ICT Mentorship Lecture: Trendline Phantoms

Overview

• Date: November 2016
• Session: 7 of 8
• Topic: Trendline Phantoms or False Trend Lines
• Focus: Diagonal trendline support and resistance

Key Concepts

Trendline Phantoms

• Diagonal Trendline Support/Resistance
  • Support: Imaginary lines where traders anticipate price will increase at higher lows.
  • Resistance: Imaginary lines where traders anticipate price will decrease at lower highs.

Critique of Trendline Theory

• No statistical edge or basis for diagonal support/resistance.
• Market price does not respect trendlines; it reacts to liquidity.
• Trendlines are subjective; future price movement is not predictable based on past high/low connections.

Institutional Perspective

• Banks do not rely on trendline theory; it's subjective and speculative.
• Large funds often become target points for liquidity rather than retail traders.
• True market movement is determined by liquidity pools, not retail trader actions or trendlines.

Market Behavior and Strategy

Misleading Trendlines

• Charts often show false or misleading opportunities via trendlines.
• Market makers capitalize on retail traders' reliance on trendlines.

Support-Level Influence

• During trendline support, retail traders buy, thinking prices will rise, but market makers might sell—leading to a collapse.
• Bearish opportunities exist when there’s an influx of retail buyers at supposed support levels.

Resistance-Level Influence

• During trendline resistance, retail traders sell, thinking prices will fall, but market makers might buy—leading to a price rally.
• Bullish opportunities exist when there’s an influx of retail sellers at supposed resistance levels.

Practical Analysis

Example Analysis

• High-Level Analysis: Market price responds to actual liquidity points, not trendline-drawn support/resistance.
• Chart Observation: Look for institutional reference points rather than retail trendline signals.

Trendline Trades

1. Bullish Trendline Support:
   • Identify high formed between the second and third touch of the trendline.
   • Aim for bearish order block above this high.
2. Bearish Trendline Resistance:
   • Identify low formed between the second and third touch of the trendline.
   • Aim for bullish order block below this low.

Conclusion

• Trendlines offer little to no predictive power; they often lead traders into traps.
• Focus on liquidity and institutional order flow for more reliable trading setups.
• Reevaluate past trades using these concepts to spot trendline fallacies.