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2 |1 |00:00:15,780 ~-~-> 00:00:22,350 |ICT: Okay, folks, welcome back this teachings going to specifically deal with how to find explosive price moves before they happen.
3 |2 |00:00:28,560 ~-~-> 00:00:39,510 |Alright, the points of focus in this module, Commitment of Traders, weekly range contraction and daily range contraction.
4 |3 |00:00:44,880 ~-~-> 00:00:59,760 |Okay, so we're taking a look at a commitment returns report in the form of a line graph or net traders position chart. And that is going to be this little
5 |4 |00:00:59,760 ~-~-> 00:01:11,850 |graph down here. Okay, this is not something that I created or made up. This is a long standing staple in technical analysis, Larry Williams popularized this
6 |5 |00:01:12,750 ~-~-> 00:01:27,720 |from his work with the commodity traders or CFT, see reportable report. And the commercials, this red line, you see commercial speculators, I'm only interested
7 |6 |00:01:27,720 ~-~-> 00:01:39,090 |in tracking this red line. Okay. And by following this a longer term timeframe, it'll help give warning signs when there's a potential impending reversal,
8 |7 |00:01:39,360 ~-~-> 00:01:54,750 |which, when it's a reversal, they sometimes can be explosive in nature. But the CFTC weekly net traded version is the data that creates this graph. And what we
9 |8 |00:01:54,750 ~-~-> 00:02:03,390 |do is we monitor 12 month commercial extremes, that means the highest they've been in the last 12 months, or the lowest they've been in the last 12 months.
10 |9 |00:02:05,070 ~-~-> 00:02:13,260 |And we look for levels where they reflect near extremes elements, they will qualify support and resistance on a higher timeframe chart.
11 |10 |00:02:18,300 ~-~-> 00:02:28,080 |Okay, so let's take a closer look on how we can use this information. First, we have to draw in our zero line here. So the zero line delineates anything above
12 |11 |00:02:28,080 ~-~-> 00:02:36,060 |the zero line, the traders that will be depicted with their respective colors, like the blue speculators, they're usually, you know, street money, they have no
13 |12 |00:02:36,060 ~-~-> 00:02:44,490 |idea what's going on. And the large speculators or the green, okay, they're going to be diametrically opposed to the commercials now does not mean that they
14 |13 |00:02:44,490 ~-~-> 00:02:55,080 |are wrong, it just means that they are the ones that are trend following. And as you can see, as the market dropped lower on the euro. The green line depicts
15 |14 |00:02:55,080 ~-~-> 00:03:07,470 |that the large speculators were selling short. So below the zero line. They are sellers. Above it denotes buying, so we can see the commercials were buying all
16 |15 |00:03:07,470 ~-~-> 00:03:16,920 |through this decline. Now, right away, you're probably saying, Well, you know, how how's this useful? We want to look at trend. And we also will look at key
17 |16 |00:03:16,920 ~-~-> 00:03:29,070 |levels that the commercial support. This low here, they had the largest position of Long's on at the time, and the market created a low and we went sideways and
18 |17 |00:03:29,070 ~-~-> 00:03:39,510 |dropped down one more time, we had an increase of buying by the commercials now show you what these reference points are here with this horizontal line. And
19 |18 |00:03:39,510 ~-~-> 00:03:53,400 |I'll add our first area of buying interest by the commercials. And the second one here, see the ramping up this big jump up in the red line, and another one
20 |19 |00:03:53,400 ~-~-> 00:04:02,040 |over here where they're above the zero line. And we're at that same level. So they are above the zero line and what that Oh, love what it's bounced before,
21 |20 |00:04:02,310 ~-~-> 00:04:11,730 |this could be a key support level. And notice that they are giving you insight that you otherwise wouldn't glean. If you'd look at just simple, classic support
22 |21 |00:04:11,730 ~-~-> 00:04:20,460 |resistance theories. Again, it takes you back to the question what support which resistance. So from a higher timeframe standpoint, this is one of the things I
