ICT Mentorship Core Content - Month 03 - Macro Economic To Micro Technical

Summary

In this lesson, the mentor introduces a macroeconomic approach to market analysis, emphasizing the importance of understanding long-term trends through the bond market and interest rates. By examining the bond market, especially the 30-year treasury and 10-year notes, the mentor explains how interest rate movements influence currency markets. Through visual analysis, including SMT divergence between bond markets and the dollar index, the mentor provides actionable insights for predicting market direction over a 3-6 month period. The lesson highlights the significance of interest rates in driving global financial markets, offering a practical tool for traders.

Takeaways

• 😀 Macroeconomic analysis is used to forecast market trends, focusing on long-term movements rather than short-term trading strategies.
• 😀 Interest rates and bond markets (specifically the 30-year treasury and 10-year notes) are key indicators for understanding market direction over a 3-6 month period.
• 😀 Bank reports are not trusted for market direction as they often reveal misleading or self-serving intentions, similar to a football team revealing their plays before a game.
• 😀 The bond market, especially the 30-year treasury, serves as a barometer for predicting interest rate trends, which directly impact the value of currencies.
• 😀 Every 3-4 months, there is a quarterly shift in the marketplace that could lead to either a trend reversal or an extended period of consolidation.
• 😀 The bond market’s behavior (higher highs or lower lows) can signal an increase or decrease in interest rates, which in turn influences the dollar index.
• 😀 A divergence between the 10-year and 30-year bond markets (e.g., one making higher highs while the other makes lower highs) often signals a shift in interest rates and a subsequent market reaction.
• 😀 The dollar index and related currency pairs (such as Dollar/CAD, Dollar/Yen) react predictably to interest rate movements driven by bond market fluctuations.
• 😀 The market can experience short-term anomalies, such as sudden drops during events like elections, but long-term trends in interest rates and bond markets ultimately prevail.
• 😀 Understanding the bond market, including the German bond market, provides critical insights into global interest rate movements, which are fundamental to understanding broader financial markets.
• 😀 Interest rates drive the global financial system, and a solid understanding of how bond prices and yields work is essential for accurate long-term market predictions.

Q & A

What is the primary focus of the teaching in this lesson?

The primary focus is on understanding macroeconomic principles, specifically using the bond market and interest rates as tools for predicting long-term market trends, particularly in currency markets. The mentor emphasizes using daily charts and looking at trends over a three to six month period.

Why does the mentor focus on interest rates and the bond market for market analysis?

The mentor believes that interest rates control the financial markets, and by analyzing the bond market, especially the 30-year treasury bond, one can predict interest rate movements. These movements, in turn, provide insight into the long-term trends of currencies, as bond prices and interest rates move in opposite directions.

What is the significance of the 'macro perspective' versus 'day trading perspective' in the lesson?

The mentor distinguishes between long-term macro analysis and short-term day trading. The macro perspective involves looking at broader market trends, such as interest rate movements and bond market behavior, rather than focusing on short-term fluctuations seen in 15-minute or hourly charts.

What role does the 'SMT divergence' concept play in this analysis?

SMT (Smart Money Technique) divergence refers to the difference in behavior between different timeframes of the bond market and currency pairs. It helps identify market shifts, such as when the 10-year bond and 30-year bond diverge, signaling potential changes in interest rates and currency movements. This concept is applied to determine when to enter or exit trades.

How do bond market movements correlate with currency trends?

Bond market movements are inversely related to interest rates. When bond prices drop, interest rates rise, which tends to strengthen the dollar and other currencies that are linked to higher interest rates. The mentor uses this relationship to forecast movements in currency pairs like Dollar/Swiss, Euro, and Dollar/Yen.

What does the mentor mean by a 'quarterly shift' in the market?

The mentor suggests that every three to four months, the market experiences a shift in direction, which could involve a reversal or a consolidation phase followed by a resumption of the trend. This shift aligns with changes in interest rates and bond market behavior.

Why does the mentor criticize relying on bank reports for market predictions?

The mentor criticizes bank reports because they believe that banks have no incentive to disclose their strategies openly, similar to how a football team wouldn't reveal its plays before a game. Instead, the mentor prefers using the bond market and interest rates as more reliable indicators for market forecasting.

How does the mentor use the bond market to predict interest rate movements?

The mentor uses the price action in the bond market, particularly the 30-year treasury bond and 10-year note, to identify potential changes in interest rates. When the bond market shows a sell-off, interest rates are expected to rise, which will likely lead to a stronger dollar. The mentor observes these trends and applies them to currency markets.

How does the mentor use the concept of 'order blocks' in their analysis?

Order blocks are key areas on a chart where price shows significant reversals or consolidations. The mentor looks for 'bullish' or 'bearish' order blocks in the dollar index and other currency charts to predict whether the price will move higher or lower based on the current trend in the bond market and interest rates.

What was the mentor's prediction about the U.S. election and how did it impact the market?

The mentor predicted that Trump would win the election, which caused an initial market reaction with a sharp sell-off in the dollar and the Dow Jones futures. However, the mentor emphasizes that this was a short-term reaction, and the overall long-term trend remained intact, with the dollar rallying once the initial volatility subsided.