ICT Mentorship Lesson 5 - Money Management and Higher Time Frame Analysis

Introduction

• Focus on money management and higher time frame analysis in trading
• Emphasis on long-term or position trading
• Encouragement to experiment with long-term trading for at least a year

Importance of Experience

• Long-term trading helps with market experience
• Apply demo account practices to live trading
• Control drawdown to about 15% annually, 20% if maintaining positive outcome

Managing Money and Expectations

• Small starting capital is not crucial
• Focus on consistent equity improvement with minimal drawdown
• Steady returns attract investors

Conservative Trading Approach

• Do not use entire equity base for trading
• Use only 30% of total equity for trading to avoid over-leverage
• Example: $100,000 account, use only $30,000 for trade parameters

Risk Management

• Risk only 1% of 30% equity base per trade
• Calculate risk based on smaller equity portion (e.g., $30 max risk on $3,000 trading budget)

Managed Funds Perspective

• Potential to manage other people's money (OPM) for profit
• Focus on 3:1 reward to risk or higher setups
• Low risk allows more setup opportunities

Annual Return Goals

• Target an 18-25% annual return, industry standard
• Aim for a few high-quality trades per year

Strategy and Trading Approach

• Use higher time frame analysis for long-term positional trades
• Be prepared for infrequent trades
• Allow for short-term drawdowns in long-term profits

Managing Expectations

• Learn to handle open profit drawdowns
• Use correlated markets to hedge positions
• Stop-loss orders do not measure skill
• Use proportional stop-losses to time frames

Long-term Trading Mindset

• Resist moving stop-loss to break-even prematurely
• Be patient with position trades
• Concentrate on logical exit points

Conclusion

• Long-term trading offers stability rather than rapid wealth
• Must align with personal trading psyche
• Homework: Execute at least one long-term trade and hold for 3 months

Fund Management Insights

• Focus on low frequency and high odds trades
• Consistent return attracts more fund management opportunities
• Aim for steady returns rather than maximum effort for high risk

Final Thoughts

• Understand that managed money is lucrative if done correctly
• Consistency over time is key to success in managed funds
• Larger equity leads to higher management fees and performance bonuses
• Goal: steady returns with minimal risk exposure

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Note: These points are a high-level summary and should be used alongside more detailed study and practice to fully understand the concepts of long-term trading and money management.