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#5 - The Ict Essentials
#5 - The Ict Essentials
By understanding and strategically utilizing kill zones, traders can enhance their ability to identify manipulation, mitigate risks
associated with “fakeouts”, and align their trading activities with the teachings of ICT.
KILL ZONES
Judas Swing Unveiled: Navigating Market Manipulation in Kill Zones
1. Introduction to Judas Swing:
Context: The Judas swing is a phenomenon closely tied to the previously discussed kill zones. These swings often occur within
these designated zones, highlighting strategic market manipulation opportunities.
2. Tokyo Session Trading Range:
Initiation: The Judas swing typically initiates after the conclusion of the Tokyo session, delineated by the Tokyo high and low
within a specific trading range.
3. Price Liquidity Movement:
Post-Tokyo Session: After the Tokyo session concludes, price tends to take out liquidity zones, either above or below the
established range. In the example on the next slide, the breakout occurred above.
4. Identification of Judas Swing:
Critical Point: The Judas swing in the example, is identified as the market breaks below the daily open (marked by a YELLOW
line) following the initial breakout. The entire downward movement from this point is recognized as the Judas Swing.
5. Judas Sheep Analogy:
Symbolic Explanation: The term "Judas Swing" draws an analogy to sheep herding practices. Similar to a lead sheep, the Judas
sheep is positioned strategically to mislead the herd, symbolizing a reversal in market direction.
6. Purpose and Probability:
Market Maker Strategy: Market makers employ the Judas swing tactic to exploit liquidity positions above or below specific
areas. This setup is deemed highly probable for success, offering lucrative opportunities when executed effectively.
7. Occasional Nature and Trading Decisions:
Selective Trading: The Judas swing is not a daily occurrence. Traders are advised to exercise caution and discretion, as its
absence often leads to market consolidation, making it less conducive for trading.
8. Key Trading Parameters:
Optimal Entry Points: Traders are encouraged to focus on entry points 20 to 40 pips below the Tokyo range for long positions,
particularly in scenarios where the overall market sentiment is bullish.
Understanding the dynamics of the Judas swing equips traders with a valuable tool to navigate market manipulation within
kill zones. By discerning the strategic moves employed by market makers, traders can enhance their decision-making and
capitalize on high-probability setups.
EXAMPLE
Understanding the Power of Three involves recognizing these phases and strategically entering trades, especially during
manipulation, to align with the overall market trend. It's a simplified approach to navigating market dynamics for the average
trader.
EXAMPLE
Optimal Trade Entry Simplified:
1. Introduction to Optimal Trade Entry (OTE):
Key Tool: OTE is based on Fibonacci retracement levels, a tool commonly used in trading. These specific levels (0.62, 0.705, 0.79, -0.62,
-0.27, -1) are the ones recommended by ICT.
2. Fibonacci Retracement Tool Settings:
Setup in TradingView: To replicate ICT's tool, set the Fibonacci retracement levels as mentioned: 0.62, 0.705, 0.79, -0.62, -0.27, -1.
3. Understanding OTE in Price Movement:
Example Scenario: Consider a price movement where it aggressively goes down to an area with significant liquidity. This liquidity sweep
is a crucial concept.
4. Optimal Trade Entry Area:
Key Levels: OTE is the area between 62% and 79%, with 70.5% being the precise OTE. This area is considered prime for entering trades.
5. Market Rebalancing and Impulse Movements:
Market Dynamics: After a liquidity sweep, price retraces to OTE for market rebalancing. The market tends to seek equilibrium at this
level before initiating another impulsive move.
6. Discount Zone Concept:
Halfway Point: The halfway point in the OTE range is viewed as the discount zone. It signifies a potential discount in price, especially
when anticipating bullish movement after a liquidity sweep & Vice Versa for a Bearish movement.
7. Practical Application of OTE:
Day Trading Success: In a simplified approach, focusing solely on OTE levels can make you a successful day trader, particularly when
expecting bullish movement.
8. Wait for Opportunities:
Missed Entries: If you miss a trade at a specific OTE, be patient for the next setup. Consistently aiming for entries within the OTE
parameter enhances your trading strategy.
9. OTE as a Fib Level:
Basic Understanding: While OTE involves Fibonacci levels, there are additional concepts like fair value gaps, breaker blocks, and order
blocks associated with it. However, at its core, OTE is about finding optimal entry points.
In essence, Optimal Trade Entry is a fib level strategy that, when consistently applied, can contribute to successful day trading.
Understanding the dynamics of market rebalancing and utilizing the discount zone concept within the OTE range enhances its
effectiveness.
EXAMPLE
Smart Money Technique (SMT) Simplified:
1. Introduction to Smart Money Technique (SMT):
Purpose: SMT is a technique used by ICT to identify market trends and potential trade setups by comparing the movement of specific currency pairs with the
U.S. Dollar Index (Dixie).
2. Understanding Inverse Correlation:
Example Pair: Consider the Euro, US Dollar pair (EUR/USD) on the daily timeframe and the U.S. Dollar Index (Dixie) next to it. Recognize that certain currency
pairs, like EUR/USD, often move inversely to the U.S. Dollar Index.
3. Anti-Indicator Approach:
ICT's Philosophy: ICT avoids traditional indicators and instead focuses on correlations and divergences to spot trading opportunities.
4. Observing Bearish Momentum:
Dixie Analysis: Analyze the U.S. Dollar Index's daily chart. Notice lower highs and lower lows, indicating bearish momentum in the U.S. dollar.
5. Correlation with Currency Pair:
EUR/USD Comparison: Simultaneously, observe EUR/USD. In a perfectly inverse correlation, EUR/USD should have formed a lower low when Dixie made a
lower low. However, it didn't follow the expected pattern.
6. Identifying Divergence:
Divergence Sign: Spot the divergence between Dixie's bearish momentum and EUR/USD's failure to create a lower low. This divergence is a crucial signal for
potential trade setups.
7. Trading Opportunity at Divergence:
Execution: Any of the daily candlesticks during this divergence period could have presented an opportunity for a significant long position in EUR/USD.
8. Application of Smart Money Technique:
Definition: SMT, in essence, involves using divergences between specific currency pairs and the U.S. Dollar Index to identify potential smart money
movements.
9. Utilizing Divergences for Trade Setups:
Strategy: When comparing a Forex pair to the U.S. Dollar Index, spotting divergences provides insights into potential trade setups. The divergence indicates a
deviation from the expected inverse correlation.
10. Key Takeaway:
SMT Concept: The smart money technique is essentially about recognizing these divergences as opportunities to enter well-informed and potentially
profitable trades.
In summary, the Smart Money Technique involves observing the relationship between specific currency pairs, like EUR/USD, and the U.S. Dollar Index.
Divergences from expected inverse correlations serve as signals for potential trade setups, allowing traders to capitalize on smart money movements.
EXAMPLE
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