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109-ICT Mentorship Core Content - Month 11 - Forex and Currency Mega-Trades

Last modified by Drunk Monkey on 2022-10-26 08:54
1 00:00:05,759 --> 00:00:18,299 ICT: Okay, folks, welcome back. This lesson is specifically dealing with futures, and forex, and options on both. And it's important that you take a
2 00:00:18,509 --> 00:00:31,649 second look at this disclaimer. As a reminder, everything I'm teaching you here is for informational purposes only. Okay, listen to ICT mega trades, this topic
3 00:00:31,649 --> 00:00:34,229 is dealing with forex and currencies.
4 00:00:39,330 --> 00:00:48,960 Alright, quarterly shifts. Now we'll talk about mega trades making trades are a little bit longer term type of trade. They're not day trades and not short term
5 00:00:48,960 --> 00:01:01,680 trades, they're in between a swing trade and a position trade, they can go for a lot longer than we reasonably expect in the beginning. And they can also go much
6 00:01:01,680 --> 00:01:09,810 farther than we expect them to go. But they all hinge on the concept that I taught you. As it relates to quarterly shifts. Now the impact of quarterly
7 00:01:09,810 --> 00:01:19,050 cycles in the market as a whole, they can never be overstated. Every three months or so, the market will tend to form an intermediate term turning point.
8 00:01:19,620 --> 00:01:26,760 Now, by itself, it doesn't give you directional bias as the other concepts that you have to use to get to the outcome. And it's going to be basically
9 00:01:26,760 --> 00:01:35,790 institutional order flow. But the overlapping of megatrade conditions coupled with this effect, that is the quarterly shift is crucial to finding the next
10 00:01:35,790 --> 00:01:37,020 explosive market moves.
11 00:01:42,659 --> 00:01:52,829 The next portion of this megatrade recipe is seasonal tendencies. Now seasonal tendencies are important for megatrade selections as well, obviously, Otherwise,
12 00:01:52,829 --> 00:02:01,859 they wouldn't be in this recording now would they? Know, we've covered all the salient seasonal tendencies for each market and asset class up till now. So you
13 00:02:01,859 --> 00:02:11,789 know exactly when I believe that the specific currencies are going to rally or decline based on seasonal effects and historical data. They are not panaceas
14 00:02:11,789 --> 00:02:22,739 they're not being be all endorsed. They're just roadmaps again. But I like to use them as precursors to what I believe may unfold in actual prices. Now,
15 00:02:22,739 --> 00:02:32,459 seasonal tendency may or may not be a factor on all explosive moves. But most tend to be in alignment with this market phenomenon. And what do I mean by that
16 00:02:32,459 --> 00:02:39,869 sometimes you may have a seasonal tendency, this implying that a particular currency is supposed to decline this time of year, maybe even for several
17 00:02:39,869 --> 00:02:50,309 months. But the market internals are suggesting otherwise, and technicals are in line with the going higher. And other supporting factors would support that
18 00:02:50,849 --> 00:02:59,939 analysis, then you really can't force a trade idea. Based on seasonal tendency, you have to look at what the technicals as a whole and at collective, some hole
19 00:03:00,239 --> 00:03:12,569 of analysis than just one portion or partial component to the overall conditions that lead to a megatrade. So seasonal tendencies are important. But don't bet
20 00:03:12,569 --> 00:03:20,699 the farm on the fact that it has to unfold based on the seasonal seasonal tendency. Ideally, the conditions are even better. When a seasonal tendency
21 00:03:20,729 --> 00:03:31,979 isn't alignment. That's what I'm getting at here. The US Dollar Index. Now obviously, I have preached this long and hard ever since the first day I came
22 00:03:31,979 --> 00:03:43,109 out on the scene as a Forex guru. Now, every significant mover in the Forex or currency markets will have its roots in the price action of the US Dollar Index.
