ICT Forex - How To Find Explosive Price Moves Before They Happen
Summary
TLDRThis educational video focuses on identifying potential explosive price movements in financial markets. It discusses the use of the Commitment of Traders (COT) report and the concept of range contraction to predict significant market shifts. The presenter emphasizes monitoring 12-month commercial extremes on the COT report and using weekly and daily range contractions to anticipate large price moves, suggesting that smaller candlestick bodies often precede larger ones, signaling an upcoming expansion in market volatility.
Takeaways
- 📈 The video script focuses on identifying explosive price moves in financial markets using specific technical analysis tools.
- 📊 The Commitment of Traders (COT) report is highlighted as a key indicator, with a focus on the net position of commercial traders, depicted by the red line in the graph.
- 📉 The importance of monitoring 12-month commercial extremes in the COT report is emphasized to identify potential support and resistance levels on higher timeframe charts.
- 📝 The script explains how to interpret the zero line in the COT graph, which separates the positions of speculators and commercials, indicating market sentiment and potential trend reversals.
- 🔍 The concept of 'power three' is introduced as a trading strategy that capitalizes on range expansion, requiring an understanding of the likelihood of large price movements.
- 🕊 The script discusses the use of candlestick charts to identify range contraction, which can precede large range days and potential explosive moves.
- 🌟 Small-bodied candles on the chart are indicators of potential large range days, as smaller bodies often precede larger ones, signaling an upcoming significant price movement.
- 📌 The technique of ignoring the 'wicks' of candlesticks and focusing only on the bodies is suggested to better anticipate range expansion and contraction.
- 📉 The video script provides examples of how to trade during range contractions and expansions, using the daily and weekly range as a guide for potential explosive price moves.
- 📝 The presenter shares personal insights on identifying inside days and how they relate to range expansion, offering a unique perspective on common trading theories.
- 🔮 The script concludes by emphasizing the importance of anticipating market movements based on quiet periods, suggesting that significant price action often follows periods of low volatility.
Q & A
What is the main focus of the teaching module in the transcript?
-The main focus of the teaching module is to explain how to identify potential explosive price moves in the market using the Commitment of Traders (COT) report, weekly range contraction, and daily range contraction.
Who is Larry Williams, and what is his contribution to technical analysis mentioned in the transcript?
-Larry Williams is a well-known commodity trader and author who popularized the use of the Commitment of Traders report in technical analysis. His work with the COT report has become a staple in understanding market sentiment and potential reversals.
What is the significance of the red line in the Commitment of Traders report?
-The red line in the COT report represents commercial speculators. The speaker is only interested in tracking this line as it can provide warning signs of potential impending reversals, which can sometimes lead to explosive price moves.
What does the term '12-month commercial extremes' refer to in the context of the COT report?
-'12-month commercial extremes' refers to the highest or lowest positions held by commercial traders in the last 12 months. These levels are monitored to identify potential support and resistance on higher time frame charts.
How does the zero line in the COT report graph help in understanding market sentiment?
-The zero line in the COT report graph delineates positions above and below it. Traders above the zero line are typically speculators, while those below are commercial traders. This helps in understanding the sentiment of different market participants and their potential impact on price movements.
What is the significance of the weekly range contraction in anticipating large price moves?
-The weekly range contraction is significant as it can indicate a period of low volatility preceding a large price move. Smaller candle bodies in a range contraction suggest that a larger range day may follow, potentially leading to explosive price action.
What is the 'Power Three' bullish strategy mentioned in the transcript?
-The 'Power Three' bullish strategy involves looking for a move below the opening price during a large range day when the market is bullish. The idea is to buy on a small down move and hold for a close near the end of the day at the top of the range.
How does the concept of range expansion relate to the 'Power Three' strategy?
-The 'Power Three' strategy capitalizes on range expansion. It is used when there is a likelihood of a large range day, which can lead to significant directional moves. The strategy aims to capture gains during these periods of increased market volatility.
What is the importance of disregarding the wicks in candlestick analysis when focusing on range contraction?
