94-ICT Mentorship Core Content - Month 10 - Bond Trading - Basics and Opening Range Concept

Last modified by Drunk Monkey on 2022-10-18 12:03
1 00:00:01,380 --> 00:00:11,400 ICT: Okay, folks, welcome back. This is our first lesson in ICT bond trading concepts. Again, we're dealing with commodities. So it's very important that I
2 00:00:11,400 --> 00:00:21,030 remind you that I'm not a licensed CTA. This is not trade advice, and everything that's being referred to in this month content. And in these lessons are
3 00:00:21,030 --> 00:00:23,280 referred to as a paper trade only.
4 00:00:28,470 --> 00:00:36,600 Okay, June 2017, ICT mentorship, ICT bond trading lesson one, basics and opening range concept.
5 00:00:46,200 --> 00:00:59,460 gonna refer to the Treasury bond, what I'm referring to specifically is the 30 year treasury bond, futures contract. And the trade symbol for this is z B. And
6 00:00:59,460 --> 00:01:09,600 it's for the 30 year treasury bond. And a trading session that these concepts I'm gonna be teaching this week are primarily used for an analysis on the New
7 00:01:09,600 --> 00:01:28,320 York session and it begins at 8:20am to 3pm, New York time and the contract delivery months for the treasury bond 30 year note is March with the delivery
8 00:01:28,320 --> 00:01:47,370 contract code of H. J June with Contract Code month of M September, delivery contract month code you December delivery code contract month z and the format
9 00:01:47,370 --> 00:02:02,550 when we use for entering our charts are pulling them up on in data. It's the symbol Zb, then the month code then the last two digits of the trading year are
10 00:02:02,550 --> 00:02:16,080 an example Zb u one seven for September 2017 is contract of the 30 year treasury bond. You can see that to the right in this image, treasury bond September
11 00:02:16,080 --> 00:02:28,530 contract Zb you one seven at the top it trades on the Chicago Board of Trade exchange and it is a futures contract. And you can see the only delivery
12 00:02:28,530 --> 00:02:48,510 contract missing here would be the march 2018. The amount per tick minimum fluctuation is $31.25 per contract a forehand or full figure move equals 32
13 00:02:48,510 --> 00:02:58,170 ticks or it's referred to as 30 seconds 32 ticks movement equals $1,000 per contract
14 00:03:05,190 --> 00:03:15,360 Okay, Bond opening range concept talking about nostalgic things here folks, these are the things that I cut my teeth on as a commodity trader years and
15 00:03:15,360 --> 00:03:29,550 years ago alright. So when we look at the bond market opening range concept, the highest volume is going to be seen between 8am and 9:30am New York Time True day
16 00:03:29,850 --> 00:03:50,790 for the bond market is 8am to 3pm New York time the opening range begins at 8am New York time and ends at 9am New York time. narrow your focus. The opening
17 00:03:50,790 --> 00:04:01,170 range between 8am and 9am tends to create the bond market high or low of the day it can be a run on stops or a fair value setup. In other words a bullish order
18 00:04:01,170 --> 00:04:09,870 block or bearish order block or trade down until liquidity void or fill in fair value gap. It is also the location for liquidity pools to build around for the
19 00:04:09,870 --> 00:04:27,240 stock market opening to be rated take a look at a couple of examples here. Okay of the treasury bond for the September delivery contract 2017 And this is a 15
20 00:04:27,240 --> 00:04:41,400 Minute candlestick chart and I have the 8am to 9am delineated here. So in this area, what we look for is the opening range or the high in the low between those
21 00:04:41,400 --> 00:04:50,760 two delineations in time. You can see here we have a block of price action. This is our opening range
22 00:04:56,280 --> 00:05:01,350 we are opening range low In our opening range high
23 00:05:07,109 --> 00:05:20,789 and price trades down below low that was formed between 8am and 9am. This is a stock run and a potential reversal. Notice the highest volume of the day is
24 00:05:20,789 --> 00:05:38,519 between 8am and 9am. Notice also on the lower low that was created post 9am, New York time, that lower low was seen with lower volume. So there was massive
25 00:05:38,519 --> 00:05:50,969 buying, taking place right after 8am. But as price made that lower low, it did not see a large influx of volume, all we're seeing there is a movement towards
26 00:05:50,999 --> 00:06:01,469 running initial sell stops for those individuals that were correct. And by buying early, just having a stop loss too close to the marketplace. This is a
27 00:06:01,469 --> 00:06:11,669 volume divergence price making a lower low, that lower low should have been met with a higher bar on volume. This is a sign of impending weakness for the down
28 00:06:11,669 --> 00:06:26,189 move. So that means there's no more selling pressure, it's basically a run on stops, price moves higher, find some support at the opening range as well
29 00:06:26,879 --> 00:06:33,869 opening range high and find another opportunity to see price trading higher into the latter portions of the day.
