,860 and sugar portrayed corn so it's really only three grains it's in that sector.
36 00:06:31,200 --> 00:06:41,880 In the livestock meat complex is going to be live cattle, feeder cattle and lean hogs used to be pork bellies in this sector but they discontinued trading those.
37 00:06:45,240 --> 00:06:56,550 Moving on, we're looking at the softs. This is a food group. So we have coffee, cocoa sugar, and orange juice that brings us up to 10 commodity so far and
38 00:06:56,550 --> 00:07:06,360 agricultural. In the fiber, we'll be looking at cotton sets 11 markets in the agricultural markets
39 00:07:12,209 --> 00:07:24,929 Okay, the next area of opportunity is found in the financial markets. And this is a group of markets that are hard in nature and industrious. So industrial
40 00:07:24,929 --> 00:07:33,329 supply and demand factors are going to move these commodities. So wars economic drivers, interest rates, imports, exports will have a greater impact on these
41 00:07:33,329 --> 00:07:34,409 kinds of commodities.
42 00:07:39,899 --> 00:07:48,629 Okay, the first one is going to be the metals market. And it's broken into two categories precious metals, which being the gold market, silver market,
43 00:07:49,109 --> 00:07:59,039 palladium and platinum, palladium and platinum, again, I had experienced trading both are very thin, very thin. And I include them here for completeness sake.
44 00:07:59,039 --> 00:08:14,789 But just as a general rule of thumb, don't want to trade on industrial metal, we have high grade copper. So in essence, we have three metals to look at, to
45 00:08:14,789 --> 00:08:24,959 precious one industrial, so gold, silver and high grade copper, to have a universe now, it's not growing exponentially, just adding a few more at a time.
46 00:08:27,479 --> 00:08:38,489 And we have the energy sector next. And we're looking at the markets that make up that energy sector being crude oil, heating oil, gasoline futures and natural
47 00:08:38,489 --> 00:08:48,629 gas futures. Now admittedly, I don't have any experience trading futures contracts in natural gas. But in recent years, it's been very active. And I know
48 00:08:48,629 --> 00:08:58,019 folks online that have traded it and done very well with it not specifically with my content. But I do know other traders that have made their living trading
49 00:08:58,019 --> 00:08:59,129 natural gas futures.
50 00:09:04,380 --> 00:09:13,200 Alright, so fundamentals the matter for this asset class. So commodities require a measure of fundamental consideration in our analysis. We don't have to wade
51 00:09:13,200 --> 00:09:21,630 through dry boring crop reports or cattle head reports. A simple newspaper headline might be all that's needed to draw a fundamental conclusion. Now, what
52 00:09:21,630 --> 00:09:33,990 do I mean by that? Well, the idea of a market that has been quiet for a little while and suddenly, there's a discussion by way of a headline, for instance,
53 00:09:33,990 --> 00:09:47,610 there. Back in the 90s, there was a specific parasite that was supposedly infecting the crops in the US. And between that the drought and the heat waves
54 00:09:47,610 --> 00:09:58,290 that were going on, all the green markets went into a premium market, and it just became like vertical, straight up runs on wheat soybean in Cournot in
55 00:09:58,290 --> 00:10:11,730 19 9495, time period. And there was a lot of opportunity on the upside, as a result of that. Ahead of all those big moves, there were headlines that
56 00:10:11,730 --> 00:10:23,640 suggested that there may be trouble looming for those particular crops. And it was mainly around the the drought, the dryness in the breadbasket, if you will,
57 00:10:23,640 --> 00:10:36,330 the US. And there was this, and I feel like me, I can't recall what that parasite was, but there was some kind of bug that was trying to eat. And damage
58 00:10:36,330 --> 00:10:45,840 is one of the crops. And whenever you hear that type of stuff, and it's in the middle of summer, it just like selling gasoline on a fire, it will ignite all
59 00:10:45,840 --> 00:10:57,510 kinds of buying. And the gray market just went vertical, in the mid 90s, as a result of all that, and one of the things I like is looking at commodities
