Episode 9: Using Standard Deviations Day Trading - ICT Concepts

Summary

This trading tutorial explores the use of standard deviations for setting price targets and identifying potential accumulation or reversal phases in the market. The video demonstrates how to apply these tools on various time frames, from intraday charts to daily charts, using specific settings and Fibonacci tools to measure market manipulation and project price movements. It provides practical examples on the NASDAQ charts, illustrating how to frame trades and anticipate reversals or continuations based on standard deviation levels.

Takeaways

• 📊 Standard Deviations are used in trading to determine price targets and to identify potential retracements or reversals in the market.
• 📈 Traders can take partial or full positions off at standard deviations, which can help in managing risk and profit-taking.
• 🔍 The script emphasizes the importance of identifying accumulation phases and manipulation legs in the market for better trade setups.
• 📐 The Fibonacci tool with standard deviation settings is used to measure market movements and project potential price levels.
• 🎛️ Accumulation phases are framed between 0.5 to -1 standard deviations, which can indicate a potential buying opportunity.
• 🔄 Retracements or reversals are often framed at -2 to -2.5 standard deviations, aligning with liquidity levels and potential price reactions.
• 📉 Expansions lower in the market can be measured from the low to the high of the standard deviation range, providing targets for short positions.
• 🚫 At -4 standard deviations, the market is more likely to experience a full reversal rather than a continuation, cautioning traders against continuation trades.
• 📝 The script provides practical examples on various time frames, from daily to minute charts, demonstrating the fractal nature of price action.
• 📉 The -2.5 standard deviation level is highlighted as a critical point where the market often respects this level before reversing or continuing lower.
• 📈 Equilibrium levels are identified as potential price targets for long positions, especially after a market has shown respect for certain standard deviation levels.

Q & A

What is the purpose of standard deviations in trading?

Standard deviations are used for setting price targets in trading. They help traders to determine points at which they can take partial or full positions off and are used to frame retracements or reversals in the market.

How do standard deviations relate to accumulation and expansion phases in trading?

When traders accumulate at a standard deviation level, they can expect an accumulation phase to follow, which may then lead into an expansion phase. This is a way to identify potential market movements based on standard deviation levels.

What settings does the speaker recommend for using standard deviations in trading?

The speaker does not specify exact numerical settings for standard deviations, emphasizing that the numbers are not as important as the visual framing. However, they do mention that the visual indicators such as checks and numbers should be present and can be customized to any preferred color.

What is the significance of the manipulation leg in identifying standard deviations?

The manipulation leg is significant because it represents a high to a new low, which traders use to measure the standard deviations. This measurement helps in identifying potential accumulation phases and subsequent market movements.

How are standard deviations used to identify accumulation phases on intraday charts?

Standard deviations can be used to identify accumulation phases by measuring from the high to the low during a manipulation phase. The levels of 0.5 to -1 are often where traders can frame an accumulation phase from, as seen in the script with the example of a run on stops and continuation to -2 and -2.5.

What is the role of the -2.5 standard deviation level in framing reversals or retracements?

The -2.5 standard deviation level is where the price often reverses or retraces because it typically aligns with sell-side or buy-side liquidity. It is a critical level to watch for potential market reversals.

How can the entire range of a standard deviation be measured for a potential price target?

To measure the entire range for a potential price target, traders measure from the low that the standard deviation was measured from to the high that this low made. This range helps in identifying equilibrium, which can be a target for trades.

Why is the -4 standard deviation level significant for potential reversals?

The -4 standard deviation level is significant because it is often where the price stops and either accumulates or has a full-on reversal. It is a level at which traders should be cautious about framing continuation trades, as reversals are most likely to happen here.

Can the principles of standard deviations be applied to different time frames?

Yes, the principles of standard deviations can be applied to different time frames, as price action is fractal and works on all time frames, from intraday charts to daily charts.

What is the practical application of standard deviations in identifying entry and exit points for trades?

Practically, standard deviations help traders identify entry and exit points by measuring from significant highs or lows during market manipulation phases. The levels of standard deviations project potential accumulation, distribution, and reversal points, which can be used to frame trades.

Outlines

00:00

📈 Understanding Standard Deviations in Trading

This paragraph introduces the concept of standard deviations in trading, emphasizing their use for setting price targets and identifying potential points for taking partial or full positions. It explains how standard deviations can frame retracements or reversals and how they are integral to the accumulation and expansion phases of market movements. The speaker provides personal settings for visualizing standard deviations on trading charts, including the importance of including checks and numbers for accurate measurement. The paragraph concludes with an example of how to apply these settings to identify accumulation phases and potential reversal points on intraday charts.