23 |22 |00:04:20,460 ~-~-> 00:04:31,290 |like to teach, because it gives you a context behind support resistance levels that in my opinion, are key. Now with this understanding, okay, we know that
24 |23 |00:04:31,290 ~-~-> 00:04:39,750 |they have been bullish all this time, long period of time, for like two years they were buying, buying, buying, buying, building up large divisions, and then
25 |24 |00:04:39,900 ~-~-> 00:04:52,800 |they had a rally up. Notice that this reaction of here was below these two equal lows. Not surprisingly, this move up has taken some of these two relatively
26 |25 |00:04:52,800 ~-~-> 00:05:02,820 |equal highs. And we are potentially in an area where we could come back down a bit lower. And that takes me to area business on the commercials now because
27 |26 |00:05:02,820 ~-~-> 00:05:14,400 |look where they're at or below the zero line. So they may be indicating a longer term shift in the direction on the Euro, we could see it come down a little bit
28 |27 |00:05:14,400 ~-~-> 00:05:26,430 |lower. So this is a warning flag, if you will, to monitor what the Euro is most likely going to do, at least from a long term standpoint, to commercial traders,
29 |28 |00:05:27,000 ~-~-> 00:05:37,410 |folks that are long term hedgers, they're already hedging in some bearishness on the euro dollar. So I use this information to kind of like build the idea around
30 |29 |00:05:37,530 ~-~-> 00:05:39,810 |potential future explosive price Miss.
31 |30 |00:05:45,870 ~-~-> 00:05:57,960 |Okay, next, we're gonna talk about the weekly range contraction. Right. As you can see here, we use the open high, low and closed bar. Okay, this is a graphic
32 |31 |00:05:57,960 ~-~-> 00:06:05,730 |depiction, it's very easy to see, at least for me it is, when we're using power three, over bullish, we're going to be looking to open Christ and drop down
33 |32 |00:06:05,730 ~-~-> 00:06:12,060 |buying anywhere between the opening price which is a little bit above, it's still okay, but mainly looking for a move below the opening price. That's what
34 |33 |00:06:12,060 ~-~-> 00:06:22,380 |we're looking for power three bullish and more bearish, we're looking for the opening price and then a move up to sell or fade that rally and then ride it
35 |34 |00:06:22,380 ~-~-> 00:06:34,800 |lower for a down close. Now that's assuming that we know there's going to be a large range day or directional bias that lends well to this technique. Our three
36 |35 |00:06:34,800 ~-~-> 00:06:44,370 |capitalizes on range expansion, so we have to know the likelihood of this phenomenon happening, otherwise, we're going to do it wrong. So now, if the
37 |36 |00:06:44,370 ~-~-> 00:06:52,770 |opposite of range expansion is contraction, how can we find that while the candlestick chart helps highlight this. So if we look at a candlestick like
38 |37 |00:06:52,770 ~-~-> 00:07:01,500 |this, this is a typical large range day, okay, which would look like something like this open high low close bar here, it could be very close to that in terms
39 |38 |00:07:01,500 ~-~-> 00:07:12,510 |of the body portion between the open and the close. So we have the open down here and the close up here, this is a bullish candle. If this was the body of,
40 |39 |00:07:12,600 ~-~-> 00:07:24,270 |say, for instance, a Tuesday, and then say, Wednesday, we had this type of body, we have a smaller body candle, which means that we could see a large range day
41 |40 |00:07:24,270 ~-~-> 00:07:36,660 |on Thursday, or Friday, it's a it's more or less a precursor, if you will, because smaller bodies proceed larger bodies. So we're always looking for action
42 |41 |00:07:36,660 ~-~-> 00:07:43,590 |in the marketplace, and it's already moving. you're chasing price. So you want to anticipate when price is going to have an explosive or large range or big
43 |42 |00:07:43,590 ~-~-> 00:07:53,880 |move or series of big moves. And it's going to happen by studying the bodies if the bodies are getting smaller. Okay? If we see that it's going to be a
44 |43 |00:07:54,060 ~-~-> 00:08:08,700 |directional move in magnitude, it's larger than it has been in recent days or recent weeks. Again, depicting the top of the body on here, and contrasting it