-Disregarding the wicks in candlestick analysis when focusing on range contraction is important because the wicks can be misleading. The focus should be on the bodies of the candles, which represent the open and close prices, to accurately identify periods of range compression that may precede large range expansions.
How does the concept of inside days relate to range contraction and expansion?
-Inside days, where the body of a candle is smaller compared to the previous day's body, can indicate a period of range contraction. This can be a precursor to a large range expansion, as smaller bodies often precede larger bodies in the market.
What is the recommended time frame to look back when analyzing daily range contraction and expansion?
-When analyzing daily range contraction and expansion, it is recommended to look back at the last five to seven days. This time frame allows traders to identify patterns of range compression and expansion, which can be used to anticipate future price movements.
Outlines
📈 Identifying Explosive Price Moves with Commitment of Traders
This paragraph introduces a teaching module focused on predicting explosive price movements using the Commitment of Traders (COT) report. It explains the importance of tracking the net traders' position chart, highlighting the significance of commercial speculators' positions. The COT report is a key technical analysis tool, popularized by Larry Williams, which can signal potential market reversals. The module emphasizes monitoring 12-month commercial extremes and using these insights to identify support and resistance levels on higher time frame charts, providing a context for understanding market trends and potential explosive moves.
📊 Weekly Range Contractions and Power Three Trading Strategy
The second paragraph delves into the concept of weekly range contractions and the Power Three trading strategy. It discusses using the open, high, low, and close (OHLC) bar to identify potential large range days, suggesting that smaller bodies in candlestick charts can precede larger range days. The paragraph explains how to anticipate and capitalize on range expansion by focusing on the bodies of the candles rather than the wicks, and provides examples of how to trade during bullish and bearish market conditions using the Power Three approach.
📉 Recognizing Market Patterns with Range Expansion and Contraction
This paragraph continues the discussion on range contractions and expansions, illustrating how to identify patterns that suggest upcoming large market moves. It provides examples of how small-bodied candles on weekly charts can indicate an impending large range expansion, and emphasizes the importance of focusing on the relationship between the open and close prices of the candles. The speaker shares insights on how to anticipate and trade these patterns effectively, including the use of daily range contractions in a similar manner to weekly ones.
🌐 Anticipating Explosive Market Moves for Trading Opportunities
The final paragraph wraps up the presentation by emphasizing the importance of anticipating explosive market moves for trading opportunities. It discusses the significance of observing quiet market periods as potential precursors to large price actions, and the advantage of being positioned before the big move happens. The speaker encourages traders to study the patterns of range contraction and expansion to predict and capitalize on significant market movements, and provides a website for further information.
Mindmap
Keywords
💡Explosive Price Moves
💡Commitment of Traders (COT) Report
💡Range Contraction
💡Daily Range
💡Net Traders Position Chart
💡Support and Resistance
💡Power Three
💡Candlestick Chart
💡Inside Day
💡Long-Term Shift
💡Hedging
Highlights
The teaching module focuses on identifying explosive price moves before they occur using Commitment of Traders (COT) weekly and range contraction analysis.
COT reports in the form of a line graph or net traders position chart are essential for technical analysis, popularized by Larry Williams.
Monitoring 12-month commercial extremes in the COT report can provide early warning signs for potential market reversals.
The zero line in the COT graph is crucial as it delineates positions of traders and can indicate market trends.
Commercial support levels identified from the COT report can offer insights into key support and resistance levels.
The concept of 'power three' is introduced for bullish and bearish market conditions to capitalize on range expansion.
Range contraction is identified through smaller-bodied candles on a candlestick chart, indicating an upcoming large range day.
Focusing on the bodies of candles, rather than the wicks, is key to identifying range contraction and expansion.
Examples are provided to illustrate how small-bodied candles can precede significant market movements.
The importance of ignoring wicks when analyzing candlestick charts for range contraction is emphasized.
A rule of thumb for daily charts is to look back five to seven days to filter for volatility and anticipate large range days.