05:01

📊 Applying Standard Deviations to Chart Analysis

The second paragraph delves deeper into applying standard deviations to chart analysis, illustrating how to measure manipulation phases and project standard deviations from highs and lows. It discusses the significance of the -2 to -2.5 range as a common reversal point and explains how to measure the entire range for potential price targets. The speaker uses the NASDAQ hourly and daily charts to demonstrate how to frame accumulation phases and reversals, highlighting the importance of respecting certain standard deviation levels and how they can indicate potential price targets. The paragraph also touches on the concept of equilibrium as a target for framing long positions and the importance of time frames in trading analysis.

10:03

📉 Intraday Trading with Standard Deviations

This paragraph focuses on the application of standard deviations in intraday trading, showing how they can be used to identify accumulation and distribution phases within short time frames. The speaker provides examples from the NASDAQ 15-minute and 5-minute charts, demonstrating how to measure from highs to lows and apply standard deviations to predict reversals and continuations. The importance of liquidity alignment and the ease of measuring standard deviations on intraday charts are highlighted. The paragraph concludes with an example from a one-minute chart, reinforcing the concept that price action is fractal and the same principles apply regardless of the time of day.

Keywords

💡Standard Deviation

Standard deviation is a statistical measure that quantifies the amount of variation or dispersion in a set of values. In the context of the video, it is used as a tool for identifying price targets in trading. The speaker explains that traders can take partial or full positions off at standard deviations and use them to frame retracements or reversals in the market. For example, the script mentions using standard deviations to measure the 'manipulation leg' from a high to a low, which helps in projecting future price movements.

💡Price Target

A price target is a pre-determined level at which a trader plans to sell a security if it appreciates in value, or buy it back if it depreciates. In the video, the concept is integral as it is discussed how standard deviations can be used to set these targets, particularly in relation to retracements and accumulation phases. The script illustrates this by showing how to measure from a high to a low to project where prices might reverse or retrace.

💡Accumulation Phase

An accumulation phase in trading refers to a period during which buyers are taking a larger share of the market, often at lower prices, indicating a potential upcoming upward price movement. The video script describes how to identify this phase using standard deviations, suggesting that if accumulation occurs at a certain standard deviation level, it could lead to an expansion phase.

💡Retracement

A retracement in trading is a temporary reversal of a current trend, typically followed by a resumption of the trend. The script explains that standard deviations can be used to frame retracements, which are important for identifying potential reversal points in the market. For instance, the speaker mentions that prices often reverse and retrace off of certain standard deviation levels, aligning with liquidity zones.

💡Reversal

A reversal is a change in the direction of a trend in the market. The video discusses how standard deviations can signal potential reversals. The speaker gives examples of how to measure the range from a low to a high and then uses standard deviations to determine the equilibrium, which can be a target for a reversal trade.

💡Manipulation Leg

In the context of the video, a manipulation leg refers to a price movement that is likely driven by market manipulation, typically characterized by a sharp move to a new high or low. The script describes how to measure this leg using a standard deviation Fibonacci tool to determine the extent of manipulation, which can be a precursor to an accumulation phase.

💡Expansion

Expansion in trading refers to a phase where the price moves significantly in the direction of the prevailing trend. The video script describes how to identify expansion phases using standard deviations. For example, after an accumulation phase, the speaker explains how to measure the expansion to certain standard deviation levels, which can indicate the continuation of the trend.

💡Intraday Charts

Intraday charts are used by traders to analyze and trade within a single trading day. The video emphasizes the importance of standard deviations on intraday charts, showing how they can be used to identify accumulation and reversal points throughout the day. The script provides examples of how to apply standard deviations on various intraday time frames, such as 15-minute and 5-minute charts.

💡Liquidity

Liquidity in financial markets refers to the ease with which assets can be bought or sold without affecting their price. The video script mentions that standard deviations often align with areas of high liquidity, which can be significant for framing retracements and reversals. For example, the speaker notes that prices often reverse off of standard deviation levels that coincide with buy or sell side liquidity.

💡Equilibrium

In the context of the video, equilibrium refers to a state of balance in the market, often identified as a level where the price is expected to stabilize or reverse. The script describes how to measure the equilibrium by using standard deviations to determine a price target for potential reversals or continuations of trends.