60 00:10:57,510 --> 00:11:09,690 magazine, futures magazine, they have a little area in that magazine that's basically like the hot commodities right now. And it's almost uncanny how they
61 00:11:09,690 --> 00:11:17,040 always talk about them once they have been moving for a while. And if you do any analysis on they're gonna talk about them as this is the hot market right now,
62 00:11:17,490 --> 00:11:29,760 right at a time when it would be at a point of reversal. And true to form. That's what ended up happening. So if we see headline news, or if we see special
63 00:11:29,760 --> 00:11:37,800 focus on a specific commodity, saying that they're hot commodities, or, or these are the ones to be in right now. And we can look in the chart and see they've
64 00:11:37,800 --> 00:11:46,680 been moving for a while, that tends to be really good condition for mega traits of form. It reason why it's because it builds in an idea of sentiment. And
65 00:11:46,680 --> 00:11:56,580 whenever there's an extreme in market sentiment, whether it be extremely bullish or extremely bearish. Those are wonderful contrarian signals. And if we can get
66 00:11:56,580 --> 00:12:07,500 those in time, when there's the overlap of technicals, suggesting the same in terms of directional bias, it's a really wonderful opportunity in a real sweet
67 00:12:07,500 --> 00:12:09,420 spot for you to be as a trader.
68 00:12:14,730 --> 00:12:23,610 Okay, the fundamental starting point, obviously, you've seen me teach this before, but it has to be in here for completeness sake, quick and easy first
69 00:12:23,610 --> 00:12:33,090 step is to consult the delivery month closing prices. So you can go into bar chart.com. If you have access to like Wall Street Journal or Investor's Business
70 00:12:33,090 --> 00:12:42,240 day, just look at the delivery contract months, and you can see the closing prices. And what you'll be doing is you're going to be noting any commodity that
71 00:12:42,240 --> 00:12:49,950 has a premium over a distant month. And as the months go out, again, they should be more expensive, but if ever reverses, and it's more expensive. Now, this
72 00:12:49,950 --> 00:13:01,110 delineates the premium is in the nearby months, whereas it should be in the distant months. This will be our primary search every year, we go into the
73 00:13:01,110 --> 00:13:14,730 market place looking for these conditions because they are the common ingredient for explosive bull markets, markets tend to have longer periods of going up. And
74 00:13:14,730 --> 00:13:25,560 explosive price action when there's a premium. When there's a lack of premium, it takes very little time that drop in those markets. But we're looking for
75 00:13:25,560 --> 00:13:33,420 conditions when the market is predisposed to go higher. And we've already arrived at that by other technical analysis that you'll learn in your top down
76 00:13:33,420 --> 00:13:42,060 analysis templates in August. But I'm giving you the general points in this teaching how to go about looking for mega trades because we're gonna get a
77 00:13:42,060 --> 00:13:52,290 homework assignment at the end of this teaching. But premiums are going to be a common denominator for explosive vertical parabolic price action moves to go
78 00:13:52,290 --> 00:14:01,890 higher, well beyond higher than you've ever imagined the move would go those are really fun to be a part of they can be scary the first few times you get down
79 00:14:01,890 --> 00:14:08,760 because you want to get out everything in your being says Get out. But you want to hold on to them because they can go way farther than you ever thought they
80 00:14:08,760 --> 00:14:19,470 were gonna go. Now we don't need a or require a premium to be in a bullish commodity or to deem it a bullish commodity. It merely adds to the likelihood of
81 00:14:19,470 --> 00:14:31,410 a strong price rally in the sense that bull markets are not all equal. Commercial bull market is a market that goes parabolically vertical and they
82 00:14:31,410 --> 00:14:41,610 both can start off the same where as a carrying charge. Standard bull market where it goes up down up down near typical stairway. That's not what you see in
