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21-ICT Mentorship Core Content - Month 3 - Institutional Market Structure

Last modified by Drunk Monkey on 2022-09-09 12:49
1 00:00:26,580 --> 00:00:36,180 ICT: Hey folks, welcome back to the fifth of eat teachings. With the month of November 2016. ICT Membership Kit we're looking at inside price action,
2 00:00:37,050 --> 00:00:50,370 institutional market structure. Okay, now what is institutional market structure it's the analysis of correlated assets with a relationship to inversely
3 00:00:50,400 --> 00:01:04,410 correlated assets. The purpose is to determine what the smart money is accumulating or distributing. Now, currencies are the easiest to analyze with
4 00:01:04,440 --> 00:01:19,950 institutional market structure, and we utilize the dollar index. Every price swing should be studied to determine if market symmetry confirms it. Now, how do
5 00:01:19,950 --> 00:01:33,360 we identify institutional market structure in forex, we compare every price swing in the dollar index with the foreign currency that we trade. As the US
6 00:01:33,360 --> 00:01:45,060 Dollar Index trades higher, we reasonably expect a lower price swing and foreign currency pairs. If the US Dollar Index, or a foreign currency pair fails to move
7 00:01:45,060 --> 00:01:57,690 symmetrically, smart money is actively trading. As the US Dollar Index trades lower, we reasonably expect a higher price swing in foreign currency pairs. If
8 00:01:57,690 --> 00:02:04,140 the US Dollar Index or foreign currency fails to move symmetrically, again, smart money is actively trading.
9 00:02:09,990 --> 00:02:21,930 Okay, let's take a closer look about what this concept actually means. And we're gonna be referring to the US Dollar Index SMT divergence. Now SMT stands for
10 00:02:21,930 --> 00:02:31,410 Smart Money tool or Smart Money technique. And we're gonna be looking for divergence between closely correlated or inversely correlated assets. Now,
11 00:02:31,410 --> 00:02:39,090 obviously, if we expect the dollar index to trade higher, that's going to put downward pressure on foreign currencies. If we're expecting the dollar index to
12 00:02:39,090 --> 00:02:51,120 trade lower, that's going to allow foreign currencies to rally. In a symmetrical market condition, when the dollar index makes a lower low foreign currencies, we
13 00:02:51,120 --> 00:03:01,860 expect that to make a higher high. When we see this, this confirms current price action, and the underlying trend is likely to continue. Now, the idea of
14 00:03:01,860 --> 00:03:11,430 stocking reversal patterns in this condition is not highly probable. In fact, you want to avoid it altogether. The reason why is because for instance, let's
15 00:03:11,430 --> 00:03:22,260 take a look at the dollar index example here but the red line, okay, we're gonna look at the likelihood of that old low being violated as we see here. And if we
16 00:03:22,260 --> 00:03:32,130 see that all low violated, and we see a higher high in foreign currency, that confirms the down move in the dollar index, and even though it trades back above
17 00:03:32,160 --> 00:03:42,180 a short term high, that short term high is going to be just a run on buy stops, and then the dollar index most likely will resume going lower. This is one of
18 00:03:42,180 --> 00:03:51,150 the ways that I can basically go into the marketplace and anticipate turtle soup before it actually happens. And the same thing said for foreign currencies. If
19 00:03:51,150 --> 00:04:00,030 we see that higher high, while the dollar index makes that lower low price is confirmed. So that means the underlying direction is still intact. So any
20 00:04:00,030 --> 00:04:08,130 movement down in the foreign currency pairs below is a swing low or short term low. They're gathering up the sell stops below the marketplace and that's where
21 00:04:08,130 --> 00:04:13,740 they're going to be accumulating new long positions and then the foreign currency pairs will be allowed to trade higher make a new higher high.