30 00:06:41,430 --> 00:06:56,070 Okay, another example we have our eight to 9am block of price action delineated to start opening range again or opening ranges to find high and low opening
31 00:06:56,070 --> 00:07:12,690 range low we have a waterblock last two down close candles inside of the opening range. And the opening range high as you see price trades down into the bullish
32 00:07:12,690 --> 00:07:27,450 order block supported around the notion of the 8am to 9am opening range concept and price rallies away basis of a bullish order block and noticed as the price
33 00:07:27,450 --> 00:07:45,870 makes a higher high going into the 11 o'clock hour. Volume was declining as price made a new high at 154 21. Price makes a subsequent decline back down into
34 00:07:46,230 --> 00:08:05,520 the opening range and then goes into consolidation. The volume divergence here was a early sign that the rally up into the 154 21 was a weak move. Therefore,
35 00:08:06,360 --> 00:08:22,320 volume precedes Price. weakness was seen after 134 21 had posted ideally volume should have had a higher bar on its highest highs moving into 184 21 So now
36 00:08:22,320 --> 00:08:31,470 we're working with commodities we have a more accurate depiction of buying and selling pressure with real volume. The vertical lines down here the green blue
37 00:08:31,740 --> 00:08:54,840 and dark blue lines are delineations of volume Okay, another example we have our eight to 9am delineation our opening range opening range low inside the opening
38 00:08:54,840 --> 00:09:08,970 range the last enclosed candle is bullish order block. There's two reference points at the order block had the initial test here and we have the secondary
39 00:09:08,970 --> 00:09:12,060 one. Either one would fit the bill
40 00:09:19,290 --> 00:09:33,390 this is a bullish order block expect a rally and it is the largest volume was seen again between 8am and 9am New York time and price moves up to run into the
41 00:09:33,390 --> 00:09:50,040 134 26 level. But notice that 154 26 Look at the high that was formed that rate for 2pm that high that volume spike there was not seen with a greater volume
42 00:09:50,790 --> 00:10:05,460 measuring later on in the day in the evening time. So when we traded the 154 26 it was done so on light volume, but it also read above with a divergence in
43 00:10:05,460 --> 00:10:16,440 volume, it reached above the opening range high. So it ran the stops above that range, and failed to go any higher and traded down and closed in the fair value
44 00:10:16,440 --> 00:10:30,060 gap seen at the 154 10 level. So we have a blending of things we've already learned about in the Forex portion of this mentorship. And now we're blending
45 00:10:30,060 --> 00:10:41,880 other things with specific commodities. Now, when we look at the opening range for bonds, what I like to do is I like to define the opening range with much
46 00:10:41,880 --> 00:10:51,660 like I did the Asian range, I look for the bodies, but also incorporate wicks. And then I also incorporate previous highs and lows that are just to the left of
47 00:10:51,690 --> 00:11:07,230 eight to 9am, New York time. Notice that we have the highs formed between 2am and 12am. To the left of the chart, we have equal highs there just below 154 19.
48 00:11:09,480 --> 00:11:20,370 With that, Hi, I'm going to incorporate the wick in between eight and 9am. That's why That's mean to find their notice also, that reference point becomes
49 00:11:20,370 --> 00:11:32,220 an issue for stock rating. Later on in the evening, during the Asian session time period. When we look for opportunities, we're blending, kind of like the
50 00:11:32,220 --> 00:11:46,500 Asian range perspective. In Forex, we're looking for that same general theme occur with the eight to 9am time period in the bond market. Now, I like to see
51 00:11:46,500 --> 00:11:57,600 signals form at 820, or after, they can occur as early as 8am. And sometimes a little bit before just like a New York session open at 7am. But I generally
52 00:11:57,600 --> 00:12:10,500 prefer to see it occur between 8am and 830. So basically, target time is 820, or CME opening, say there's a blending of that time element again. So if we know
53 00:12:10,770 --> 00:12:22,290 that there's a strong influx of New York traders coming in, at 820, New York time, London traders are still awake, they're still on one o'clock looking to
54 00:12:22,290 --> 00:12:32,610 take some trading. And if UK traders or European traders want to be participating in the treasury markets, and it's a very big market, it's not as
55 00:12:32,610 --> 00:12:42,270 big as Forex, but it's very liquid. And one of the wonderful things about the bond market, it's the least manipulated of all markets. Now think about that.
56 00:12:42,810 --> 00:12:55,380 Remember, I made my career. Okay, focus in the commodity markets with the bonds. I liked the bond market because it had the least in terms of manipulation, you
57 00:12:55,380 --> 00:13:06,630 don't get a lot of tom foolery in that market compared to others. Now, it does not mean that there is a lack of manipulation, it just means on par with all the
58 00:13:06,630 --> 00:13:10,500 asset classes. Generally, you see the least with the bond market.