💡Fractal

A fractal in trading refers to the self-similarity of price patterns across different time frames. The video script mentions that price action is fractal, meaning the same patterns can be observed on various time frames, from one minute to daily charts. This concept is used to demonstrate the universal application of standard deviations in identifying market patterns.

Highlights

Standard deviations are used for setting price targets and managing trading positions.

Traders can use standard deviations to frame retracements or reversals in the market.

Accumulation at standard deviations can lead to an expansion phase in the market.

The presenter shares personal settings for using standard deviations in trading.

Standard deviation lines and numbers are crucial for identifying market phases.

The concept of a 'manipulation leg' is introduced as part of market analysis.

Traders can measure market manipulation using the standard deviation FIB tool.

The -2 to -2.5 standard deviation range is significant for potential price reversals.

Intraday charts are useful for identifying accumulation phases using standard deviations.

The equilibrium range can be measured for potential price targets in trading.

The -4 standard deviation level is often a point of interest for potential reversals.

Examples are provided using the NASDAQ hourly chart to illustrate standard deviation analysis.

The importance of respecting certain standard deviation levels for continuation trades is emphasized.

Daily charts can also be analyzed using standard deviations for longer-term trading strategies.

The fractal nature of price action allows standard deviation analysis to work across all time frames.

Intraday examples demonstrate how standard deviations can be used for day trading.

The video concludes with an explanation of how to apply standard deviations in various market conditions.

