Full Guide On Building A Mechanical Trading System (ICT CONCEPTS)

Summary

In this comprehensive trading strategy tutorial, the speaker explains how to use both higher and lower time frames to make logical, rule-based decisions. By identifying key price levels, liquidity zones, and using specific entry signals like 50% retracements and rejection blocks, traders can create a systematic approach for entering and exiting trades. The speaker emphasizes the importance of understanding market dynamics and how this knowledge can lead to successful, longer-term trades. This methodical approach is suited for traders who want to grasp the ‘why’ behind market movements rather than seeking quick profits.

Takeaways

• 😀 Understand the importance of higher time frame analysis to establish a bullish or bearish bias before trading on lower time frames.
• 😀 Use liquidity pools (buy side and sell side) to identify key areas where the market may reverse or continue its trend.
• 😀 Breakaway gaps are significant indicators that show where the market is likely to move strongly, either up or down.
• 😀 Once the market closes above 0.5 or 0.75 levels, it typically indicates a strong continuation of the trend in the desired direction.
• 😀 Ranges are defined by the market's highs and lows. The midpoint (50%) of a range is a key level to watch for potential reversals or continuations.
• 😀 Rejection blocks and wicks are valuable entry signals, with price action at these levels offering confirmation for potential trades.
• 😀 Focus on time as a critical factor in your trading strategy, particularly around significant market events such as 9:30 AM market open.
• 😀 Identifying and respecting the most recent highs and lows is key for trading, especially when liquidity has been taken from these levels.
• 😀 Trading at discounts (when price retraces to 50% of a range) can provide excellent opportunities for catching a reversal or continuation.
• 😀 A mechanical trading approach with defined entry and exit points makes trading more systematic and less dependent on gut feeling.
• 😀 The mentorship program is aimed at traders who seek to deeply understand why markets move the way they do, rather than just aiming for quick profits.

Q & A

What is the significance of the 0.25, 0.5, and 0.75 levels mentioned in the script?

The 0.25, 0.5, and 0.75 levels are key price points that help determine the market's potential direction. A closure above 0.25 suggests the market is heading higher, a closure above 0.5 indicates the market should continue upward, and a closure above 0.75 signals a strong rally with little to no pullback.

What role do breakaway gaps play in the market?

Breakaway gaps are crucial because they represent areas where the market experiences significant movement without pulling back. These gaps often indicate a continuation of the trend, and they tend to remain open, showing areas where price may revisit in the future.

Why does the speaker emphasize understanding the higher time frame for trading?

The higher time frame is essential for establishing the market's overall bias. By understanding where the market is likely to go on a larger scale, traders can make more informed decisions when analyzing lower time frames for entry points.

What is the importance of liquidity pools in the speaker's trading strategy?

Liquidity pools refer to areas where a significant number of buy or sell orders are concentrated. Identifying these pools helps the trader determine potential breakout points and places where price may reverse or accelerate. By analyzing these liquidity areas, traders can predict where the market might go next.

What does the speaker mean by 'rejection blocks' and how are they used for entries?

Rejection blocks are areas where price reverses sharply after reaching a certain level. The speaker uses these blocks as entry points, particularly when the price retraces to the 50% level of a range. The confirmation of a rejection at this level signals that the market is likely to move in the trader's desired direction.

How does the speaker decide on the best range for trading?

The speaker focuses on identifying the most recent high and low that push the market in different directions. These ranges provide clear reference points for potential entries. The 50% level within the range is key for determining whether the market will find support or resistance and reverse.

What is the logic behind using 50% of a range as an entry point?

The 50% level of a range represents a balanced price area, often acting as a point of equilibrium. When price retraces to this level, it can present an opportunity for a reversal in the direction of the prevailing trend. Traders use this level to enter positions at a perceived discount, improving risk/reward ratios.

What is the mechanical system mentioned in the script, and how does it guide trading decisions?

The mechanical system refers to a structured, logical approach to trading where the trader uses specific price levels, liquidity, and market structures to make decisions. This system reduces emotional decision-making by relying on repeatable, rule-based strategies that can be applied consistently.

What does the speaker mean by 'time' as an important element in trading?

Time plays a crucial role in the speaker's trading strategy, particularly around significant market events like market open (9:30). The timing of trades can impact the success of the setup, as certain price movements and liquidity changes occur at specific times of the day.

Why does the speaker mention a 1:3 risk/reward ratio, and how does it relate to their strategy?

The 1:3 risk/reward ratio is a measure of the potential reward compared to the risk taken in a trade. The speaker uses this ratio to ensure that the potential profit from a trade outweighs the potential loss. A favorable risk/reward ratio helps in managing losses and maximizing gains over time.