welcome back folks this discussion is going to be with commodities so everything I'm going to be talking about here should be viewed in light of a paper trade only it's important you read these disclaimers as a reminder I'm not a licensed commodity trade advisor everything here is for informational purposes only okay folks July 2017. ICT mentorship Mega trades the first lesson we're going to be talking about the commodity Market okay first what is Mega trades and what are they and one of the first things I learned from Larry Williams was this notion of finding these big moves that take place every year and basically what a mega trade is is and I coined this term this is something I picked up from Larry Williams obviously it was his catchphrase he used for him but it's a large price swing or Trend that can produce massive potential gains that when compared to relative markets it performs them all now they're easy to spot historically in your price charts you can see them every single calendar year these moves have huge institutional sponsorship and it's coupled with strong influences from actual supply and demand factors that fuel these moves so yes while I usually snub my nose at supply and demand as a technical approach to Trading uh supply and demand as it relates to Commodities is an absolute reality you have to you have to have a good feel for what the supply and demand factors are for a commodity to have any measure of success now when we talk about commodities obviously as a number of Commodities that we can choose from but one of the things I want to talk about since we're talking about this particular asset class now is that should you be a commodity specialist well when following the commodity markets in my opinion it's best to avoid being a specialist or one market Trader the reason why I say that is because a favorite commodity can provide plenty of setups to consider but it might be a sleeper while other markets are on fire in other words if you're looking at one commodity and that's the one you make your bread and butter setups on if you're just looking at that one you'll never be able to find the bigger moves that take place to have extrapolated price swings because you're only focusing on one thing now there's nothing wrong with having a special asset class or a special Market to do you your bread and butter setups but if you limit your scope just to that you're really discounting one of the best opportunities for you to get in here and number one improve as a Trader get a better feel for the General market but the bottom line is is if you can be profitable trading these types of moves why wouldn't you want to and commodities as a whole offer a very small Universe of markets to analyze to seek Mega trades kind of like the Forex Market I I choose to follow just a few pairs of the majors crosses the dollar and it takes a lot of the ambiguity away from what I should be doing if there's not a signal that's very clear I'm not doing anything if there is a time of year when I believe that a mega Trader a large move is going to take place then I'll be doing my analysis across the entire spectrum of that asset class for Commodities you'll be doing it with several different sectors okay in the first category that we're going to be looking at is the agricultural markets and we're going to first look here for Mega trades and these are markets that feed the world and as a result they will have even greater supply and demand factors that move them droughts insect damage Frost or bumper crops will have an enormous effect on prices in these markets now the grain markets we're going to take a look at the grain complex and the personal list is soybeans soybean meal soybean oil both meal and oil are derivatives of the soybean itself wheat corn oats canola and rice now oats and rice I traded back in the 90s it's a rather thin Market you can get hurt in that if it starts to do limit moves and I did have the unfortunate experience of being caught in some of those things and it's not fun so I'm going to advocate here not even to follow these uh three specific grain markets when I was looking at the Commodities years and years ago back in the 90s I would use these thin markets to look for drops in open interest to to more or less build the idea that I thought that the green markets as a whole would go higher or lower based on that and sometimes it worked and sometimes it didn't so initially as a new Trader I built a lot more significance around that in my ignorance but now I just simply don't even consider these three particular grains to be watched at all but I include them here because of completeness sake if you look at the green complex as a whole as I taught earlier in the mentorship for the greens I just like to follow the soybeans themselves Chicago Board trade wheat and Chicago portrayed corn so it's really only three grains that's in that sector okay in the livestock meat complex is going to be live cattle feeder cattle and lean Hogs it used to be pork bellies in this sector but they discontinued trading those moving on uh we're looking at the softs this is a food group so we have coffee cocoa sugar and orange juice that brings us up to 10 Commodities so far in agricultural and then the fibers we'll be looking at cotton so that's 11 markets in the agricultural markets okay in the next area of opportunity is found in the financial markets and this is a group of markets that are hard in nature and industrious so industrial supply and demand factors are going to move these Commodities so Wars economic drivers interest rates Imports exports will have