83 00:14:41,610 --> 00:14:50,160 a commercial Hallmark commercial bull market with a premium where the nearby months are selling at a higher price in the distant months. They go parabolic
84 00:14:50,160 --> 00:15:00,690 and very quickly cover a lot of ground and they do so in short order very quick. It may take many months for a long term carrying chargeable market to come to
85 00:15:00,690 --> 00:15:12,180 fruition or complete, or go to a higher timeframe objective, not when there is a premium, it can do it extremely fast, it can do it very energetically. And it's
86 00:15:12,720 --> 00:15:25,350 very fast. It's very fun market to be in when it's like that. Okay, dollar based analysis. Now generally when the US dollar is declining, this allows commodity
87 00:15:25,350 --> 00:15:35,580 prices to rise. And conversely when the US dollar rises, this precious commodity price is lower. Now, I say this because that's the general rule of thumb. But
88 00:15:35,820 --> 00:15:46,320 General thumbs are always panacea is. So there can and will be periods lasting as long as a year when commodity prices and the US dollar move in tandem or in
89 00:15:46,320 --> 00:15:56,400 the same direction. And there's no way around it, I don't have a secret science behind it, where I can crack that code. We just kind of accept the fact that we
90 00:15:56,400 --> 00:16:06,900 can never be 1% accurate. And therein lies the risks. Past performance is indicative of future results. We all knew this. It's it's spoken in all
91 00:16:06,900 --> 00:16:15,810 disclaimers, and anyone that reads out their disclaimers you audibly they always say it, same thing, your past performance is not indicative of future results.
92 00:16:16,950 --> 00:16:30,540 Everything I'm sharing here now are things that I've observed and picked up over 24 years now coming up, where there's just a massive amount of probability for
93 00:16:30,540 --> 00:16:43,170 certain things to take place. And while they are historically and statistically proven, that they are likely to occur, does not mean or to imply that you should
94 00:16:43,170 --> 00:16:54,000 put money on them. Because I'm talking about here. When you do these studies and exercises, it's meant to stimulate your overall general market aptitude. But if
95 00:16:54,000 --> 00:16:59,430 you choose to trade on these ideas with live funds, that's entirely up to you, I don't want to do
96 00:17:00,870 --> 00:17:10,560 the glory for it. And I surely don't want to the shame for it when it doesn't work. I'm basically encouraging you to use these tools and these concepts to
97 00:17:10,560 --> 00:17:16,410 build a greater understanding of your price action analysis and general market condition.
98 00:17:22,469 --> 00:17:31,049 Okay, sector group leaders, when we are expecting higher commodity prices, in general, we will seek to filter those markets that exhibit very bullish
99 00:17:31,049 --> 00:17:39,659 characteristics. When we are expecting lower commodity prices, in general, we will seek to filter those markets that exhibit very bearish characteristics.
100 00:17:40,679 --> 00:17:51,959 Now, there can be opportunities to be contouring and in either of the conditions explained above. But to keep things simple, we're going to assume that we
101 00:17:51,959 --> 00:17:58,559 understand when dollar is going to go higher, when the dollar is gonna go lower. And we're gonna use that as our basis. Now, there's other things you're gonna
102 00:17:58,559 --> 00:18:07,709 learn in August to help you fine tune a directional bias and also know specifically what you're reaching for what concept what type of trading pattern
103 00:18:07,919 --> 00:18:18,779 should lend well in that condition. But for now, I'm going to speak in broad brush terms, because it'll help build the idea, when we go into August, those
104 00:18:18,779 --> 00:18:25,829 PDFs, you'll have a little bit more understanding in that gap will be bridged quicker, because of this teaching. And this whole entire month's teachings,
105 00:18:25,829 --> 00:18:36,269 actually. But if you look at this chart here, it's a overlay that I actually created to show what I'm going to show you in the second slide after this one.