45 |44 |00:08:08,730 ~-~-> 00:08:20,130 |with this one here. So that's the difference between a what I'm looking for. Okay, so the weekly range contraction, really looking for candles that begin to
46 |45 |00:08:20,130 ~-~-> 00:08:32,190 |compress. ranges to have smaller bodies are key, that's the ones that we're looking for. And we're wanting to trade when they form. Big ranges come after
47 |46 |00:08:32,190 ~-~-> 00:08:47,010 |small ranges form. And we ignore the wigs were focusing only on the bodies of the candles. Okay, so let's take a couple examples here. As you can see here at
48 |47 |00:08:47,010 ~-~-> 00:08:59,490 |this swing low, we had large body candle, large body candle and then Look how small the body gets here. Then we have a turning point in here, prices moving
49 |48 |00:08:59,490 ~-~-> 00:09:09,390 |up, we went sideways and look what happens, the bodies between open and close, they get very very small, disregard the wicks Okay, try to block that out, focus
50 |49 |00:09:09,390 ~-~-> 00:09:18,060 |only on the open and close relationship. When that gets small, what's about to happen is you're going to see an expansion and this is when anticipating power
51 |50 |00:09:18,060 ~-~-> 00:09:28,950 |three, like the open here small down move buying, holding for the close near the end of the day at the top of the range. similar scenario here, which we can see
52 |51 |00:09:28,950 ~-~-> 00:09:36,300 |again, small bodies form after that large one. Okay, we know there's gonna be a large range coming. So we want to be focusing on what's the trend, it's been
53 |52 |00:09:36,300 ~-~-> 00:09:46,860 |bullish. So we could be looking for open decline by look for expanse on the upside next same scenario, open down movement, buy it hold for close, okay.
54 |53 |00:09:48,420 ~-~-> 00:09:59,160 |Similarly, we can see at this swing high, we have a small little body in here. Again, this regard the wicks against small body candle in here. disregarding the
55 |54 |00:09:59,160 ~-~-> 00:10:08,250 |wicks in Large moves. After each one of these, we're seeing large mean this is the weekly chart. Okay, so there's a lot of pips in there. Another opportunity
56 |55 |00:10:08,250 ~-~-> 00:10:18,120 |here, you can barely even see a body in this very, very indicative of a large range move. And we see a series of three weeks to come, by way of bullishness
57 |56 |00:10:18,600 ~-~-> 00:10:29,460 |over 300, and some tips available from that one. Now we have a smaller range again. So what's going to happen, we're looking for range expansion, candle
58 |57 |00:10:29,460 ~-~-> 00:10:36,660 |forms. And now at the time of this recording, we have a very small body candle again. So weekly range has been compressing. So we're looking for a large,
59 |58 |00:10:37,020 ~-~-> 00:10:38,640 |weekly range next.
60 |59 |00:10:44,010 ~-~-> 00:10:52,440 |Okay, now, obviously, as I said, with the weekly range, everything is the same for daily range contraction. So without repeating myself, I have a here for your
61 |60 |00:10:52,440 ~-~-> 00:11:03,180 |notes. But let's take a look at a couple examples from the daily perspective. Okay, we can see up in here, after the swing high, we have a very small body
62 |61 |00:11:03,180 ~-~-> 00:11:11,700 |candle, disregard the wick, we don't care about that, we're looking at the body of that candle, very small, little compression. If we are seeing the range
63 |62 |00:11:11,700 ~-~-> 00:11:21,630 |compression, and contracts smaller and tighter, we know there's gonna be a large expansion. So the next move, if it's directly determined higher or lower, we can
64 |63 |00:11:21,630 ~-~-> 00:11:33,390 |use power three concepts in that light. Here we see it's bearish, open rally sell the high over the closed. So we have several days of down movement, look at
65 |64 |00:11:33,390 ~-~-> 00:11:45,990 |the large ranges, it's as follows right after that small range body. next opportunity comes in here, price trades down at an old low price gets a big
66 |65 |00:11:45,990 ~-~-> 00:11:55,320 |range down. And then we have a small range day here. Okay, so it's an inside day relative to the body. Okay, this is my insight on inside days. I don't care