23 00:03:43,139 --> 00:03:52,169 That means if it's going to be significant price move, it's going to be mirrored in the dollar index. Now while on the very short term, and especially when it
24 00:03:52,169 --> 00:04:01,649 comes to intraday trading, the dollar index can consolidate, and we can still see currencies that are in foreign nature, trade stronger or weaker against it
25 00:04:01,649 --> 00:04:10,859 while the dollar index stays in consolidation. The search for making trades in currencies will depend on the support of the trade idea in the dollar index or
26 00:04:10,919 --> 00:04:21,899 is not a qualified megatrade setup. And example, if we believe that the British pound is going to go higher as a mega trade, the dollar index should be in a
27 00:04:21,899 --> 00:04:31,349 sell condition. And vice versa. If the dollar index is poised to go higher, and we believe the Canadian dollar is going to go lower as a mega trade. We have to
28 00:04:31,349 --> 00:04:43,229 see that bullishness in the dollar index focusing on the majors now whether you'd like to trade the majors or the crosses, you need to focus on these majors
29 00:04:43,229 --> 00:04:56,459 for megatrade selections. Those are the Euro dollar or fiber, POUND DOLLAR or cable. Aussie dollar or as we refer to as Ozzy New Zealand dollar, or Kiwi
30 00:04:57,599 --> 00:05:09,269 dollar Swissy dollar Cat or Looney, and dollar yen or as we refer to commonly as just simply the yen. Now all major moves can be determined with the seven pairs
31 00:05:09,269 --> 00:05:21,599 and they are all you ever need to trade or follow. Now I know some of you want these bigger range pairs these these beasts like pound yen and, and Euro Yen and
32 00:05:22,289 --> 00:05:32,459 all these crosses. And some of you may not even ever like to trade the majors because they can potentially be small range environment pairs have to look at
33 00:05:32,459 --> 00:05:45,059 them to get a basis on where the next mega trade is going to be. The megatrade can occur in a major as listed here, or it can be in a cross. But to find it in
34 00:05:45,059 --> 00:05:54,329 the cross, you have to understand these majors. So this is probably one of the most important lessons out of all the mentorship because while I don't actively
35 00:05:54,359 --> 00:06:05,789 trade a lot of the crosses, there are instances where we want to take a look at them because they are going to provide us avenues in which we can trade make a
36 00:06:05,789 --> 00:06:07,439 trade say for forex pairs.
37 00:06:12,690 --> 00:06:20,250 Focus on the futures. Now the majors have futures contracts that trade respectively. And this aids further in our analysis, we're searching for the
38 00:06:20,250 --> 00:06:30,450 marketplace to provide us explosive market moves. Those respectively are Euro dollars British pounds Australian dollars New Zealand dollars, Swiss franc
39 00:06:30,480 --> 00:06:38,820 Canadian dollars in Japanese Yen futures contracts, there may be something in the price action of the underlying futures that leads to an opportunity that
40 00:06:38,820 --> 00:06:40,950 ultimately unfolds as a mega trade.
41 00:06:46,440 --> 00:06:56,880 The next area of study is relative strength analysis. Now there's two approaches to performing relative strength analysis as I define it. The first is to use the
42 00:06:56,880 --> 00:07:06,570 underlying futures price action comparably measuring respective highs and lows. What I mean by that? Well, if we're looking for a bullish scenario based on a
43 00:07:06,570 --> 00:07:14,280 weak dollar, so if you think the dollar is going to be going lower, lower greenbacks should send higher prices in foreign currencies, we can start going
44 00:07:14,280 --> 00:07:22,710 through all of the underlying futures contracts, the Australian dollar, the Canadian dollar, British pound, Euro, New Zealand dollar, Japanese yen, Swiss
45 00:07:22,710 --> 00:07:40,170 franc, comparing the lows of all of those individual currency futures contracts. We want to focus on the markets that have a willingness to go higher, and also
46 00:07:40,170 --> 00:07:49,140 hold their lows have a higher low, that's going to be relative strength. We also want to be looking at the ability of these these futures contracts to be able to
47 00:07:49,140 --> 00:08:01,770 break through old highs or premium arrays. So the markets that are able to trade through premium arrays and hold higher lows. They are, by default, a relatively
48 00:08:01,770 --> 00:08:10,920 strong market or a relatively strong currency. Not all of the currencies are going to create that condition, some of them will falter and go lower, some of
49 00:08:10,920 --> 00:08:18,810 them will fail to break through premium arrays, that's giving you underlying weakness, you want to cross those individual markets out if you're looking to be
50 00:08:18,810 --> 00:08:30,420 a buyer of a foreign currency. The second application is you want to be looking at the overlay tool that you can use for the MT four for forex markets, and you
51 00:08:30,420 --> 00:08:40,320 can be measuring the respective highs and lows as a result of looking at the overlay. So by overlaying multiple pairs on one chart with the MT four platform,
52 00:08:40,560 --> 00:08:49,680 you can start seeing where there's accumulation based on s&p dot divergence across all the pairs. Again, if the weak dollar is expected, we can be looking
53 00:08:49,680 --> 00:09:04,380 for pairs that have higher lows as long as the base currency is the foreign currency and the quoted price is in dollars, no words. Aussie dollar euro dollar
54 00:09:04,410 --> 00:09:17,700 POUND DOLLAR Kiwi dollar they have the dollar as the second in the name of their parents name that's the quoted they're quoted in dollars. The base currency is
55 00:09:17,700 --> 00:09:29,550 the first currency in the name of the pair. He asked to reverse it now you have inverted when you do the overlay for dollar based crosses against the quoted
56 00:09:29,790 --> 00:09:40,980 pairs like DOLLAR YEN. So DOLLAR YEN it's being quoted in yen, dollar CAD, it's being it's being quoted in Canadian dollars dollar Swissy it's being quoted in
57 00:09:40,980 --> 00:09:52,080 Swiss Franc and that would look like this. So you'd have all the overlays on top to chart and it looks rather busy I know. But I put them on just to give you a
58 00:09:52,110 --> 00:10:02,220 contrasting view of looking at what looks like a spaghetti mess on the on a price chart. You If you understand what you're looking for, this gives you a
59 00:10:02,220 --> 00:10:11,010 mountain of insight. And I actually go into detail about this in the month of August when we break down top down. So we can go through examples of it then.