106 00:18:37,289 --> 00:18:48,719 But I want you to take a look at the wheat market, the wheat market is the little bit darker line. And the lighter line is the soybean market. So when
107 00:18:48,719 --> 00:19:00,689 we're looking for commodities to rally as a whole, while the dollar index, ideally should be going lower, about the trade lower. That gives us a reason to
108 00:19:00,689 --> 00:19:10,319 anticipate higher prices and commodities. Now, while this isn't a mega trade, per se, this is how they start off. So that's why I'm showing it to you. And
109 00:19:10,319 --> 00:19:26,879 this is actually as of right now at the time of this recording. The first week or so July 2017. Friday's close shows us the price action here relative to the
110 00:19:26,879 --> 00:19:35,219 wheat market and the soybean market. I did not include corn. And if you take a look at the corn market, you'll see why because it's in a consolidation and
111 00:19:35,219 --> 00:19:45,449 these two are a little bit more energetic and we can actually see an example of Smart Money accumulation. So dollar has been bearish. So that means higher
112 00:19:45,449 --> 00:19:55,919 prices should be expected in the commodity markets. Not always not a panacea but it should happen. But under that pretense that it may go higher. We're going to
113 00:19:55,919 --> 00:20:05,489 be looking for characteristics to support the idea that gray market should go higher. How can we do that we start going in looking at the relative lows across
114 00:20:05,489 --> 00:20:15,989 the grain complex. Now obviously, we have only three grains that look at, it's the soybean market, the corn market and the wheat market. I have wheat overlaid
115 00:20:16,289 --> 00:20:24,329 with the soybean. Now, you don't need to do this, but I do. I'm doing it graphically. So you can see what I'm referring to. As you can see the mid
116 00:20:24,329 --> 00:20:35,429 portion of May, going into the first week of June, wheat was unwilling to make a lower low, while the soybean market had fallen off rather precipitously, then
117 00:20:35,459 --> 00:20:47,009 both rallied a little bit up into around the 19th of June. And then while both had a modest decline, soybeans made a lower low, but the wheat market failed to
118 00:20:47,009 --> 00:20:59,819 go lower. And you can see that happening here. So soybeans went lower, we can see clearly here that wheat is the stronger of the grain markets. And as a
119 00:20:59,819 --> 00:21:07,739 result, the wheat market rallied $6,500 per contract, and the soybean market rallied 40 hours per contract.
120 00:21:09,930 --> 00:21:22,950 There is a built in advantage to using visual analysis like this, because it cuts to the core of whether smart money is buying or selling. Again, the general
121 00:21:22,950 --> 00:21:34,500 principle is if there's going to be institutions stepping in or large commercial dominant users or producers that are trying to buy a lot or sell a lot of a
122 00:21:34,620 --> 00:21:44,850 specific commodity, they're going to leave telltale signs in price, they have to they can't hide it, their sheer volume is going to create this crack. Well, when
123 00:21:44,850 --> 00:21:54,480 we see this occurring, we know there's a massive accumulation going on the green complex. Now all three corn, soybeans and wheat can go up in tandem, there's
124 00:21:54,480 --> 00:22:02,760 going to be a sympathy play. Soybeans rallied significant does nothing wrong with seeing a 41 hour per contract move. If you were long in that, I would be
125 00:22:02,760 --> 00:22:15,990 mad about that. Nobody. But our job as an analyst and a developing professional trader, we want to see the characteristics that lead to us finding the strongest
126 00:22:16,380 --> 00:22:30,780 of the specific commodity markets in a specific sector. That way, we end up with a portfolio of the strongest or the weakest, at that given time. And here, in
127 00:22:30,780 --> 00:22:42,660 this example, we can clearly see that the concepts ferreted out the larger of the two in that being wheat producing a $6,500 per contract move over again, a
128 00:22:42,660 --> 00:23:01,260 $4,800 move seen in the soybean market. And here's those two respective charts in separate. You see soybeans on the left, making a lower low in June, going
129 00:23:01,260 --> 00:23:10,890 into the last week of June going into the beginning of July. And then wheat had already been making higher lows and starting to build up institutional order
130 00:23:10,890 --> 00:23:20,520 flow all down close candles are supporting price in a bullish order block nature. And short term highs were starting to break before the short term highs
131 00:23:20,520 --> 00:23:30,510 were seen in the soybean market. So a lot of accumulation can be seen in this chart than that of the one on the left, which is the soybeans. So wheat was
132 00:23:30,510 --> 00:23:42,810 under a massive amount of accumulation. And you can see that visually at the lows. All also noticed that during the month of May, we had a massive decline in
133 00:23:42,810 --> 00:23:54,330 open interest while we was in a consolidation. Then in June, we saw another massive reduction in open interest and two scales on wheat. And then finally,
134 00:23:54,630 --> 00:24:05,520 when the bottom fell out on the open interest of wheat going into last week of June, June going into July, that's all that was necessary. Price traded down
135 00:24:05,520 --> 00:24:20,130 into a bullish order block on a daily for wheat and then exploded and made another $1 Move or 5000 our pay per contract for that that muted load took only
136 00:24:20,130 --> 00:24:30,900 12345 A week about a week worth of time to make 5000 hours per contract. Who is going to be arguing about that? No I don't want 5000 hours Don't you dare give
137 00:24:30,900 --> 00:24:31,350 me that.
