ICT Forex - Essentials To Trading The Daily Bias

Summary

In this tutorial, the speaker explains how to determine daily trading bias using price action and key support/resistance levels. By analyzing the U.S. dollar index (DXY) and its influence on currency pairs like EUR/USD, traders can identify potential bullish or bearish trends. The focus is on tracking the previous day's high and low, observing price action around swing points, and using reversal patterns like outside days to anticipate market moves. While the method is not guaranteed, practicing it in a demo account can help traders refine their strategies and improve their decision-making in daily trading.

Takeaways

• 😀 Daily bias refers to predicting the market's likely direction (up or down) based on price action from the previous day.
• 😀 Identifying swing highs and lows on the daily chart helps determine potential reversal points and market direction.
• 😀 A key part of daily bias is recognizing whether the market is above or below key levels, like old highs or lows, which could signal a reversal or continuation.
• 😀 Market movement above a previous swing high suggests bullish bias, while movement below a previous swing low suggests bearish bias.
• 😀 Classic support and resistance theory is useful when the market is not trending, but the difficulty lies in determining which support and resistance levels to focus on.
• 😀 False breaks above swing highs or below swing lows often indicate potential reversals, rather than continuing the trend.
• 😀 Outside days (when the high and low of the previous day are breached) can indicate short-term reversals or continuation, depending on the market’s momentum.
• 😀 Reversal points often occur when the market fails to maintain momentum after breaking key levels, such as a high or low from the previous day.
• 😀 When the dollar index shows bullish momentum, the Euro (and other foreign currencies) typically exhibit a bearish bias, trading towards previous day’s lows.
• 😀 Focus on the previous day's high for a bullish market bias and the previous day's low for a bearish market bias, while avoiding both extremes in uncertain conditions.
• 😀 Understanding daily bias is not about predicting every movement but recognizing key levels where price is likely to reverse or continue, helping to make more informed trading decisions.

Q & A

What is the main focus of the video script?

The main focus of the video is to explain the essentials of trading daily bias, particularly in the context of forex markets. The presenter shares their approach to identifying daily market bias, using support and resistance levels and swing points to determine the likelihood of the market closing higher or lower on any given day.

How does the presenter approach determining daily bias?

The presenter focuses on identifying key swing points—intermediate highs and lows—on the daily chart. They analyze whether the price breaks above old highs or below old lows, using these breakouts or failures as potential signs for reversals or continuations in market direction.

What role does support and resistance play in this approach?

Support and resistance are central to the approach. The presenter uses traditional support and resistance theory to understand market behavior, especially when the market is range-bound rather than trending. The key turning points, marked by swing highs and lows, act as important reference points to predict possible reversals.

What is the significance of breaking above or below old highs or lows?

Breaking above an old high can indicate bullish sentiment, while breaking below an old low may suggest bearishness. However, the presenter emphasizes that these breakouts are not guaranteed and could lead to false breaks, where the market may reverse after reaching these levels.

What is the concept of 'outside days' mentioned in the script?

'Outside days' refer to a situation where the price exceeds the high and low of the previous day. This can signal indecision or a potential reversal. An outside day with a down-close, particularly in a bullish market, is often seen as a bullish signal, indicating that the market may continue upward after a brief retracement.

How does the daily bias relate to trading foreign currencies like the Euro?

The daily bias for the Dollar Index (DXY) is used as a reference to predict the daily bias for foreign currency pairs. For example, if the Dollar is bullish, the Euro/Dollar (EUR/USD) is likely to be bearish. The presenter suggests that the Euro's price action is mirrored inversely to the Dollar's behavior, with the focus being on the previous day's low for bearish trades in the Euro.

What does the presenter mean by 'a false break' in the context of market movement?

A false break occurs when the price breaks above a previous high or below a previous low but fails to maintain that direction, instead reversing and moving in the opposite direction. This often leads to a shift in market sentiment, indicating a potential reversal or consolidation.

How does the concept of 'Judas swing' fit into the daily bias strategy?

The 'Judas swing' refers to a deceptive price move where the market initially appears to rally in one direction but then reverses, trapping traders who took the initial breakout. In the context of the daily bias strategy, the presenter looks for these swings to identify false breakouts that are followed by a return to the original trend direction.

What is the key takeaway when the market trades through both the high and low of the previous day?

When the market trades through both the high and the low of the previous day, it suggests indecision or a potential reversal. The presenter cautions that this behavior may indicate a shift in the market direction, and traders should be prepared for a reversal.

How does the presenter suggest using this approach in a live market scenario?

The presenter suggests applying these principles on a demo account first to build a solid understanding of daily bias. In a live market scenario, traders should focus on key swing points, monitor price action around support and resistance levels, and be cautious of false breaks or outside days. They should also pay attention to inter-market relationships, like the inverse relationship between the Dollar and the Euro, to refine their bias for different currency pairs.