Market Efficiency Paradigm - Lecture Notes

Introduction

• Series: Second teaching of an eight-part series for September 2016.
• Topic: Market Efficiency Paradigm.

Key Concepts

Uninformed Money vs. Smart Money

• Uninformed Money: New traders, retail-minded trading community.
  • Belief that they drive market prices due to sheer numbers.
  • Misled by books, seminars, webinars, and gurus.
  • Focus on indicators like stochastic, RSI, Williams %R, and momentum indicators.
• Smart Money: Small group of traders, including banks.
  • Quietly influence market mechanisms and price movements.
  • Contrast: Retail traders are more visible on social media, flaunting successes.

Paradigm Shift

• Misconception: Retail traders think they drive markets through buying/selling pressure.
• Reality: Small group of smart money (banks) actually control market prices.
• Objective: Transition from thinking like uninformed money to understanding and following smart money.

Market Inefficiency for Speculators

• Markets are efficient for smart money, not for retail speculators.
• Banks' Role: Drive prices for their business interests, not for retail traders' well-being.
• AI and Algorithm: Modern market driven by AI, not individual traders.

Mentorship Goals

• Learning: Focus on understanding market mechanisms rather than just making money.
• Exposure: Detailed study of price delivery algorithm.
• Application: Use intraday studies for immediate feedback, applicable to long-term charts.
• Confidentiality: Information shared within the mentorship should not be made public.

Daily Range Structure

1. Consolidation: Starts the day (Asian range).
2. Manipulation: Expansion (e.g., Judas swing) after midnight NYC time.
3. Reversal: London session forms the high/low of the day.
4. Expansion: Second move during New York session.
5. Consolidation: Ends the day before the next cycle.
6. Repetition: Daily cycle repeats with similarities in weekly range structure.

Understanding Price Delivery Algorithm

• Stages: Consolidation → Expansion → (Retracement or Reversal) → Consolidation.
• **Key Points: **
  • Never moves directly from consolidation to retracement or reversal.
  • Always includes an expansion phase first.
• Time Sensitivity: Related to specific times of the day and market conditions.
• Practical Application: Understanding intermarket relationships and time-sensitive setups.

Practical Insights and Implementation

• Daily Basis Analysis: Study daily events to predict market behavior.
• Intraday Feedback: Faster learning through frequent price action observations.
• Long-term Trading: Requires understanding and applying these concepts over months.
• Consistency: Focus on consistent patterns and practice suppressing emotional trading.

Conclusion

• Confidentiality: Keep the knowledge within the mentorship, not for public sharing.
• Repetition: Revisit fundamental videos to grasp recurring principles.
• Outcome: A structured process that ensures market behavior is predictable and consistent.