The concept of 'inside days' is discussed, with a unique perspective on what constitutes an inside day in the context of range analysis.
The presenter shares personal insights on anticipating large range expansions and contractions in the market.
A practical approach to trading is presented, focusing on being in the market before the big move happens.
The importance of studying market quietness as a precursor to explosive price action is highlighted.
The presenter concludes by encouraging traders to anticipate market movements for magnitude and velocity, not just direction.
For further information, the presenter invites viewers to visit their website, theinnercircletrader.com.
Transcripts
okay folks welcome back this teaching is
going to specifically deal with how to
find explosive price moves before they
happen
alright the points of focus in this
module commitment of traders weekly
range contraction and daily range
contraction okay so we're taking a look
at a commitment or traitors report in
the form of a line graph or net traders
position chart and that is going to be
this little graph down here okay this is
not something that I've created or made
up this is a long-standing staple in
technical analysis by Larry Williams
popularized this from his work with the
Commandant traitors or CFT C reportable
report and the commercials this red line
you see commercial speculators I'm only
interested in tracking this red line
okay and by following this on a longer
term timeframe it'll help give warning
signs when there's a potential impending
reversal which when it's a reversal days
sometimes can be explosive in nature but
the CFTC weekly NIC traders position is
the data that creates this graph and
what we 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 and we look for the
levels where they reflect NIT extremes
in other words they will qualify support
and resistance on a higher time frame
chart okay so take a closer
how we can use this information first we
have to draw in our zero line here so
the zero line delineates anything above
the zero line the traders that would be
depicted with their respective colors
like the blue speculators they're
usually you know Street money they have
no idea what's going on and the large
speculators are green okay they're gonna
be diametrically opposed to the
commercials now it does not mean that
they're wrong it just means that they
are the ones that are trend filing in
nature you can see as the market dropped
lower on the Euro the Green Line depicts
that the large speculators were selling
short so below this zero line they are
sellers above it denotes buying so we
can see the commercials were buying all
through this decline now right away
you're probably saying well you have
how's this useful we want to look at
trend and we also would look at key
levels that the commercial support this
low here they had the largest position
of long one at the time and the market
created a low and we went sideways and
then drop down one more time we had an
increase of buying by the commercials
I'll show you what these reference
points are here with this horizontal
line and I'll add our first area of
buying interest by the commercials and
the second one here see they're ramping
up this big jump up in the red line and
another one over here where they're
above the zero line and we're at that
same level so they are above the zero
line and right that ol love with its
bounce before so this could be a key
support level now notice that they are
giving you insight that you otherwise
wouldn't glean them if you look at just
simple classic support resistance
theories again it takes you back to the
question which support which resistance
so from a higher time frame standpoint
this is one of the things I like to
teach because it gives you a context
behind supporting resistance levels that
in my opinion are key now with this
understanding okay
we know that they have been bullish all
this time
long period of time for like two years
they were buying buying buying buying
building at large solutions then we 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 equal highs and
we are potentially in an area where we
could come back down a little lower and
that takes me to area business on the
commercials now because look where
they're at
we're 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 lower so this is
a warning flag if you will to monitor
what the euro is most likely going to do
at least from the long-term standpoint
the commercial traders 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 potential future explosive
price moves okay next we're gonna talk
about the weekly range contraction all
right as you can see here will we use
the open high low and closed bar okay
this is a graphic depiction it's very
easy to see at least for me it is when
we're using power three or per bullish
when I'm going to look into open Christ
it dropped down buying anywhere between
the opening price or just a little bit
about it still okay but mainly looking
for a move below the opening price
that's what we're looking for power
three bullish and when we're bearish
we're looking for the opening price and
then a move up to sell or fade that
rally and then write it lower for a down
close now that's assuming that we know
there is going to be a large range day
or directional bias that lends well to
this technique power three 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 opposite of range
expansion is contraction
how can we find that well the
candlestick chart helps highlight this
so if we look at a candlestick like this
this is a typical large range de okay
which would look like something like
this look a high low close bar here it
could be very close to that in terms 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 say for
instance a Tuesday and then say
Wednesday we had this type of body we
have a smaller bodied candle which means