Transcripts

what is good we are back with another

video of the trading Den today's module

we will be going over these standard

deviations now standard deviations are

used for Price targets you can take

partials or your full position off at

these standard deviations and they are

used to frame retracements or reversals

off of them now if we accumulate at one

of these standard deviations we can

expect an accumulation phase to then go

into an

expansions so so this right here is what

these standard deviations look like I

will give you my settings right now

these are the settings doesn't matter

where the numbers are just frame it just

like this you can change it to whatever

color you would like but these checks

and these numbers need to be on there go

ahead and screenshot this whatever you

want here they they are let's get into

what it should look like so here we have

a depiction of what a chart could look

like so right here we can see we have an

accumulation phase right here every move

starts with a turtle soup so right here

we have a low take in now what you want

to be looking for is the manipulation

leg so we have a high here into a new

low so this leg right here would be your

manipulation now we take that uh

standard deviation FIB tool and measure

the manipulation right here is your

manipulation phase you measure from the

high to the low and then the standard

deviations will project out

now let me line this up there so -2 2

and2 the red area we will go into that

in a minute

now5 or sorry 0.5 to -1 is where you can

frame an accumulation phase from so as

you see right here whenever we get there

we have a run on stops and then a

continuation to -2 -2 A2 so this right

here can be used to identify

accumulation phases on intraday charts

so moving on to ne2 -2.5 this is where

you can frame a reversal or retracement

from this is where price likes to

reverse and retrace off of because

usually it aligns with sell side or buy

side liquidity so right here you see

that we run buy stops and then expand

lower now if it is an expansion lower

and it is a rever or a retracement sorry

into a higher time frame PD array if we

respect -2

-2.5 the easiest draw is measure the

entire range from that low that we

measured the standard deviation from to

the high that this low made

and

then we measure out equilibrium of the

range this is your target if you want to

take shorts up here and then you target

this 05 because we do not have to

reverse the entire move this can be a

retracement into a continuation

expansion so you target the 0. five and

this is where you can frame Longs off of

so whenever we get back down

here this can now be a new man ulation

leg if it had a run on stops as you see

here we have a run on stops this can now

be measured as well but 0.5 if we

respect -2.5 and -2 the equilibrium is

your price Target and a place to frame a

long for a continuation off of now

moving up -4 is where

price likes to stop at and either

accumulate or have a full on reversal -4

a turtle soup will usually occur if we

are going to have a reversal so this is

where you do you do not want to be

trying to frame a continu continuation

sorry a continuation trade off of4 this

is where reversals are most likely to

happen so let's hop into the charts and

give some examples right here we are on

the NASDAQ hourly chart and as you see

right here we have an accumulation phase

and right here we have that run on stops

and then we have this expansion higher

now whenever it expands higher we can

now frame this as our manipulation so

what do we do draw out the FIB tool take

it from the low to the high click on

standard deviations now what did I say

here this neg1 to.5 can be an

accumulation phase as you see right here

we have a little accumulation a little

more accumulation and then an expansion

to -2 -2.5 and as you see we continue to

respect it expansion lower so now what

do we measure

out we measure out equilibrium of this

entire range so right here as you see we

continue check out the bodies I didn't

even realize that check out the bodies

all bodies respect that so then we

continue up do not run these highs and

expand lower this is where you could

kind of expect to see this low but as

you see we do not deliver that low like

I said four we do not have to deliver

that low equilibrium is your price

Target and a way to frame Longs off of

so let's hop into another example so

here we are on the NASDAQ daily chart

right price is fractal it works on all

time frames but right here you see we

have a high we have a run on all of

these equal lows throughout here and

then we have an expansion higher measure

from the low to the

high5 to1 we have a little accumulation

here right we have this down candle we

have this small candle expansion up what

can we expect -2 to

-2.5 we come here we accumulate looks

like we're expanding lower could see

equilibrium but we have a new low so

this can be the equilibrium that we

measure out we do not have to come the

entire way to this low to this High just

because we already have a new prominent

low so this would be the equili berum

that we would be looking for expansion

higher what can we see now we could come

the entire way that right this is real

time we could come the entire way up to

-4 now so 18, 385 could be the target

for this daily expansion because we have

now closed Above This range right here

after getting this retracement from -2

to -2.5 and then expansion higher so we

we can expect to see -4 now you were

watching this course before this could

even happen so we are on the daily chart

it's going to take a while to happen

come back see if it actually happens

let's move on to another one so here we

are on the 4our NASDAQ chart what do you

see throughout this price action right

we have manipulation we have a run on

stops expansion higher we have a high we

have a low so we measure from this low

to this High what do you see we

disrespect

-2 to

-2.5 we have an accumulation here we can

expect to see4 now since we disrespected

and closed above these two

areas so here's -4 let me line that up

where do we stop right there and right

now we are accumulating to maybe get

another expansion but you do not want to

be trying to take a swing position right

because this is the 4 Hour you're not

taking intraday trades off the 4 Hour

you don't want to be taking a swing

trade to have continuation yet until we

show that we want to expand so we hit

that -4 now we're starting to accumulate

once again so here we are on the NASDAQ

15minute right here in this piece of

price action you can see we have a run

on buy stops and then an expansion lower

so we have a run on buy stops expansion

lower let's move this over we measure

from the high to the

low

-10.5 accumulation phase or distribution

cuz we are in a market maker sell model

distribution then we go straight to -2

and remember I said this is why it's

easier on the intraday charts to measure

out these standard deviations cuz

intraday when you're framing a trade it

usually will line up with liquidity as

you see respect -2 -2.5 and then we have

a fullon reversal from there

so here we are on the NASDAQ 15 minute

once again I'm going to show you some

more examples on the intraday charts

just because day Traders we like to

catch the daily move so right here you

can see we have a run on these buy stops

right here inside of a higher time frame

PD rray you can tell because this is

just displacement lower so this is

probably an hourly imbalance and right

here we have a high we have a low so we

measure from the high to the low

.55 and 1 distribution phase expansion

down to -2 -2.5 and then a fullon

reversal so let's go into another

example so here we are on the NASDAQ 5

minute chart you can see this piece of

price action sweeps all of these equal

lows so we measure out uh from here to

here where do we go

.5 uh we come into ne1 and .5 accumulate

go up expand to here then we come the

whole way back down run these stops and

now we have a high right this is a swing

high right here you can tell it comes

into this fair value Gap Above This High

lower high lower high swing High measure

from this low to this High

sorry expand as you see we come straight

through Nega

-1.5 expansion to -2 -22 we accumulate

expansion higher and then we hit that -4

the entire way over here we do not quite

get there yet until over there so for

the last example we're on the one minute

chart this is actually at 350 in the

morning but it works any time of the day

because price is fractal time is fractal

we come in we sweep byy stops so now we

have a manipulation leg measure from

high to the recent low coming to -2 -2

and 1/2 notice .51 distribution we have

an accumulation phase here expansion

come down we distribute some more where

do we expand to -4 reversals like to

happen here we come up we reach

equilibrium accumulate above equilibrium

then we expand back lower and we

actually have a run on stops right here

didn't see this example so let's measure

from here to here where do we go -2 -2

and A2 accumulate and then we expand

even lower and you can you can literally

just keep doing this on any manipulation

right distribution here's another entry

for -4 uh right here manipulation here

we don't get we never get our position

stopped out Above This High though then

we get to that -2 area and then this is

intraday price action so that is how

standard deviations work any

manipulation leg you see in the markets

you measure from the high to the low if

it is bearish or from the low to the

high if it is bullish so let's move on

to the next module