a greater impact on these kinds of commodities okay the first one is going to be the metals market and it's broken into two categories precious metals which being the gold market silver market Palladium and platinum Palladium and platinum again I had experience trading both they're very thin very very thin and I include them here for completeness sake but just as a general rule of thumb don't want to trade them in an industrial metal we have high grade copper so in essence we have three metals to look at too precious one industrial so Gold Silver and high grade copper so we have a universe now it's not growing exponentially just adding a few more at a time and we have the energy sector next and we're looking at the markets that make up that energy sector being crude oil heating oil gasoline Futures and natural gas features now admittedly I don't have any experience trading Futures contracts in natural gas but in recent years it's been very active and I know folks online that have traded it and done very well with it not specifically with my content but I do know other traders that have made their living trade in natural gas features all right so fundamentals they matter for this asset class so Commodities require a measure of fundamental consideration in our analysis we do not have to Wade through Dry boring crop reports or cattle head reports a simple newspaper headline might be all that's needed to draw a fundamental conclusion now what do I mean by that well the idea of a market that has been quiet for a little while and suddenly there's a discussion by way of a headline for instance there back in the 90s there was a specific parasite that was supposedly infecting the the crops in the U.S and between that the drought and the heat waves that were going on all the green markets went into a premium market and it just became like vertical you straight up runs on wheat soybean and corn that in 1994-95 time period and there was a lot of opportunity on the upside for as a result of that ahead of all those big moves there were headlines that suggested that there may be trouble looming for those particular crops and it was mainly around the drought the dryness in the Bread Basket if you will the U.S and there was this and for Life me I can't recall what that parasite was but there was a some kind of a bug that was trying to eat and damage one of the crops and whenever you hear that type of stuff and it's in the middle of summer it just like selling gasoline on a fire it will ignite all kinds of buying and the grain markets just went vertical in the mid 90s as a result of all that and one of the things I like is looking at Commodities magazine uh Futures magazine they have a little area in that magazine that's basically like the hot Commodities right now and it's almost uncanny how they always talk about them once they have been moving for a while and if you do any analysis on them they're going to talk about them as this is the hot market right now right at a time when it would be at a point of reversal and true to form that's what ends up happening so if we see headline news or if we see a special focus on a specific commodity saying that they're hot Commodities or or these are the ones to be in right now and we can look in the chart and see they've been moving for a while that tends to be a really good condition for Mega trades to form a reason why is because it builds in an idea of sentiment and whenever there's an extreme in Market sentiment whether it be extremely bullish or extremely bearish those are wonderful contrarian signals and if we can get those in a time when there's a overlap of technicals suggesting the same in terms of directional bias it's a really wonderful opportunity and a real sweet spot for you to be as a Trader foreign starting point obviously you've seen me teach this before but it has to be in here for completeness sake a quick and easy first step is to consult the delivery month closing prices so you can go into barchart.com if you have access to like Wall Street Journal or Investors Business data just look at the uh delivery contract months and you can see the closing prices and what you'll be doing is you're going to be noting any commodity that has a premium over a distant month and as the months go out again they should be more expensive but if ever reverses it's more expensive now this delineates the premium is in the nearby months whereas it should be in the distant months uh this will be our primary search every year we go into the marketplace looking for these conditions because they are the common ingredient for explosive bull markets markets tend to have longer periods of going up in explosive price action when there's a premium when there's a lack of a premium it takes very little time to drop in those markets but we're looking for conditions when the market is predisposed to go higher and we've already arrived at that by other technical analysis that you'll learn in your top-down analysis templates in August but I'm giving you the general points in this teaching how to go about looking for Mega trades because they're going to get a homework assignment at the end of this teaching but premiums are going to be a common denominator for explosive vertical parabolic price action moves that go higher well beyond higher than you've ever imagined the move would go those are really fun to be a part of they can be scary the first few times you get in because you want to get out everything in your being says get out but you want to hold on to them because they can go way farther than you ever thought they were going to go now