Episode 12: Using Standard Deviation Projections - ICT Concepts

Summary

In this video, the host dives into the concept of standard deviations in trading, explaining how to use them for price projections. They cover accumulation, manipulation, and distribution phases, emphasizing how standard deviation levels can help identify potential retracement or reversal areas in the market. By using swing lows and highs, the video demonstrates practical applications of these concepts with live examples, including how to anchor fibs and interpret price action. The video also addresses scenarios such as market open conditions and FOMC events to help traders navigate different market conditions effectively.

Takeaways

• 😀 Standard deviations can be used to identify price projections and potential reversal zones in the market.
• 😀 The process begins with an accumulation phase, followed by manipulation, and then distribution, with price projections at each phase.
• 😀 Key levels for price projections include -2, 2, -3, and -4, where -2 and 2 serve as retracement and reversal areas.
• 😀 Higher timeframe PD (Price Delivery) arrays and fair value gaps help confirm the significance of the -2 and 2 zones for potential reversals.
• 😀 A Turtle Soup formation, where a low takes out previous highs, often leads to a reversal at key price levels.
• 😀 If price disrespects the -2 zone, it is likely to continue to the -4 zone, which represents the maximum expansion and SL terminus.
• 😀 Analyzing specific price ranges, such as the equilibrium of a dealing range, helps identify potential reversal points.
• 😀 Using smaller timeframes (such as the 1-minute chart) can help refine entries based on standard deviation projections and market manipulation.
• 😀 FOMC (Federal Open Market Committee) days and volatile events are less predictable, so traders should exercise caution when projecting price movements.
• 😀 The approach is versatile, applying to any swing high or low to project where the market might reverse or retrace, with the goal of aligning entries with liquidity zones.

Q & A

What is the purpose of using standard deviations in trading?

Standard deviations are used in trading to project price levels and identify key areas for retracements and reversals. These projections help traders anticipate potential price movements by measuring the distance from key swing points.

How do you identify the manipulation leg in price action?

The manipulation leg is identified by the price movement that takes out swing lows or highs into a key price delivery array (PD array) before returning back inside the range. This creates a setup for further price movements.

What are the key price projection levels, and what do they signify?

Key price projection levels include -2, 2, -3, and -4. These levels represent areas for retracement, reversals, or maximum expansion. For example, -2 and 2 are used for retracement and reversal areas, while -3 and -4 mark maximum expansion zones.

What does a higher time frame key level represent in trading?

A higher time frame key level, such as a fair value gap or equilibrium, serves as a critical reference point for projecting future price movements. These levels are often where the price may retrace or reverse.

What is the significance of the -2 and 2.5 levels in price projections?

The -2 and 2.5 levels represent areas where a retracement or reversal may occur. These levels are used to identify potential entry or exit points for trades, especially when they align with higher time frame key levels.

Why is the -4 level considered a 'maximum expansion' zone?

The -4 level is considered the maximum expansion zone because it marks the farthest extent of price movement in a given direction. If the price reaches this level, it is unlikely to continue in the same direction without significant reversal or correction.

How does a large market event like FOMC impact price action and standard deviation projections?

During major market events like FOMC, the price action can be more volatile, and large expansions are less predictable. In such cases, the standard deviation projections may not align with expected market behavior, and traders should adjust their strategies accordingly.

How do you determine the manipulation leg when there is a large expansion in price?

In cases of large expansions, it’s better to measure the 'bodies' of the price moves rather than the extreme highs or lows. This method helps filter out noise and provides more accurate standard deviation projections in the context of larger price movements.

What role does the equilibrium of a price range play in identifying trade opportunities?

The equilibrium of a price range represents the middle point of a swing range, and it acts as a critical level for potential reversals. Traders often look for price action to return to equilibrium, signaling a potential trade opportunity.

How can you use the one-minute chart for identifying price projections?

The one-minute chart is useful for identifying smaller, more precise swings that can serve as manipulation legs. Traders use these small swings to project price levels such as -2, 2.5, or -3, which can help identify entry points for short-term trades.