60 00:10:11,010 --> 00:10:18,660 But there's two approaches to looking at relative strength. And again, it's pure, looking at highs and lows with a candlestick or open high low close bar
61 00:10:18,660 --> 00:10:32,310 chart, or using a line based perspective with an overlay with Mt four, they will both ferret out the significant movers, you won't miss a mega trade by doing one
62 00:10:32,310 --> 00:10:40,170 or the other. It doesn't matter which one you prefer, I've done both interchangeably throughout the years. And sometimes, there's going to be market
63 00:10:40,170 --> 00:10:51,750 conditions that really require you to use the actual underlying futures contract chart and compare the highs and lows there. And other times the overlay concept
64 00:10:51,750 --> 00:11:00,120 will be very clear and obvious, okay, but the best world for you to reside in as a trader is to kind of like us, both of them blend in together. And hopefully
65 00:11:00,120 --> 00:11:05,010 they should agree with everything you're expecting. And if they do, chances are you've probably got tiger by the tail.
66 00:11:09,450 --> 00:11:23,400 Okay, seeking mega trades. Now the simple process of beginning to end in very, very simple terms, okay, it's not complete approach. But overall, it's you look
67 00:11:23,400 --> 00:11:32,100 for strong and weak currency futures. Okay, you start at the futures contracts, and you'd look there, and you look at the institution or flow of those
68 00:11:32,100 --> 00:11:42,540 currencies. And then you study the forex pairs respectively. So if you are seeing a small group of currencies in the futures market that are showing
69 00:11:42,540 --> 00:11:51,420 relative strength, it's bullish, and say one of them is the euro, one of them is the Canadian dollar, obviously, you need to know what they are in the pairs,
70 00:11:51,600 --> 00:12:01,020 Euro dollar and dollar CAD. You're also gonna be conferring with the dollar index. So you're gonna be looking at what direction is the dollar index, is it
71 00:12:01,320 --> 00:12:11,670 supporting the idea you think is going to unfold in the strong or weak currencies, then you gonna be using relative strength in each currency to make
72 00:12:11,670 --> 00:12:21,030 sure that you're getting the very strongest of the currencies that you're trading, just because you may have a collection of three or four that are
73 00:12:21,030 --> 00:12:32,880 relatively strong with institutional order flow, and $1 may be supporting that idea in a kind first manner, you still want to break these down. And relative
74 00:12:32,880 --> 00:12:42,390 strength analysis by seeing which of that smaller group of currencies is the actual strongest and which one is the actual weakest. You can be filtering
75 00:12:42,420 --> 00:12:51,570 leadership currencies by doing this. So that way, what you're doing is you're getting the strongest and the weakest separating the two, you want to find the
76 00:12:51,570 --> 00:12:58,140 weakest of the weakest and the strongest of the strongest, the strong ones are going to have an ease of going through premium arrays. In other words, going
77 00:12:58,140 --> 00:13:07,650 through bearish waterblocks, breaking through old highs, and finding support at discount arrays and making higher lows. Weak currencies are going to have very
78 00:13:07,680 --> 00:13:19,650 easy abilities to go through discount arrays, in other words, bullets or blocks and old lows, and there'll be supporting price going lower at resistance at
79 00:13:19,770 --> 00:13:32,340 premium arrays and having lower highs. So having this will help us go through a overall approach to filtering out what's the strongest and what's the weakest of
80 00:13:32,340 --> 00:13:42,030 all the currencies. And once we arrive at that, we try to narrow it down to one or two currencies that fit that criteria. Once we have a weak currency and a
81 00:13:42,030 --> 00:13:51,900 strong currency defined with relative strength, then we can go into two different app purchase we can trade the underlying futures contracts or we can
82 00:13:51,900 --> 00:14:06,780 use the options to trade those futures contracts or we can use the Forex approach and would allow a mega trade by using the crosses. Now obviously this
83 00:14:06,780 --> 00:14:13,050 is an overview and it will be further refined in detail on August PDF files from the commodity top down approach.