that we could see a large range day on
Thursday or Friday it's a it's more or
less a precursor if you will because
smaller bodies precede larger bodies so
if we're always looking for action in
the marketplace and it's already moving
you're chasing price so you want to
anticipate when price is gonna have an
explosive or large range or big move or
a series of big moose and it's gonna
happen by studying the bodies if the
bodies are getting smaller okay if we
see that there's going to be a
directional move in magnitude that's
larger than it has been in recent days
or recent weeks again depicting the top
of the body on here and contrasting it
with this one here so that's the
difference between a well nothing for
okay so the weekly range contraction
we're looking for candles that begin to
compress ranges that have smaller bodies
or key that's the ones that we're
looking for and we're wanting to trade
when they form big ranges come after
small ranges form and we ignore the
wicks we're focusing only on the bodies
of the candles okay so let's take a
couple examples here as you see here at
this swing low we've had large body
candle large body candle and then look
how small the body gets here then we
have a turning point
in here precedent moving up we went
sideways and look what happens the
bodies between open and closed they get
very very small disregard the wicks okay
try to block that out focus only on the
open and close relationship when that
gets small what's about to happen is
you're gonna see an expansion and this
is when anticipating power three like
the open here small down move buying
holding for the clothes near the end of
the day at the top of the range similar
scenario here which we can see again
small bodies form after that large one
okay we know there's going to be a large
range coming so we want to be focusing
on what what's the trim it's been
bullish so we can be looking for open
decline by it
look for expanse on the upside next same
scenario open down movement by it hold
for the clothes okay similarly we can
see at this swing high we have a small
little body in here can't disregard the
wicks again small bodied candle in here
disregarding the wicks and the large
moves after each one of these we're
seeing large mean this is a weekly chart
okay so there's a lot of pips in there
another opportunity 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 over three hundred
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 it candle 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 weekly range next
okay now obviously as I said with the
weekly range everything is the same for
a daily range contraction so without
repeating myself I have it here for your
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 candle
disregard the wick we don't care about
that we're looking at the body the
candle very small little compression if
we are
arrange compression and contracts
smaller and tighter we know there's
gonna be a large expansion so the next
move if it's directly determined to
higher or lower we can use power three
concepts in that light here we see it's
bearish open rally cell the high over
the closed so we have several days of
down movement look at the large ranges
that's as follows right after that small
range body next opportunity comes in
here price the trades down at an old oil
price gives a big range down and then we
have a small range day here okay that's
the inside day relative to the body
okay this is my insight on inside days I
don't care 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 licked 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
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 movement
its directional after this day forms we
see that here several up close days okay
and creates a swing high range gets
small here so we know that it's going to
be another series of movement get down
close candles right in here we have
small ranges relative to what's happened
recently okay so 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
happening the last five to seven days
okay I look back about 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 which is typical trading week but
then I also use seven days because it
may have to look back into the previous
week as well and that gives me this
whole 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 there's going to be an expansion
do large ranged a large rings day and
then we go smaller ok looking back we
have a large range day here so these are
relatively small so we know what's
coming
large range days big range day ok down
here and old low we trade below that low
and now look what happens we have small
ranges it barely any range here at all
big expansion the upside and then we go
into a small range here big ranges come
and then right in here after a swing
high small little body ok
again disregard the wicks they'll trip
you up that's all stop running both
sides of the marketplace they're taking
all the traders out you know right back
into the middle and then a big move
takes place down explosive price action
on the sell side reaching for an old low
rejection and now at the time of this
recording last Friday we have a small
range body again so we know there's
going to be 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 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 before it happens is there
going to be excitement and is it gonna
be animated if you will and what I do is
I look for when things are getting quiet
that means to prep the traders are gonna
get bored with it and when they're not
paying attention to it it takes off and
then everybody else in the retail world
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 lower mean bearish I hope you
enjoyed this presentation if you'd like
to find more you can visit my website at
the inner circle trader.com
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