67 |66 |00:11:55,320 ~-~-> 00:12:06,360 |about the wicks. Okay, most trading, teaching circles, authors, gurus, whatever, they would never classify this as an inside day, because we have this long
68 |67 |00:12:06,360 ~-~-> 00:12:15,420 |wycked portion of the candle that went below the previous day. So that would negate this being called a inside day. But from the standpoint that I'm
69 |68 |00:12:15,420 ~-~-> 00:12:23,820 |teaching, range expansion and contraction, this is in fact, an inside day. Okay, so that means there's going to be a large range expansion, or a series of
70 |69 |00:12:23,820 ~-~-> 00:12:37,140 |movement, it's directional after this day forms. We see that here, several up close days, okay, and creates a swing high. range is small here. So we know that
71 |70 |00:12:37,140 ~-~-> 00:12:49,620 |there's going to be another series of movement, down close candles. Right in here, we have small ranges relative to what's happened recently. Okay, so
72 |71 |00:12:49,620 ~-~-> 00:12:56,100 |there's a rule of thumb I use, I want to see what's happened. If it's a daily chart, I want to see what's happened in the last five to seven days. Okay, I
73 |72 |00:12:56,100 ~-~-> 00:13:04,290 |look back at five to seven days for range contraction and expansion. So that filter for volatility on a daily chart, you want to look at about five days,
74 |73 |00:13:04,290 ~-~-> 00:13:14,010 |which is typical trading week, but then I also use seven days, because then they have to look back into the previous week as well. And that gives me this whole
75 |74 |00:13:14,010 ~-~-> 00:13:24,090 |criteria here. And we can see that there's a large range day in the last seven days here. So that means these are relatively small in comparison. So we know
76 |75 |00:13:24,090 ~-~-> 00:13:34,650 |there's going to be an expansion do large range day, large range day. And then we go smaller. Okay, looking back, we have a large range day here. So these are
77 |76 |00:13:34,650 ~-~-> 00:13:44,460 |relatively small, so we know what's coming. Large range days, big range day. Okay, down here at an old low, we trade below that low. And now look what
78 |77 |00:13:44,460 ~-~-> 00:13:56,730 |happens we have small ranges with barely any range here at all, big expansion on the upside. And then we go into a small range here. Big ranges come in right in
79 |78 |00:13:56,730 ~-~-> 00:14:05,370 |here, after swing, high, small little body, okay, again, disregard to Wix, they'll trip you up, that's all stop running on both sides of the marketplace,
80 |79 |00:14:05,370 ~-~-> 00:14:13,110 |they're taking all the traders out, you know, right back into the middle. And then the big move takes place down, explosive price action on the sell side,
81 |80 |00:14:13,470 ~-~-> 00:14:24,240 |waiting for an old low rejection. And now at the time of this recording, last Friday, we had a small range body again, so we know there's going to be
82 |81 |00:14:24,240 ~-~-> 00:14:35,100 |expansion due coming in the next couple days. So we would look for large range days to form. So as a trader, we want to see movement. And by having a study of
83 |82 |00:14:35,100 ~-~-> 00:14:45,840 |when that movement is expected, not just where to buy where to sell, you have to have an expectation for magnitude and velocity. How much can the move, be seen
84 |83 |00:14:45,870 ~-~-> 00:14:53,790 |before it happens? Is there going to be excitement and isn't gonna be animated, if you will. And what I do is I look for when things are getting quiet, that
85 |84 |00:14:53,790 ~-~-> 00:15:00,570 |means the perpetrators are going to get bored with it. And when they're not paying attention to it, it takes off and then everybody else The retail world
86 |85 |00:15:00,570 ~-~-> 00:15:09,180 |will chase it once it's expanding. I want to be in before the big move happens because I'm most likely going to be in while it's expanding up long or expanding
87 |86 |00:15:09,180 ~-~-> 00:15:10,410 |lower and being bearish.
88 |87 |00:15:15,750 ~-~-> 00:15:21,480 |I hope you enjoyed this presentation. If you'd like to find more, you can visit my website at the inner circle trader.com