we don't need a or require a premium to be in a bullish commodity or to deem it a bullish commodity it merely adds to the likelihood of a strong price rally in the sense that bull markets are not all equal a commercial bull market is a market that goes parabolically vertical and they are they both can start off the same where as a carrying charge standard bull market where it goes up down up down you know typical stairway uh that's not what you see in a commercial Market with a premium where the nearby months are selling at a higher price than the distant months they go parabolic and very quickly cover a lot of ground and they do so in short order very quick it may take many months for a long-term carrying chargeable Market to come to fruition or complete or go to a higher time frame objective not when there is a premium it can do it extremely fast it can do it very energetically and it's very fast and that's a very fun Market to be in when it's like that okay dollar based analysis now generally when the US dollar is declining this allows commodity prices to rise and conversely when the US dollar Rises this precious commodity price is lower now I say this because that's the general rule of thumb but General thumbs are always panacea's so there can and will be periods lasting as long as a year when commodity prices and the US dollar move in tandem or in the same direction and there's no way around it I don't have a secret science behind it where I can crack that code you just got to accept the fact that you know we can never be 100 accurate and therein lies the risks past performance is an indicative of future results we all know this it's it's spoken in all the disclaimers and anyone that uh reads out their disclaimers when you audibly they always say it same thing you know past performance is not indicative of future results everything I'm sharing here now are things that I've observed and picked up over 24 years now coming up where there's just a massive amount of probability for certain things too take place and while they are historically and statistically proven that they are likely to occur does not mean or to imply that you should put money on them because I'm talking about it here when you do these studies and exercises it's meant to stimulate your overall General market aptitude but if you choose to trade on these ideas with live funds that's entirely up to you I don't want to you to the glory for it and I surely don't want the the shame for it when it doesn't work I'm basically encouraging you to use these tools and these Concepts to build a greater understanding of your price action analysis and General market condition okay sector group leaders when we are expecting higher commodity prices in general we will seek to filter those markets that exhibit very bullish characteristics when we are expecting lower commodity prices in general we will seek to filter those markets that exhibit very bearish characteristics now there can be opportunities to be contrarian in either of the conditions explained above but to keep things simple we're going to assume that we understand when Dollar is going to go higher when the dollar is going to go lower and we're going to use that as our basis now there's other things you're going to learn in August to help you fine-tune a directional bias and also know specifically what you're reaching for what concept what type of trading pattern should lend well in that condition but for now I'm going to speak in Broad brush terms because it'll help build the idea when we go into August those PDFs you'll have a little bit more understanding and that that Gap will be bridged quicker because of this teaching in this whole entire month's teachings actually but if you look at this chart here it's a overlay that I actually created to show what I'm going to show you in the second slide after this one but I want you to take a look at the wheat Market the wheat Market is the a little bit darker line and the lighter line is the soybean Market so when we're looking for Commodities to Rally as a whole while the dollar Index ideally should be going lower or about the trade lower that gives us a reason to anticipate higher prices and commodities now while this isn't a mega trade per se this is how they start off so that's why I'm showing it to you this is actually as of right now the time of this recording the first week or so of July 2017 Fridays close shows us the price action here relative to the wheat market and the soybean Market I did not include corn and if you take a look at the corn Market you'll see why because it's in a consolidation and these two are a little bit more energetic and we can actually see an example of smart money accumulation so dollar has been bearish so that means higher prices should be expected in the commodity markets not always not Panacea but it should happen but under that pretends that it may go higher we're going to be looking for characteristics to support the idea that the three markets should go higher and how can we do that we start going in and looking at the relative lows across the grain complex obviously we have only three grains to look at it's the soybean Market the corn market and the wheat Market I have wheat overlaid with the soybean now you don't need to do this but I do I'm doing it graphically so you can see what I'm referring to as you can see the mid portion of May going into the first week of June wheat was unwilling to make a lower low while the soybean Market had fallen off rather precipitously then both rallied a little bit up into around the 19th of June and then while both