59 00:13:12,900 --> 00:13:25,680 Now, when we go into FOMC, or interest rate based reports are approaching those types of things, the bond market can get a little wonky, it can get a little
60 00:13:25,680 --> 00:13:34,320 silly, you can do things that doesn't make any sense. And the easiest way to avoid that is simply stay out of that particular asset class. Ahead of those
61 00:13:34,320 --> 00:13:43,110 news events, once the news event drops, FOMC numbers are released or the announcement or rate decision, anything like that. Non Farm payrolls, well,
62 00:13:43,140 --> 00:13:54,030 there's nothing you know, sparing the bond market when it comes to NFP. Those environments are still much like I've mentioned in other teachings, regarding
63 00:13:54,030 --> 00:14:02,520 the Forex, you don't want to be trading in around those environments, because it's illiquid, the markets gonna gap to wherever that liquidity is. And chances
64 00:14:02,520 --> 00:14:12,420 are, it's going to be against your position. So it's better not to be trading at all around there's times. So if we know as the commodity markets as a whole, if
65 00:14:12,420 --> 00:14:27,930 you want to carve out a career as a one focused market trader, there is a plethora of opportunities for trading the bond market, it's highly liquid. It's
66 00:14:28,170 --> 00:14:36,870 really nice when it's trending. When it starts to move in one direction, it generally stays in that direction. When it goes into consolidation, it can be a
67 00:14:36,870 --> 00:14:48,360 little choppy, but if you know what you're looking at in terms of fair value gaps or turtle soups, using equilibrium ideas, there's certainly no reason why
68 00:14:48,360 --> 00:15:00,690 can't carve out a small little, you know, amount of pips or ticks in this case for this particular asset. Now, obviously everyone wants to be As a trader, for
69 00:15:00,690 --> 00:15:11,040 the bond market, they want to capture 32 ticks, or a full handle and try to capture 1000 hours per contract. This market generally doesn't have a large
70 00:15:11,040 --> 00:15:21,960 daily range. So if you can capture anywhere between five to eight ticks as an intraday day trade, there's certainly nothing wrong with that. If you can get
71 00:15:21,960 --> 00:15:37,140 1630 seconds, that's $500 per contract. That's a jetted Good day. A large range day is when you get a full handle or 32 ticks, or $1,000 per contract. They
72 00:15:37,140 --> 00:15:48,690 don't happen all the time. But there can be sustained moves that create that opportunity. But that's not the normal. So it's an asset class that allows for
73 00:15:48,870 --> 00:16:00,180 low expectations in terms of the daily range, it has respect of liquidity pools, liquidity gaps, fair value gaps, all the things that we talked with Forex, they
74 00:16:00,180 --> 00:16:09,870 still occur in this asset class. But you don't see a whole lot of the things like you do in the forex market where it can spike down, do some really crazy
75 00:16:09,870 --> 00:16:18,990 stuff, and then go right back in the direction you were you're trading in? Will that run your stops? Sometimes? Yes. Will you sometimes see something in the
76 00:16:18,990 --> 00:16:27,330 chart, and it doesn't materialize? And goes the other way? Yes. Will you see order blocks that don't go up, just go sideways? Yes. And reverse it for bear
77 00:16:27,330 --> 00:16:40,680 shorter blocks. Nothing about this asset class makes it perfect. But if Forex was ever to go into a meltdown, or I was unable to trade Forex, I would go back
78 00:16:40,680 --> 00:16:51,360 to trading bonds. without skipping a beat, it would be no problem at all, for me to go back to trading bonds. Because it's a very good trading market. It can be
79 00:16:51,360 --> 00:16:59,100 swing traded, it can be short term trading, it certainly can be day traded. And when the conditions are right, you can be in a positions and hold them for
80 00:16:59,100 --> 00:17:09,330 longer term. There, I say it several months, I've never been able to do that personally. But it can be done because it's like a currency, sometimes it trends
81 00:17:09,330 --> 00:17:20,790 very, very well. So now you have a beginning basis point to start looking at the bond market. And you can pull up bar chart.com And look at a 15 minute timeframe
82 00:17:21,270 --> 00:17:32,220 for one day, pull up the Zb EU one seven, and as we go forward in time, let's go to the next month out and if we go into 2018, you just got to change that 17 to
83 00:17:32,220 --> 00:17:44,280 18, or whatever the year is respectively. And you can keep a running Journal of what the bond market's doing. Now I'm going to counsel you to do this, just as a
84 00:17:44,280 --> 00:17:51,900 general daily procedure, even if your intentions are never to day trade, or trade the bond market, so you never want to do it right now.
85 00:17:52,289 --> 00:18:02,009 I promise you by looking at it on a day by day basis, it will increase your price action skills, it will develop a greater appreciation for this particular
86 00:18:02,009 --> 00:18:10,049 asset for commodities for interest rates. And you're also going to start studying this in relationship to with the dollar stealing what gold is doing and
87 00:18:10,049 --> 00:18:19,409 the foreign currencies as a whole. So hopefully this has been a good introduction to the bond market and one of the most basic concepts I use when
88 00:18:19,409 --> 00:18:24,719 doing analysis on it. And next lesson, we're gonna talk about split session roles.