22 00:04:19,860 --> 00:04:32,850 Now, when the dollar index makes a higher high and the foreign currency makes a lower low, this too confirms current price action and the underlying trend is
23 00:04:32,850 --> 00:04:42,900 likely to continue. Again like we just said about the other slide. The idea of stocking reversal patterns in this condition is not high probability and it
24 00:04:42,900 --> 00:04:51,480 should be avoided. Again, once that dollar index makes a higher high in foreign currency makes a lower low that run above the short term high in foreign
25 00:04:51,480 --> 00:05:00,210 currencies is many times going to be a run on buy stocks on the marketplace. And then you'll see another sell off making a lower low and the same is said For the
26 00:05:00,210 --> 00:05:08,700 country for the dollar index, when the market trades back below that short term low, it's going to gather up, sell stocks to pair new buying with and most
27 00:05:08,700 --> 00:05:23,640 likely trade higher and make a new higher high. Now we're gonna talk about non symmetrical market conditions. When the dollar index makes a lower low in the
28 00:05:23,640 --> 00:05:37,380 foreign currency fails to trade higher than a previous high, this is US Dollar Index SMT. For us DX SMT. This does not confirm current price action, and the
29 00:05:37,380 --> 00:05:46,620 underlying trend is likely not to continue. However, the idea of stocking reversal patterns in this condition is high probability, and could reasonably be
30 00:05:46,680 --> 00:05:58,200 considered that lower low on foreign currencies is indicating that the dollar index is most likely going down below a previous low to do what wipe out to sell
31 00:05:58,200 --> 00:06:05,760 stops accumulate new buying, and the rally should ensue and $1. If the dollar is going to rally, that means it's going to be downward pressure in foreign
32 00:06:05,760 --> 00:06:16,680 currencies. And it's already shown itself in the form of weakness by having a failure swing in the foreign currency making a lower high. Again, looking at non
33 00:06:16,680 --> 00:06:27,720 symmetrical market conditions, when the dollar index fails to make a higher high. While foreign currencies make a lower low, the same thing is being said,
34 00:06:27,720 --> 00:06:38,310 as we said in the previous slide, it's just being illustrated in a different context. This is showing the dollar index is failing to make a higher high, that
35 00:06:38,310 --> 00:06:48,240 means there's underlying weakness. And there's a lower low seen in foreign currency pairs, they're going down below previous low to accumulate all the cell
36 00:06:48,240 --> 00:06:58,860 stops on foreign currency pairs, then they'll rally the market higher, the dollar index will sell off, which would support foreign currencies long
37 00:06:58,860 --> 00:07:08,940 positions and the underlying weaknesses indicated with the US Dollar Index making a lower high feels those market moves. The idea of stocking reversal
38 00:07:08,940 --> 00:07:13,050 patterns in this condition is high probability and could reasonably be considered.
39 00:07:25,230 --> 00:07:34,680 Okay, so let's take a look at a case study here. What does this look like in price? Okay, we're looking at a daily chart of the British pound USD or as we
40 00:07:34,680 --> 00:07:47,670 call it, the cable. And notice the highs in here. Okay, we have a higher high formed in POUND DOLLAR. This is around the end of April going into mid June of
41 00:07:47,670 --> 00:08:01,830 2016. And the same timeframe, we see the dollar index, making a low in April time period going into mid June. But notice the difference between the two.
42 00:08:03,300 --> 00:08:15,270 Going back to the POUND DOLLAR, we have a higher high forming in the middle part of June 2016. By itself at the time when it was rallying up. I'm sure it
43 00:08:15,270 --> 00:08:25,410 probably looked very positive and bullish to everyone. But if that's the case, if there is a symmetrical market condition that should be seen with what in
44 00:08:25,410 --> 00:08:39,420 terms of the dollar, it should be seen with a lower low. Do we see a lower low form in the dollar index? No. That's an USD X SMT bullish divergence. That means
45 00:08:39,480 --> 00:08:50,730 what we're seeing underlying strength in the dollar index. And even though this looks bullish on the British pound, it's really just taking the buy stops above
46 00:08:50,730 --> 00:09:06,420 the 4760 level. Once those stops are ran out, the market does in fact tank. The underlying strength in the dollar index allows us to look at that 9380 to 94 big
47 00:09:06,420 --> 00:09:16,800 figure this down candle in here that may become a future bullish order block that we could trade at. Once this void is closed in. We know that there's
48 00:09:16,800 --> 00:09:25,320 underlying strength in the dollar index because there was an unwillingness to see that lower low form as we saw the higher high form and cable. So again, you
49 00:09:25,320 --> 00:09:40,740 can see that that higher high piercing an old high that's going to be a run on stocks above that 4760 level. Now it trades almost up into 5065 which is made
50 00:09:40,740 --> 00:09:50,580 several 100 pips but it's a daily chart. So we're gonna be cognizant of that. But nonetheless, we're looking for institutional market structure. So this looks