had a modest decline soybeans made a lower low but the wheat Market failed to go lower and you can see that happening in here so soybeans went lower we can see clearly here that wheat is the stronger of the grain markets and as a result the wheat Market rallied 6 500 per contract and the soybean Market rallied 4 800 per contract there is a built-in advantage to using visual analysis like this because it cuts to the core of whether smart money is buying or selling again the general principle is if there's going to be institutions stepping in or large commercial dominant users or producers that are trying to buy a lot or sell a lot of a specific commodity they're going to leave telltale signs in price they have to they can't hide it their sheer volume is going to create this crack well when we see this occurring we know there's a massive accumulation going on in the grain complex now all three corn soybeans and wheat can go up in tandem there's going to be a sympathy play soybeans rallied significant there's nothing wrong with seeing a 400 per contract move if you were long in that who would be mad about that nobody but our job as an analyst and a developing professional Trader we want to see the characteristics that lead to us finding the strongest of the specific commodity markets in a specific sector that way we end up with a portfolio of the strongest or the weakest at that given time and here in this example we can clearly see that the concepts fared it out the larger of the two and that being wheat producing a 6500 per contract move over again a 4 800 move seen in the soybean Market and here's those two respective charts in separate you see soybeans on the left making a lower low in June going into the last week of June going into the beginning of July and then wheat had already been making higher lows and starting to build up institutional order flow all down closed candles our supporting price in a bullish order block nature and short-term highs were starting to break before the short-term highs were seen in the soybean Market so a lot of accumulation can be seen in this chart then that of the one on the left which is the soybeans so wheat was under a massive amount of accumulation and you can see that visually at the lows also notice that during the month of May we had a massive decline in open interest while wheat was in a consolidation then in June we saw another massive reduction in open interest and two scales on wheat and then finally when the bottom fell out on the open interest of wheat going into the last week of June going into July that's all that was necessary price traded down into a bullish order block on The Daily for a week and then exploded and made another one dollar move or five thousand dollar per uh per contract for that that move that literally took only one two three four five of a week about a week it's worth a time to being five thousand dollars per contract who is going to be arguing about that no I don't want five thousand dollars don't don't you dare give me that okay seeking Mega trades now the process in simple terms is as follows what we're going to be doing is we're going to be searching headlines for Commodities any headline that would spark an interest something like um the grains are in trouble because it's going to be dry or there's too much rain um things of that nature a shortage of um oil production OPEC Cuts back oral production or there's a war and something's coming aluminum in the Middle East well that's going to affect oil prices the next thing is we're gonna be looking for markets that have a premium again we don't need to have a market premium but if it does we're focusing primarily more on those uh particular markets than that of a market that doesn't have a premium and we're going to be conferring with the dollar index for direction again dollar up Commodities down dollar down Commodities up and we're going to use relative strength in each sector comparing lows when we're bullish and we're looking for the one that fails to make a lower load to be a buyer and we're going to be looking at highs when we're bearish and we're looking for a failure swing or a market that fails to make a higher high when it's bearish you can see Heavy distribution in that we're going to filter each leader from each sector and we're going to try to follow one leader from each sector and we're going to use option prices for paper trading also so if you think there's going to be higher prices or lower prices uh the way you practice it is go into the options chain and we'll talk about that in August as well in great detail but it'll help you find Opportunities where even with folks that have very small trading accounts you can buy if you're bullish on Commodities as a whole you can buy call options in just about every one of the major sectors and not spend a whole lot of money and you have controlled risk it's limited to what you pay for the option premium plus the commission paid now this is obviously a very basic and very simplified overview that will be refined in detail in August in the PDF files for commodity top-down analysis I say it to you here because I want you to think like this build this mindset going in because when we start talking about those lessons in August at least you know a general theme or process that we work off of that there's other portions and gaps that's intentionally left here to be filled in when we get into the PDF files for August the commodity basket now now every commodity sector will perform well and not every selected leader will perform or outperform as expected so due to the lack of