138 00:24:37,170 --> 00:24:46,290 Okay, seeking mega trades. Now the process in simple terms is as follows. What we're going to be doing is we're gonna be searching headlines for commodities,
139 00:24:46,290 --> 00:24:59,580 any headline that would spark an interest, something like the grains are in trouble because it's going to be dry or there's too much rain. Things of that
140 00:24:59,580 --> 00:25:11,070 nature. A shortage of oil production, OPEC cuts back oil production, or there's a war is something's coming looming in the Middle East, all that's going to
141 00:25:11,070 --> 00:25:19,560 affect oil prices. The next thing is, is really looking for markets to have a premium. Again, we don't need to have a market premium. But if it does, we're
142 00:25:19,560 --> 00:25:31,170 focusing primarily more on those particular markets than that of a market that doesn't have a premium. And we're gonna be conferring with the dollar index for
143 00:25:31,170 --> 00:25:43,890 direction, again, dollar up commodities down, dollar down commodities up, am going to use relative strength in each sector, comparing lows when we're
144 00:25:43,890 --> 00:25:52,560 bullish. And we're looking for the one that fails to make a lower low to be a buyer. And we're gonna be looking at highs when we're bearish. And we're looking
145 00:25:52,560 --> 00:26:03,630 for a failure swing or a market that fails to make a higher high when it's bearish. And you can see heavy distribution in that. We're going to filter each
146 00:26:03,630 --> 00:26:15,300 leader from each sector. And we're going to try to follow one leader from each sector. And we're going to use option prices for paper trading also. So if you
147 00:26:15,330 --> 00:26:23,880 think there's going to be higher prices, or lower prices, the way you practice it is go into the options chain. And we'll talk about that in August as well in
148 00:26:23,880 --> 00:26:35,130 great detail. But it'll help you find opportunities where even with folks that have very small trading accounts, you can buy if you're bullish on commodities
149 00:26:35,130 --> 00:26:43,620 as a whole, you can buy call options in just about every one of the major sectors and not spend a whole lot of money and you have controlled risk. It's
150 00:26:43,830 --> 00:26:56,760 limited to what you paid for the option premium plus the commission paid. Now, this is obviously a very basic and very simplified overview that will be refined
151 00:26:56,760 --> 00:27:05,010 in detail in August in the PDF files. Commodity top down analysis, I say it to you here because I want you to think like this build this mindset going in.
152 00:27:05,340 --> 00:27:14,160 Because when we start talking about those lessons in August, at least, you know, a general theme or process that we work off of that there's other portions and
153 00:27:14,160 --> 00:27:20,730 gaps that's intentionally left here to be filled in when we get into the PDF files for August.