51 00:09:50,580 --> 00:10:00,900 like by all indications when the market was rallying up, retail traders and less informed traders would see that as a bullish breakout, but it's not seeing With
52 00:10:00,900 --> 00:10:12,450 the dollar index, having a lower low. So we see the same thing we've mentioned earlier, just graphically described here, the higher low formed on the dollar
53 00:10:12,450 --> 00:10:20,520 index that should have created a lower low as the cable mean higher high and it didn't. What does that actually giving us it's giving us a great insight about
54 00:10:20,850 --> 00:10:31,680 what is being accumulated, the dollar index has been accumulating alongside otherwise, it would have been permitted to go lower. If we see that, and we can
55 00:10:31,680 --> 00:10:43,890 see a foreign currency pair shooting higher. Okay, basically, acting on its own accord, if you will. Okay, that's not by accident. It's absolutely, I mean, it'd
56 00:10:43,890 --> 00:10:50,820 be elation. So if we understand where the manipulation is taking place in the marketplace, then we can go in and capitalize on that. So now you focus
57 00:10:50,820 --> 00:10:58,350 primarily on being bullish dollar. Why, because the dollar was unwilling to make a lower low and the only reason why that can happen is if it's being bought
58 00:10:58,350 --> 00:11:06,240 aggressively, otherwise, they would wait for lower prices. So since they're unwilling to wait for lower prices in the middle of June of 2016, we have to
59 00:11:06,240 --> 00:11:16,800 focus primarily on being a buyer $1. And it means put, sell signals or bearish stance on all foreign currencies, looking to be a seller. This is the reason why
60 00:11:16,800 --> 00:11:30,360 all through the second part of the 2016 I've been dollar bull. Okay, let's take a look at another example. And we're going to be using the daily chart again,
61 00:11:30,630 --> 00:11:37,950 because I want to build the idea that you don't have to be a day trader. But having these ideas will help us have a long term to intermediate term
62 00:11:37,950 --> 00:11:50,460 perspective on the marketplace. So that we're gonna turn our attention to the latter portion of August 2016 to the first week of September. And you can see
63 00:11:50,460 --> 00:11:54,420 that the cable meet a higher high
64 00:12:03,269 --> 00:12:18,659 Okay, so all in the tape, all indications here looked very bullish. Okay. So price was running through an old high here at the same time, this low on the
65 00:12:18,659 --> 00:12:33,989 dollar index here did not see another lower low. So as the cable was pressing higher rally, this dollar index should have seen a lower low, it did not do
66 00:12:33,989 --> 00:12:46,049 that. What that indicates is again, dollar based strength. In other words, the dollar index is being accumulated. On the long side. The cable is being
67 00:12:46,049 --> 00:12:57,029 distributed. Now it's being distributed above an old high here, but look to the left again, above this old high here as well. So now we can go and frame another
68 00:12:58,079 --> 00:13:11,939 level for turtle suit, or a false break above in Ojai to run what what type of stops reside above an old high buy stops, why would they want to take the market
69 00:13:11,939 --> 00:13:20,789 to a buy stop, because they want that buy stock to execute at the market to buy at the market. They're going to sell their long positions they accumulated here,
70 00:13:21,149 --> 00:13:29,579 and they accumulated here, they can sell those Long's at a higher price to willing buyers up here. This is being distributed, it's being distributed at an
71 00:13:29,579 --> 00:13:41,549 old high while the accumulation has seen in strength because the dollar can't go lower. Think if the dollar doesn't go lower, it's because it can't go lower
72 00:13:41,549 --> 00:13:53,429 because of pricing. It's being kept while the premium is being built into the POUND DOLLAR. So retail chases this run like this and false breakout. While
73 00:13:53,429 --> 00:14:01,709 Smart Money looks at failure swings and the lows when you see what would otherwise look like strengthen breakouts on the upside and foreign currencies.
74 00:14:02,129 --> 00:14:10,409 Always double check them with the dollar index. If you don't see that, then you know the false breakout on the upside on the foreign currency market. That's all
75 00:14:10,409 --> 00:14:18,539 sucker play. It's retail Candyland, everyone's going to be looking to be going long on this false breakouts in foreign currencies, while the smart money is
76 00:14:18,539 --> 00:14:27,089 focused in on the dollar having an unwillingness to go lower like it does here. So this low, and I basically frame the exact dates that's why this box is up
77 00:14:27,089 --> 00:14:36,509 here. So it's not like a kills or anything like that. I'm just giving you a specific date range to look at sample size of price action. As you look at this,
78 00:14:36,629 --> 00:14:46,349 I want you to see just how strong it is in terms of giving us a long term to intermediate term perspective and what direction the market is going. Again,
79 00:14:46,349 --> 00:14:56,069 this is a daily chart. So if they're going to keep price at a higher price low here and not blow out the previous low or this lower here we see the
80 00:14:56,069 --> 00:15:06,899 unwillingness to to call these prices in British Pound USD. They quickly drop it lower. Because it's been distributed, they left the retail holding the bag. When
