2022 ICT Mentorship Episode 4

Summary

In this lesson, the focus is on analyzing market structure shifts and fair value gaps using real-life trading examples from January 26th and 27th, 2022. The instructor explains the process of identifying key price levels, such as lows and highs, and using tools like Fibonacci retracements to assess market conditions. Emphasis is placed on patience, waiting for clear market setups, and recognizing recurring patterns. The session encourages traders to apply these concepts in their own charts and keep a detailed study journal for continuous improvement in their trading strategies.

Takeaways

• 😀 Understand the importance of identifying the high and low points in a market range for accurate analysis and decision-making.
• 😀 Use your own charts and data feeds (e.g., TradingView, broker platform) to confirm trends and price actions, not just follow examples from others.
• 😀 The 50% level (equilibrium) of the Fibonacci retracement is crucial to identifying the fair value price point in a market range.
• 😀 Be patient and wait for a market structure shift before acting—don’t force trades or assume setups are there when they’re not.
• 😀 A valid market structure shift can be identified by breaking an old high or low and waiting for a pullback into a fair value gap.
• 😀 Pay attention to the time and price action duration from market structure shifts to assess trade quality and heat drawdowns.
• 😀 Real-time price data can be beneficial for understanding market behavior, but ensure you're not paying for unnecessary services (e.g., $4 per month for data).
• 😀 Use liquidity resting above or below price levels (old highs and lows) as key targets for potential market moves.
• 😀 The concept of ‘fair value gaps’ is integral to determining where to enter and exit the market for short or long trades.
• 😀 Practice by analyzing more examples in your study journal to reinforce the learning process and refine your ability to identify recurring patterns in the market.

Q & A

What is the main focus of this lesson?

The lesson focuses on analyzing intraday market movements using examples from E-mini S&P and Nasdaq futures, emphasizing fair value gaps, equilibrium price points, and market structure shifts.

Which charts and tools are recommended for this analysis?

The instructor uses TradingView, a free charting platform, but suggests that students use their own platforms or broker feeds. Real-time data may require a small subscription fee.

How do you determine the range for a trading setup?

The range is determined by identifying the low and high points in the market. A Fibonacci (FIB) tool can then be applied to find the equilibrium price point, typically the 50% level of the range.

What is the significance of the equilibrium price point?

The equilibrium price point, often the 50% level of a range, helps traders identify potential areas where price may revert or find balance. It is used to evaluate targets and entry points for trades.

What is a fair value gap and why is it important?

A fair value gap is a price area where minimal trading occurred, creating an imbalance. Traders look for price to revisit these gaps, which often serve as key levels for entries or exits in trades.

How do you identify a shift in market structure?

A market structure shift is identified when price breaks below a previous swing low or above a previous swing high, signaling a potential change in trend or intraday direction.

What is the recommended approach for taking trades based on these setups?

Traders should wait for price to confirm a market structure shift and then check for a fair value gap. Entry is ideally at the gap, with targets set at previous swing lows, imbalances, or the equilibrium price point.

How should traders record their observations and trades?

Traders should maintain a study journal noting key factors such as time to reach targets, price drawdown, market structure shifts, and personal observations to reinforce pattern recognition.

Why does the instructor emphasize not forcing trades?

Forcing trades ignores the setup rules and can lead to poor outcomes. Waiting for the market to show its hand ensures trades are based on confirmed patterns and shifts in market structure.

What analogy is used to explain pattern recognition?

The instructor compares recognizing trading patterns to stalking a deer: you must know what a deer track looks like to follow it effectively. Similarly, traders need to recognize recurring market setups to act successfully.

What is the purpose of revisiting past data and examples?

Reviewing past data helps traders identify recurring patterns, validate their setup criteria, and improve decision-making. It also reinforces understanding of fair value gaps, market structure, and entry/exit strategies.