2022 ICT Mentorship Episode 38

Summary

This video offers an in-depth look at trading strategies, focusing on concepts like optimal trade entry, fair value gaps, and smart money techniques. The speaker emphasizes patience, waiting for the market to show clear signals before executing trades. Key strategies discussed include using Fibonacci levels, identifying SMT divergences between major indices, and the importance of buying at discounted levels. The video showcases real-time examples, stressing that successful trading is about precision, discipline, and understanding market patterns rather than taking impulsive actions.

Takeaways

• 😀 OTE (Optimal Trade Entry) involves using Fibonacci retracement levels (62% to 79%) for precise entry after a price correction.
• 😀 Fair Value Gaps (FVG) are crucial to identify as they represent areas where price often retraces before moving in the direction of the trend.
• 😀 Patience is vital in trading—waiting for the right setup is often more important than executing trades impulsively.
• 😀 Traders should always confirm market behavior before entering a trade, especially when looking for bullish signals in the afternoon session.
• 😀 The market's algorithm often communicates its narrative via volatility and price action, which traders need to carefully observe.
• 😀 A proper entry requires waiting for the price to enter key fair value gaps and setting stops below significant price points (e.g., previous lows).
• 😀 SMT Divergence (Simultaneous Divergence) between different indexes (like Nasdaq and S&P) can provide valuable signals for potential market moves.
• 😀 It’s not just about entering trades—having a clear exit strategy and being able to stay patient throughout the trade is key to successful trading.
• 😀 The concept of trading with 'smart money' is important, as they tend to drive price action in areas like fair value gaps and Fibonacci levels.
• 😀 Trading should be approached with a calm, logical mindset, not influenced by the pressure of needing to take a trade for the sake of it.
• 😀 Time spent waiting for setups is crucial in trading; it’s about quality, not quantity, of trades. Avoid making trades out of impatience or FOMO.

Q & A

What is the optimal trade entry, and how is it applied in trading?

The optimal trade entry (OTE) is a method of identifying favorable entry points based on key market levels. It typically involves using Fibonacci retracement levels (usually between 62% and 79%) after a significant move in price. This strategy is often combined with other technical tools, such as fair value gaps, to determine the best time to enter a trade.

What are fair value gaps and how do they influence trading decisions?

Fair value gaps are price zones where there is a noticeable imbalance in the market due to a swift move in one direction. These gaps are important because they represent areas where the market might revisit to fill the void, creating opportunities for entry. Traders often wait for price to return to these gaps before making a trade, looking for a reversal or continuation.

How do SMT (Smart Money Tracker) divergences work, and why are they important?

SMT divergences occur when there is a discrepancy between price movements in related markets, like the S&P and Nasdaq. For example, a lower low in one market (Nasdaq) and a higher low in another (S&P) could signal that institutional money (smart money) is accumulating in the second market. Recognizing these divergences can help traders anticipate potential market reversals or continuations.

What is the role of patience in trading, according to the speaker?

Patience is critical in trading because successful trading requires waiting for the right setups. The speaker emphasizes that just because a trader is sitting in front of charts does not mean they should automatically take a trade. Instead, they must wait for the market to present a clear opportunity based on their analysis. Moreover, patience is required both before entering the trade and while allowing the trade to develop.

Why does the speaker wait for confirmation before entering trades in the morning?

The speaker waits for confirmation because they believe that early market movements may not fully reflect the true market sentiment. For example, if the market rallies early, it might retrace before continuing higher. Therefore, the speaker waits for a clear signal, like a fair value gap or a divergence, before making a trade to ensure that the afternoon session aligns with their bullish bias.

How does the speaker use Fibonacci levels in their trading strategy?

The speaker uses Fibonacci retracement levels to identify key areas of support or resistance, particularly the 50% level, which is often considered a discount area. They look for price to retrace to these levels and then seek confirmation of market strength before entering a trade, such as waiting for price to trade into a fair value gap and then buying at the optimal price.

What is the significance of waiting for a fair value gap to trade into a 50-minute time frame?

Waiting for a fair value gap to trade into a 50-minute time frame is a way to align the trade with the intraday market structure. The speaker believes that a trade setup is more reliable if the market has corrected or revisited key levels within a shorter time frame (like the 50-minute), as it reflects more accurate market behavior and potential reversal points.

Why does the speaker prefer buying at a very specific candle price, and what does it indicate?

The speaker prefers buying at a very specific candle price, just below a fair value gap level, because it aligns with the 'smart money' approach. The idea is to enter the market where institutional traders (the smart money) are likely to be positioning themselves, which increases the likelihood of a successful trade. This approach allows for a better risk-to-reward ratio.

How does the speaker ensure that their teaching is grounded in real-world examples?

The speaker ensures their teaching is based on real-world examples by showing actual trade setups and explaining the reasoning behind their decisions. They provide examples of trades they have made in real time, offering insights into their thought processes rather than discussing purely theoretical strategies.

What is the importance of not rushing into a trade just because you’ve been watching the charts?

Rushing into a trade simply because you've been watching the charts is discouraged because it can lead to impulsive decisions without proper analysis. Successful traders wait for clear, favorable setups rather than trading out of a sense of impatience or because they feel the need to take action after staring at the market for too long.