154 00:27:25,980 --> 00:27:37,140 Commodity basket now not every commodity sector will perform well. And not every selected leader will perform or outperform as expected. So due to the lack of
155 00:27:37,140 --> 00:27:45,660 perfection, unfortunately, I can't bridge our diversified approach in all the sectors will in theory increase the odds of capturing a mega trade in one or
156 00:27:45,660 --> 00:27:57,570 more sectors. Now the magnitude and energy seen in the winners will many times cover the collateral damage, the underperformance will generate post trade. Now,
157 00:27:57,810 --> 00:28:07,260 let's assume for a moment you've done the analysis, and you've come to a leader that you think is going to outperform all the others in that specific sector for
158 00:28:07,260 --> 00:28:17,430 all the other sectors combined. So you know you have a list of specific commodities, what to do? Well, the leaders, you can actually start comparing
159 00:28:17,430 --> 00:28:27,930 them as well, and see which of those have much more relative strength. For instance, if we're bullish, we've gone through all the agricultural sectors, and
160 00:28:27,930 --> 00:28:37,440 we've gone through all the financial sectors. And we come to our buy list. And we're bullish, we have our leaders on the upside that we think is going to go
161 00:28:37,440 --> 00:28:47,550 up. But now we can start looking at those respective leaders on a comparative basis, and see if we're bullish, which one of those commodities are starting to
162 00:28:47,550 --> 00:28:58,530 break highs earlier than the others because that means you can really see professional buying earlier than just the divergence of the lows. It's compared
163 00:28:58,530 --> 00:29:08,760 with the sector, members of each respective sector. In other words, if we're looking at the grain market, and we ferret it out, say the soybean market
164 00:29:08,790 --> 00:29:19,890 happened to be the one that failed to make a lower low and corn and wheat were unsure or unclear about what they wanted to do. And it's clear that soybeans was
165 00:29:20,100 --> 00:29:28,500 under accumulation. Okay, fine. We have soybeans out of that complex and say we did the same thing for the meats, okay, or livestock and say that it was lean
166 00:29:28,500 --> 00:29:41,070 hogs. That was the upside outperformer that we expect to see. We can look at the highs in relative terms in the soybean market and in the hog market and see
167 00:29:41,100 --> 00:29:52,620 which one of those commodities which one was breaking out above short term highs or breaking highs or basically bearish order blocks before the other and which
168 00:29:52,620 --> 00:30:04,710 one is seeing much more support at down close candles or bullish order blocks Basically having the strongest of the strongest, okay basically whittling it
169 00:30:04,710 --> 00:30:13,170 down even further, because that way, if you're going to have a commodity basket, you can start allocating more of your account, okay, or you're gonna be doing
170 00:30:13,200 --> 00:30:24,630 options, you can be buying more options in the strongest in your leader list, and still participate in all the sectors but allocate more of your money to the
171 00:30:24,630 --> 00:30:34,860 strongest of the strong. And liberals, if we end that with, say, eight different leaders, we don't want to evenly distribute that allocation of money, we want to
172 00:30:34,860 --> 00:30:46,740 do more analysis and find out which of these eight are, in fact even stronger than their respective peers. So that it can be finally brought down to three
173 00:30:46,740 --> 00:30:58,230 that are really outperforming. So I'd say 50% of your investment capital goes into those three and the remaining portion that you was going to allocate to
174 00:30:58,230 --> 00:31:07,170 this idea, then you'd use that with the remaining sectors and spread that out. So that way, you're, you're focusing a lot more allocation in the ones that are
175 00:31:07,170 --> 00:31:16,590 showing leadership characteristics. But you're also still participating in a diversified manner. And all the other sectors. So you have one grain, you have
176 00:31:16,590 --> 00:31:28,620 one livestock, you have one metal, you have one energy commodity, you have one, food, or like coffee, or cocoa one of those from that sector. So you have a
177 00:31:28,620 --> 00:31:39,120 dabbling, okay, in all of the commodity sectors as a whole, but you're really allocated heavily in the ones that have been visually shown to show massive
178 00:31:39,120 --> 00:31:48,300 accumulation because they're breaking highs, and they're failing to go lower. So if we see that, in comparison to all the other sector leaders that we've