84 00:14:18,150 --> 00:14:26,160 Okay, so let's take a quick look at a few of the futures charts. Okay, here we have the Australian dollar. And you see in recent weeks we've seen the dollar
85 00:14:26,940 --> 00:14:36,300 sell off and the Australian dollar has been in a really nice uptrend from a relative strength standpoint, Australian dollar has been very strong. It's been
86 00:14:36,300 --> 00:14:45,270 finding support at discount arrays, it's been creating higher highs it's had no problem breaking through old premium arrays and finding support at discount
87 00:14:45,270 --> 00:14:56,100 arrays. Expansion moves are the strongest on the upside and shallow retracements lower. They're all hallmarks to relative strength and institutional order flow,
88 00:14:56,250 --> 00:15:09,330 suggesting Australian dollars obviously a higher moving currency Next is the euro. And while this has been moving up, we've had short term little
89 00:15:09,330 --> 00:15:20,220 consolidation that's been plaguing the euro for for a couple of days here. But overall the price has been firmed to bullish. So this is a relatively strong
90 00:15:20,460 --> 00:15:34,020 currency as well. The British Pound, this has been an arrange, but we did call it higher based on other technical analysis. But I wouldn't call this a relative
91 00:15:34,020 --> 00:15:46,590 strength leader on the upside. It's been in a range it's been rather sloppy. So this would not be one of those pairs that we would look for mega trade in. The
92 00:15:46,590 --> 00:15:56,940 Japanese Yen has been in a somewhat of a larger trading range, but it did meet some resistance in the month of June and sold off after filling a fair value gap
93 00:15:56,940 --> 00:16:12,180 at the 92 big figure. And this was wrong. We had basically a similar situation with the euro. All it's firmed to bullish. It's not terribly exciting on the
94 00:16:12,180 --> 00:16:26,220 upside. So I don't believe this would have met any criteria for a mega trade. The Canadian Dollar has been in a wonderful uptrend. On the futures standpoint,
95 00:16:26,640 --> 00:16:37,050 it's been finding support at discount arrays breaking through old highs smashing through all of the premium arrays that would be in its way. And all the
96 00:16:37,050 --> 00:16:46,560 expansion and big moves are on the upside small shallow retracements on a downside to this is a leadership futures market on the upside as a buy so
97 00:16:46,560 --> 00:16:59,250 relatively speaking, this and Australian Dollar are really good. Okay, New Zealand Dollar. This has been a strong bull bull market as well. In contrast,
98 00:16:59,250 --> 00:17:08,340 you can see that the New Zealand dollar has moved into a trading range versus what we saw the price action in Australian dollar which was much more dynamic on
99 00:17:08,340 --> 00:17:19,170 the upside, higher lows and higher highs. So while New Zealand Dollar was a relatively strong currency pair, if you're going to be comparing apples to
100 00:17:19,170 --> 00:17:27,750 apples and oranges, the oranges, the New Zealand dollar compared to the Australian dollar Aussie is much stronger in its institutional order flow for
101 00:17:27,750 --> 00:17:38,820 upside. So we will have to cross out the New Zealand because it closely correlated. So our leadership currencies our Australian dollar for strong upside
102 00:17:39,360 --> 00:17:52,380 Canadian dollar for strong upside and then we had the Japanese yen as a weak currency. So now how can we use this information we ferreted out two currencies,
103 00:17:53,460 --> 00:18:01,710 Australian, and Canadian. And we also figured out where the weak currency was, that's the Japanese yen. So what we're going to do is we're gonna blend the two,
104 00:18:02,010 --> 00:18:10,860 and we're gonna come up with a mega trade idea using Forex. Now, you can go long on the Canadian dollar in the futures market, you can go long australian dollar
105 00:18:10,890 --> 00:18:19,920 in the futures market, do options, long calls on both of those. Or you can use this information if you don't ever want to trade the futures market and that's
106 00:18:19,920 --> 00:18:28,770 fine. The way you use this information is you want to find a mega trade in the forex market. This is how it's done. You find a strong currency which we elected
107 00:18:28,770 --> 00:18:31,260 to use the Canadian dollar which has been in a strong uptrend.
