ICT Mentorship Core Content - Month 05 - Qualifying Trade Conditions With 10 Year Yields

Summary

In this lesson, the mentor explains how to qualify trade setups using the 10-year Treasury note in relation to the Dollar Index and interest rate movements. Key strategies include analyzing seasonal tendencies, identifying symmetry between the 10-year note and the Dollar Index, and confirming trades through SMT divergences. The mentor emphasizes using a 3-month time horizon, with trades typically completing in half that duration. By combining these tools—seasonal patterns, market structure, and interest rate movements—traders can align with higher time-frame trends, improving the probability of successful trades.

Takeaways

• 😀 The 10-year Treasury note shows a strong seasonal tendency to rally in June, which can be used as a trading indicator.
• 😀 To qualify a seasonal tendency, start by examining the relationship between the 10-year note's price movements and the Dollar Index.
• 😀 A series of lower lows in the 10-year note in June 2015 indicated a possible trend, confirmed by the Dollar Index making lower highs at the same time.
• 😀 A negative correlation between the 10-year note and the Dollar Index in June 2015 pointed to a trade idea forming, supported by the declining interest rate market.
• 😀 In June 2016, the Dollar Index made higher highs while the 10-year note didn't follow suit, signaling a potential underlying trend or manipulation.
• 😀 The relationship between the 10-year note and the Dollar Index is key to understanding the broader market movements, especially when their price movements don’t align.
• 😀 When the Dollar Index moves in a particular direction, it often influences the 10-year note's yield and price, as seen in the consolidation of both markets during mid-2015.
• 😀 The 10-year note's behavior during the 2017 elections should be viewed independently from any market noise, focusing solely on the broader market structure.
• 😀 In November 2017, a lower high in the 10-year note relative to the Dollar Index’s lower low indicated a break in symmetry, suggesting a shift in the market dynamics.
• 😀 Successful trading requires aligning with higher time-frame trends, blending seasonal tendencies with broader market shifts, and using them for short- and long-term strategies.

Q & A

What is the main focus of Lesson 2.2 in the January 2017 ICT mentorship?

The main focus is on qualifying trade conditions using the 10-year Treasury yields and understanding how they relate to the dollar index, with an emphasis on seasonal tendencies and price movements.

How does the 10-year note’s seasonal tendency relate to June, according to the script?

The script explains that the 10-year note tends to rally in June. In 2015, the note made a low in June, aligning with this seasonal tendency, which is used as a starting point to qualify the trade conditions.

What is the significance of the dollar index in the analysis of the 10-year note?

The dollar index plays a crucial role in confirming the market’s movement. A strong correlation exists when the dollar index makes higher highs while the 10-year note makes lower lows, or vice versa, indicating a potential trade setup.

What does the breakdown of the dollar index in June 2015 tell us?

In June 2015, the dollar index made lower highs, which indicated a broken correlation with the 10-year note. This discrepancy signaled the unfolding of a potential trade idea, suggesting manipulation or an underlying trend in the market.

Why is the interest rate market mentioned in conjunction with the 10-year note?

The interest rate market is tied to the movement of the 10-year note as its yields decrease, the futures price of the 10-year note increases. The yield decline during this period also aligns with dollar index consolidation, further validating the analysis.

How does the dollar index behave during June 2016 and why is this important?

In June 2016, the dollar index made higher highs, which correlated with the 10-year note's market structure, suggesting a qualifying trade condition. This alignment supports the idea that a potential trade setup was unfolding.

What is the importance of the price movement on the 10-year note in November 2016?

In November 2016, the 10-year note formed a lower high, which didn't match the expected pattern given the lower low in the dollar index. This misalignment indicated a potential manipulation or trend change, leading to a new trade opportunity.

What role does the increase in open interest play in confirming the analysis?

The increase in open interest, particularly in November 2016, supported the idea of short covering by smart money. This was aligned with the price action and a rally in the dollar index, confirming that a trending move was in play.

What is the time horizon used by the mentor for trade setups, and how does it influence the strategy?

The mentor typically focuses on a time horizon of three months for trade setups, acknowledging that while long-term trends exist, trades are generally shorter and may last for about half of that time. This strategy helps avoid trying to pick market tops in long-term uptrends.

How does the mentor suggest using the seasonal tendencies and SMT divergences in trade strategies?

The mentor suggests combining seasonal tendencies with SMT divergences between the dollar index and the 10-year note, and potentially qualifying these setups with an interest rate triad or a forex currency pair. This approach aligns the trader with the higher time frame order flow and increases the probability of success.