179 00:31:48,300 --> 00:32:00,750 ferreted out, it will build up even stronger likelihood that you're going to catch her eye megatrade because those outperforming or leadership commodities,
180 00:32:00,990 --> 00:32:10,920 that you've done analysis even further on, comparatively, you really have, you know, fine tuned down to a point at which we can see most likely the strongest
181 00:32:10,920 --> 00:32:18,180 price moves for that calendar year. All right, the treasure
182 00:32:18,180 --> 00:32:28,440 seeker mindset. Now, some of you might feel perhaps this is a lot of work to find a market move. Or maybe it might seem boring to sift through charts for
183 00:32:28,440 --> 00:32:38,790 generic conditions. From my first day, looking at the annual big movers, and listening to Larry Williams about 20,000 times, okay, playing his VHS cassette
184 00:32:38,910 --> 00:32:48,960 course over and over again. I could hear him say that, you know, he loves going through charts. He loves it, he loves doing it. And I'm not sure if I was just
185 00:32:48,960 --> 00:32:59,250 being programmed or prying because I looked up to him. And I heard him say that. But either way, I can tell you, I still like I love the fact I love doing the
186 00:32:59,250 --> 00:33:07,440 analysis and going through and finding these types of things. And I'm addicted to that. It's to me, since the very first day, I've likened it to treasure
187 00:33:07,650 --> 00:33:14,430 hunting. It's like a treasure that hidden that, you know, I have to personally go into the charts and find, and like most anything else, if you turn it into a
188 00:33:14,430 --> 00:33:24,960 game, it makes it fun. So every new calendar year presents a new treasure hunt. One of the things that helps keeps me motivated is because I have this mindset
189 00:33:24,960 --> 00:33:36,690 that I look at the markets as that particular analogy, like it's a treasure hunt, it's a, it's a game, it's hide and seek, they are hiding something from
190 00:33:36,690 --> 00:33:45,810 me. So therefore, I'm going to do my best to find out what it is they're hiding. And I need to find them. Find them, you know, being them being the smart money,
191 00:33:46,050 --> 00:33:53,220 I need to see what they're doing, I need to be a tracker, you know, I need to be following you their footprints, and I need to be a sniper, I need to be stalking
192 00:33:53,220 --> 00:34:01,470 them. You know, I need to be a fisherman, you know, many I need to cast a line in the area where I think they're gonna be, you know, biting, and then maybe
193 00:34:01,470 --> 00:34:11,070 catch a whale. All those analogies are the same way, whatever it takes for you, you to find enjoyment out of this. That's what it needs. That's what needs to
194 00:34:11,070 --> 00:34:18,600 happen. If you look at it as a daunting task, or if you'd like this is a lot of work. And even I don't want to I don't even want to trade commodities. If you
195 00:34:18,600 --> 00:34:28,230 think that, then you're going to hit a plateau and your understanding and your analysis. Even if you don't agree with me now, trust me, you'll want to come
196 00:34:28,230 --> 00:34:36,720 back to this whole month content because it's going to lend well to your overall analysis because you want to be finding these big moves. It's one thing to be a
197 00:34:36,720 --> 00:34:48,960 position trader. Okay. But if you can find big moves, it's going to happen in magnitude and in short, order and ours real quick, fast moves. Not that they
198 00:34:48,960 --> 00:34:59,130 complete real quick. They just cover a lot of ground fast. That's what these mega trades look like. And I'm purposely avoiding a lot of examples because I'm
199 00:34:59,130 --> 00:35:07,590 going to have it a live session with you, you know, in the beginning of the week where I'm going to give you homework to look for specific things. And if I waste
200 00:35:07,620 --> 00:35:19,680 the exercise, here in the teaching it I steal. And Rob, you have the opportunity of learning by you going into charge yourself. So I'm going to give you some
201 00:35:19,680 --> 00:35:30,780 insights at the beginning of the week to look for something. And then we'll go over and reveal it again. So your homework for now, because there's going to be
202 00:35:30,780 --> 00:35:43,170 two homework assignments, one, because of this recording lesson. And then on Tuesday, I'll give you another homework due for Thursday's recap. So your
203 00:35:43,170 --> 00:35:53,250 homework is with the benefit of hindsight, I would like for you, and I'm encouraging you to look at 2016 study the big movers in the commodity markets in