108 00:18:32,310 --> 00:18:42,240 We've been talking about this Canadian dollar going lower as $1 CAD pair for months now. The reverse or inverse relationship to the futures market is the
109 00:18:42,240 --> 00:18:50,850 Canadian dollar would be going up. We can clearly see that here in the Charlyne left hand side. And we can contrast that with that of the weak currency or the
110 00:18:50,850 --> 00:19:03,750 Japanese yen. We can see the second week or so of June, the Japanese yen went up close in a fair value gap at 92. And ultimately fell over and went to a weaker
111 00:19:03,750 --> 00:19:14,910 stance for trading. At the same time, the Canadian dollar was finding its new legs higher and rallying up rather strongly. So what we're doing is we're
112 00:19:14,910 --> 00:19:25,770 blending these two together to get a pair. So what we have to do is go through the forex market and figure out which pair makes these two currencies a cross it
113 00:19:26,070 --> 00:19:34,050 you'd have to start obviously looking to see if there's a Japanese against the Canadian or Canadian versus Japanese yen, and as it were, we see that there is a
114 00:19:34,050 --> 00:19:46,620 Canadian Dollar versus the Yen. And this is the result of blending a strong currency with a weak currency and then finding a pair to trade that. You can see
115 00:19:46,620 --> 00:20:01,830 the second week of June 2017. The market makes a low and rallies aggressively all the way up to a high of 845 pips as a price swing Now, I don't talk about
116 00:20:01,830 --> 00:20:08,580 crosses a lot. I don't do that because it you have to understand this information to do it. If you're trading crosses just for the sake of trading the
117 00:20:08,580 --> 00:20:16,620 crosses, because you expect big volatility all the time, they can, they can hurt you actually. But if you understand what we're looking at, on a more of an
118 00:20:16,620 --> 00:20:25,050 intermediate term basis, the crosses will serve you better when we use this approach. Okay, this is how the banks break it down. This is how large
119 00:20:25,050 --> 00:20:34,170 institutions work through the currency board to find out how the crosses are going to work. As a market maker. This is how they manipulate the majors to
120 00:20:34,260 --> 00:20:36,000 unfold in the crosses.
121 00:20:41,160 --> 00:20:53,700 Another example would be the strong currency of the Australian dollar, versus the weak currency of the Japanese yen. And that would be in a pair found in the
122 00:20:53,700 --> 00:21:10,050 forex market as the Ozzy yen. Again, second week of June makes a low and price rallies aggressively. In the tune of 630 pips. Now, if you think about what
123 00:21:10,050 --> 00:21:17,640 you've been taught here, it does not give you a day traders perspective, it doesn't give you a short term traders perspective, either. It doesn't give you
124 00:21:18,600 --> 00:21:33,840 you know, a scalping mentality, it's giving you real big movers blast off tight moves, where the moves are not lethargic, they're not wimpy, they're not slow,
125 00:21:34,050 --> 00:21:42,060 they're in a hurry to go somewhere and they are going quickly. And what you're doing is you're pairing a very strong currency against a weak currency. And vice
126 00:21:42,060 --> 00:21:51,240 versa, there's gonna be times when we're looking for a, a stronger dollar. That means foreign currencies are going to be looking to go lower, what we'll
127 00:21:51,450 --> 00:21:59,700 collectively see is all the foreign currencies will be going lower, but there'll be one currency that's trading against that and being strong. And we will be
128 00:21:59,700 --> 00:22:09,360 doing the opposite here we would be pairing up that strong currency against a weaker currency. And that would give us the criteria for another trading
129 00:22:09,360 --> 00:22:21,480 opportunity for megatrade. As you can see here, 806 100 pips versus a few 100 pips in the euro and the cable. As we've been falling in our mentorship, it
130 00:22:21,480 --> 00:22:30,240 pales in comparison. So if you're looking for big big moves, this is how it's done. This is how the banks do it. And now you know how to do it as well. Until
131 00:22:30,240 --> 00:22:32,670 next lesson, I wish you good luck and good trading.