perfection unfortunately I can't Bridge our Diversified approach in all the sectors will in theory increase the odds of capturing a mega trade in one or more sectors now the magnitude and energy seen in the winners will many times cover the collateral damage the underperformance will generate post-trade now let's assume for a moment you've done the analysis and you've come to a leader that you think is going to outperform all the others in that specific sector for all the other sectors combined so now you have a list of specific commodities what to do well the leaders you can actually start comparing them as well and see which of those have much more relative strength for instance if we're bullish we've gone through all the agricultural sectors and we've gone through all the financial sectors and we come to our buy list and we're bullish we have our leaders on the upside that we think is going to go up but now we can start looking at those respective leaders on a comparative basis and see if we're bullish which one of those Commodities are starting to break highs earlier than the others because that means you can really see professional buying earlier than just the Divergence at the lows that's compared with the sector members of each respective sector in other words if we're looking at the Green Market and we ferried it out say the soybean Market happened to be the one that failed to make a lower low and corn and wheat were unsure or unclear about what they wanted to do and it's clear that soybeans was under accumulation okay fine we have soybeans out of that complex and say we did the same thing for the meats okay or livestock and say that it was lean Hogs that was the upside out performer that we expect to see we can look at the highs in relative terms in the soybean market and in the the hog market and see which one of those Commodities which one was breaking out above short-term highs or breaking highs or basically bearish order blocks before the other and which one is seeing much more support at down close candles or bullish order blocks basically having the strongest of the strongest okay basically whittling it down even further because that way if you're going to have a commodity basket you can start allocating more of your account okay or if you're gonna be doing options you can be buying more options in the strongest in your leader list and still participate in the in all the sectors but allocate more of your money to the strongest of the strong in other words if we end up with say eight different leaders we don't want to evenly distribute that allocation of money we want to do more analysis and find out which of these eight are in fact even stronger than their respective peers so that eight could be finally you brought down to three that are really outperforming so say 50 of your investment Capital goes into those three and the remaining portion that you were going to allocate to this idea then you would use that with the remaining sectors and spread that out so that way you're you're focusing a lot more allocation in the ones that are showing leadership characteristics but you're also still participating in a diversified manner in all the other sectors so you have one green you have one livestock you have one metal you have one energy commodity you have one uh food or like coffee or cocoa one of those from that sector so you have a dabbling okay in all of the commodity sectors as a whole but you're really allocated heavily in the ones that have been visually uh shown to show massive accumulation because they're breaking highs and they're failing to go lower so if we see that in comparison to all the other uh sector leaders that we've fared it out it will build up an even stronger likelihood that you're going to capture a mega trade because those outperforming or leadership Commodities that you've done analysis even further on comparatively you really have you know fine-tuned it down to a point which we can see most likely the strongest price moves for that calendar year all right the treasure Seeker mindset now some of you might feel perhaps this is a lot of work to find a market move or maybe it might seem boring to sift through charts for generic conditions from my first day looking at the annual big movers and listening to Larry Williams about 20 000 times okay playing his VHS cassette uh course over and over again um I could hear him say that you know he loves going through charts he loves it he loves doing it and I'm not sure if I was just being programmed or prime because I looked up to him and I heard him say that but either way I can tell you I still like I love matter of fact I love doing the analysis and going through and finding these types of things and I'm addicted to that it's to me you know since the very first day I've likened it to treasure hunting it's like a treasure that hidden that you know I have to personally go into the charts and find and like most anything else if you turn into a game it makes it fun so every new calendar year presents a new treasure hunt one of the things that helps keeps me motivated is because I have this mindset that I look at the markets as that particular analogy like it's a treasure hunt it's a it's a game it's hide and seek they are hiding something from me so therefore I'm going to do my best to find out what it is they're hiding and I need to find them find them you know being them being the smart money I need to see what they're doing I need to be a Tracker you know I need to be following you know their Footprints you know I need to be a sniper I need to be stalking them you know I