ICT Mentorship Core Content - Month 1 - Equilibrium Vs. Discount

Summary

The speaker introduces the concept of equilibrium versus discount to explain optimal trade entry timing. Equilibrium represents the midpoint of a price swing, while discount refers to prices below equilibrium. The speaker advises waiting for the market to reach equilibrium or dip below into 'discount' territory before entering long trades, as this indicates the market is at a favorable valuation to buy. Specific techniques like tracking impulse price swings and swing highs are detailed to identify equilibrium points and prime discount entry areas that precede explosive upside moves, especially when combined with order flow analysis.

Takeaways

• 😀 Understanding equilibrium vs discount is key for discerning optimal trade entry points
• 😯 Impulsive price swings indicate market willingness to move price higher
• 🔍 Wait for 4 candles after high forms to start watching for retracement to equilibrium
• 👌 Equilibrium = midway point between swing high and low, around 50% fib level
• 💡 Below equilibrium = discount area where banks will buy - optimal entries here
• 📈 If bullish, expect explosive moves up from discount area back to equilibrium and beyond
• ❗ Lows taken out below equilibrium may signal stops being run - anticipate bounce
• 😎 Taking trades at equilibrium provides flexibility for swing, day, position trading
• 🤓 Blend order flow concepts like order blocks and turtle soups with equilibrium ideas
• 🧠 Understanding foundations of price action critical for indicators or systems to work

Q & A

What is equilibrium in relation to price action?

Equilibrium is the midway point between the high and low of a price range or price swing. It represents fair market value where price is not overbought or oversold.

When is price considered to be at a discount relative to equilibrium?

Price is considered to be at a discount when it moves below the 50% equilibrium level, with the optimal discount area typically between the 62-79% Fibonacci retracement levels.

How can you identify an impulsive price swing?

An impulsive price swing consists of a strong directional move over 3-4 candles, followed by a pullback. It indicates conviction behind the price action.

What should you anticipate when price breaks below a previous swing low in a bull market?

Typically this indicates a stop run designed to take out resting sell stops. This injects new buyers as those stops are triggered. Expect bullish rejection back above the low.

Where are optimal areas to take profit on long trades?

Areas of previous structure resistance like swing highs or order blocks offer optimal areas to take profits on bullish trades.

How can you use the daily time frame while still day trading?

Use the daily chart to map overall bullish/bearish context and key levels. Then drop to lower time frames when price reaches daily support/resistance for entry triggers.

What precedes explosive moves higher from areas of discount?

The market will often break below a swing low to run stops before rejecting strongly back above it when coming from an area of discount.

How do institutions distribute long positions?

Institutions will let price rise to areas of liquidity above previous swing highs where buy stops congregate. They distribute as those stops are run.

What dictates whether indicators or signals will be effective?

The underlying price action context is what determines if indicators or other tools will work reliably. They must align with the market structure.

Why is patience important for this style of trading?

It takes patience to properly identify shifts in structure and areas of discount/equilibrium. Chasing often leads to forcing low probability trades.