204 00:35:53,250 --> 00:36:05,310 2016. See if you can see these things that's being described in this lesson. We're going to be reviewing 2016 examples, this coming Friday, and I'm gonna
205 00:36:05,310 --> 00:36:14,130 teach you how to go back and look at previous data and old charts to pull up the information. But some of you may not know how to do that now, it's okay, just
206 00:36:14,130 --> 00:36:24,210 look at a weekly chart. Okay, go through all the commodities that's been outlined here. And I purposely kept the commodities that are currencies and
207 00:36:24,930 --> 00:36:38,340 interest rate out because there are going to be respective lessons in this month as well. But we're gonna go through a live webinar on this coming Friday, we're
208 00:36:38,340 --> 00:36:48,900 actually going to go through all the big movers from 2016. But until then, I want you to go through and find out as much as you can, by way of price action,
209 00:36:49,350 --> 00:36:58,560 and which movers took place last year, coupled with the dollar index, okay, whatever insights you can glean from hindsight with the dollar, whether it goes
210 00:36:58,620 --> 00:37:03,660 up or down, it's going to be an inverse relationship that you're going to be looking for. And then
211 00:37:05,220 --> 00:37:18,060 look for each sectors bigger, biggest mover, okay, and see if you don't see these characteristics seen in those respective sectors. And I want you to not be
212 00:37:18,060 --> 00:37:27,090 bored, I don't want you to think about it. Like all this is not going to lead to anything on the forex trader, I promise you, it will get you to another level of
213 00:37:27,090 --> 00:37:34,200 understanding about what the markets doing, why it's doing this, because there's also going to be currencies that do these types of things. Right now, we're just
214 00:37:34,200 --> 00:37:43,620 talking in general terms about commodities as a whole. I've removed the currencies as an individual sector, I've removed the bond market as its own
215 00:37:43,620 --> 00:37:55,620 individual sector, I've removed the indices as its own individual sector. Okay, so when we talk about stocks, that's going to be also one, that's a lot of
216 00:37:55,620 --> 00:38:05,580 information. But for this particular lesson, I want you to look at all of the big moves that took place in the year 2016. In the commodities market, go
217 00:38:05,580 --> 00:38:18,000 through all the grains, which of those three, corn, soybean, and wheat, go through the meats, which is live cattle, feeder cattle and lean hogs. Look at
218 00:38:18,030 --> 00:38:36,930 coffee, cocoa sugar, aren't shoes and cotton. And look at Gold and Silver. Look at heating oil, crude oil. And see if you don't find nice big moves that are
219 00:38:36,930 --> 00:38:46,620 very clearly shown by professional accumulation or professional distribution by way of price action, and you simply using the dollar index. Now again, we're
220 00:38:46,620 --> 00:38:55,110 going to build on this in August, I'm gonna give you a step by step procedure where you go through each thing to look at and if it doesn't have any
221 00:38:55,110 --> 00:39:03,600 information, you're gonna wait for more information. Or it may take you to go back to the previous stage, and you wait. And you're going to find that there is
222 00:39:03,600 --> 00:39:12,840 a methodical approach to doing all this stuff where it seems fragmented right now. It's okay. Because I'm, I'm leaving things for your discovery that you'll
223 00:39:12,840 --> 00:39:22,110 find in your actual exercises. And like this homework by you going through and looking at it. Invariably, some of you are going to not come away with anything
224 00:39:22,110 --> 00:39:29,970 fruitful. And that's okay. Because when we do live session and break it down, you're like, Okay, I got it. Some of you will be pleased to see that you see the
225 00:39:29,970 --> 00:39:41,640 same thing that I'm going to pull out in our live session. And that will be a another milestone for your confidence and your your growth. But even if you
226 00:39:41,640 --> 00:39:49,710 think you're never going to trade commodities, and that may be true, and I'm not trying to twist anybody's arm here to to the trade commodities. Go through this
227 00:39:49,710 --> 00:39:59,070 process go through this procedure, because I promise when you do it, it will build a greater understanding about the market. price action as a whole. And you
228 00:39:59,070 --> 00:40:09,780 as a trader So get into those treasure maps or price charts as we call them and find these big moves that took place in 2016 and we'll talk about them in a live
229 00:40:09,780 --> 00:40:11,370 session this Friday coming up