need to be a fisherman you know any I need to cast a line in the area where I think they're going to be you know biting and then maybe catch a whale all those analogies are the same way whatever it takes for you you to find enjoyment out of this that's what it needs that's what needs to happen if you look at it as a daunting task or if you like this is a lot of work and even I don't I don't even want to trade Commodities if you think that then you're going to hit a plateau in your understanding in your analysis even if you don't agree with me now trust me you'll want to come back to this whole month's content because it's going to lend well to your overall analysis because you want to be finding these big moves it's one thing to be a position Trader okay but if you can find big moves that's going to happen in magnitude and in short order in other words real quick fast moves not to the complete real quick they discover a lot of ground fast that's what these Mega trades look like and I'm purposely avoiding a lot of examples because I'm going to have it a live session with you you know in the beginning of the week where I'm going to give you homework to look for specific things and if I waste the exercise here in the teaching it I steal and Rob you of the opportunity of learning by you going into church yourself so I'm going to give you some insights at the beginning of the week to look for something and then we'll go over and reveal it again so your homework for now because there's going to be two homework assignments one because of this recordings lesson and then on Tuesday I'll give you another homework to do for Thursday's recap so your homework is with the benefit of hindsight I would like for you and I'm encouraging you to look at 2016. study the big movers in the commodity markets in 2016. see if you can see these things that's being described in this lesson we're going to be reviewing 2016's examples this coming Friday and I'm going to teach you how to go back and look at previous data and old charts to pull up the information but some of you may not know how to do that now that's okay just look at a weekly chart okay go through all the Commodities that's been outlined here and I purposely kept the Commodities that our currencies and uh interest rate out because they're going to be respective lessons in this month as well but we're going to go through a live webinar on this coming Friday we're actually going to go through all the big movers from 2016 but until then I want you to go through and find out as much as you can by way of price action and which movers took place last year couple it with the dollar Index okay whatever insights you can glean from hindsight with the dollar whether going up or down it's going to be an inverse relationship that you're going to be looking for and then look for each sector's bigger biggest mover okay and see if you don't see these characteristics seen in those respective sectors and I want you to not be bored I don't want you to think about it like oh this is not going to lead to anything I'm a Forex Trader I promise you it will get you to another level of understanding about what the Market's doing why it's doing this because there's also going to be currencies that do these types of things right now we're just talking in general terms about Commodities as a whole I've removed the currencies as it's an individual sector I've removed the bond market as its own individual sector I've removed the indices as its own individual sector okay so when we talk about you know stocks that's going to be also one that's a lot of information but for this particular lesson I want you to look at all of the big moves that took place in the year 2016 in the Commodities Market go through all the grains which is those three corn soybean and wheat go through the meats which is live cattle feeder cattle and lean Hogs look at Coffee cocoa sugar orange juice and cotton and look at gold and silver look at heating oil crude oil and see if you don't find nice big moves that are very clearly shown by professional accumulation or professional distribution by way of price action and you simply using the dollar Index now again we're going to build on this in August I'm going to give you a step-by-step procedure where you go through each thing to look at and if it doesn't have that information you're going to wait for more information or it may take you to go back to the previous stage and you wait and you're going to find that there is a methodical approach to doing all this stuff where it seems fragmented right now it's okay because I'm I'm leaving things for your discovery that you'll find in your actual exercises and like this homework while you're going through and looking at it invariably some of you are going to not come away with anything fruitful and that's okay because when we do the live session and I break it down you're like okay I got it some of you will be pleased to see that you see the same thing that I'm gonna pull out in our live session and that will be another milestone for your confidence and your in your growth but even if you think you're never going to trade Commodities and that may be true and I'm not trying to twist anybody's arm here to the trade commodities go through this process go through this procedure because I promise when you do it it will build a greater understanding about the market price action as a whole and you as a Trader so get into those treasure maps or price charts as we call them and find those big moves that took place in 2016 and we'll talk about them in a live session this Friday coming up