81 00:15:06,929 --> 00:15:18,899 accumulated long positions start moving higher. Every time there's a retracement, we expect to see another expansion on the upside. So, when we look
82 00:15:18,899 --> 00:15:28,889 at price like this, we can see it graphically using the price chart. But also use a toll as an overlay for the MT four platform. And I'm gonna show that to
83 00:15:28,889 --> 00:15:40,889 you now. Okay, here we are over at the ICT monthly mentorship form. And we're in the November content thread, or category as to form calls it okay, I gave you
84 00:15:40,889 --> 00:15:50,729 several empty four indicators today at the time of this recording, and what I'm going to do is I'm going to tell you we're going to be doing is showing you how
85 00:15:50,729 --> 00:16:01,559 to install this on empty for now it used to be where you can just download an MT four indicator and just drop it in in indicator folder. They have since changed
86 00:16:01,559 --> 00:16:08,759 that with Mt four and made a little bit more difficult. So it's not that difficult, but a little bit tricky. So what we're gonna do is we're going to
87 00:16:08,759 --> 00:16:18,659 click on the link, the MT four line chart overlay by clicking on that it's giving you a down download prompt over here, you're going to click on that
88 00:16:18,659 --> 00:16:32,279 you're going to click on open while you have empty for open. And what that'll do is open up your editor since i already downloaded it, okay, I'm just gonna say
89 00:16:32,279 --> 00:16:47,909 yes, I want to overwrite it. Okay, once it's overwritten. So what I do is I get in here, I save it as Unicode overlay. Say, Yes, I want to replace it. I'm going
90 00:16:47,909 --> 00:16:59,309 to close this out. And you'll go back to your MT MT four platform after you restart it. So I'm going to be reboot mine. And once it restarts, I'll show you
91 00:16:59,399 --> 00:17:02,879 what we would do next. Okay, here we are back rebooted.
92 00:17:04,410 --> 00:17:17,130 And you would just go up into Insert, go down to indicators and go to custom. And scroll down to overlay chart line. Click on that, where it sees where it
93 00:17:17,130 --> 00:17:27,990 says all these double x's, double click on that. And what you're gonna be doing is changing that to whatever pair or the dollar index you want to use. Okay,
94 00:17:27,990 --> 00:17:38,430 I'll show you what I mean by that. Let's go back and highlight a specific chart first. So we're highlighting the British pound USD chart by clicking anywhere on
95 00:17:38,430 --> 00:17:53,790 the chart. Go up to Insert indicators custom overlay chart line, rather, double click, and we're gonna be overlaying the US Dollar index. So capital letters,
96 00:17:53,820 --> 00:17:59,430 okay, and we're going to leave everything as it is here.
97 00:18:04,710 --> 00:18:21,780 See in here, we see price, making that higher high. At the same time, the dollar index was failing to make that lower low, you can get these grid lines that come
98 00:18:21,780 --> 00:18:22,770 off by doing this
99 00:18:29,220 --> 00:18:40,110 I have a white background. So I will just change it to that and close it and suddenly it's gone. It makes it real clean and able to see it very crisp. Now
100 00:18:40,110 --> 00:18:46,410 you can do all of your notations for your log when you're done doing your trades or as you're doing your analysis
101 00:18:53,550 --> 00:19:02,520 so while we're seeing higher highs here, Dollar Index is making that higher low. So it should have been in a lower low there. It has not shown its confirmation.
102 00:19:02,520 --> 00:19:09,870 So we see that as a turtle soup or a false breakout above an old high and an old high here. So we can look for that to be distributed. We do not see that as
103 00:19:09,870 --> 00:19:21,090 strength. Okay. And then obviously the market trades software. So when we look at identifying institutional market structure, what we're basically doing is
104 00:19:21,090 --> 00:19:31,530 we're weighing the underlying strength of the buying and the selling at respective highs and lows in the dollar index versus foreign currencies. Now, if
105 00:19:31,530 --> 00:19:39,480 you pick one particular currency pair, and you identify areas like this interesting and daily chart, it gives you a long term perspective where you can
106 00:19:39,480 --> 00:19:48,090 be focused primarily on being short. That means if you are a short term trader, you could be looking to sell short at every 60 minutes or four hour bearish
107 00:19:48,090 --> 00:20:00,660 order block. Or you could be a day trader selling it above the opening price above the midnight candle in New York. And you just capture all those types of
108 00:20:00,750 --> 00:20:10,740 moves going lower. So it gives you an ideal context to work within and gives you a framework. It doesn't give you ambiguity. It gives you a very specific frame
109 00:20:10,770 --> 00:20:18,390 of mindset going in knowing that if it's the daily chart and you were seeing underlying strength in the dollar, and we seen potential distribution in British
110 00:20:18,390 --> 00:20:27,900 Pound USD, most likely we're going to see lower prices on cable so that way we can be a buyer on dollar based currencies or a seller on foreign currencies that
111 00:20:27,900 --> 00:20:34,800 it's paired up with the dollar index. So if you found this insightful, and until next time, I wish you good luck and good trading