welcome back folks this is lesson six February 2017 ICT mentorship swing tradings our topic for this month this teaching is going to be focused on reducing risk and maximizing potential reward swing setups okay reducing risk this begins with knowing your maximum risk purchase setup or trade you should not allow high risk percent per trade this equates to gambling obviously and professionals when they're trading they look to frame set us with low risk and high reward now with swing trades we're only focusing on framing the monthly and weekly levels ideally so when we look at monthly and weekly levels that means the PD arrays for a premium we're looking to sell those levels that means we're looking for Bear shorter blocks bearish liquidity voids to trade up into to sell short optimal trade entries bearish fair value gaps we're looking for old highs to short up false break above we're looking for rejection blocks candles that have real long Wicks we're going to look to try to sell above the bodies of those candles we're going to be looking to sell it old lows and old highs either or that same thing is seen as a premium or obviously everything in Reverse we're looking for uh mitigation blocks Breakers Low Shoulder blocks voids below us old lows and old highs and rejection blocks with candles that have long Wicks will will look for cell slots below the bodies of those candles before a rejection block and by only framing trades along those monthly and weekly levels now again I like to use order blocks in these teachings because to make the videos with every possible scenario it would be ridiculous in terms of length but you're looking for in terms of the pdra Matrix everything above you you go in the order that that Matrix shows you and again there may not be a void it may not be a fair value Gap but as you progress through that list from the bottom up for premium PD arrays and from that list top down for the discount PD arrays that's the order in which you hunt the current range you're trading in by using those levels or those arrays on the monthly and weekly charts it will give you the context of what you're going to be trading off of if we see the market is going to give us a month and weekly level for bearishness we're going to be looking for monthly discount arrays to reach into and we're going to be looking for the very first one in the list that may be a mitigation block it may be a bullish breaker it may be a liquidity void that's below us again anything in terms of the discount PD arrays that would be your objective on the monthly chart so you're framing the trade on the monthly and you're framing the objective on the monthly so you're looking for massive amounts of range so even though these ranges are huge many times Traders if they are trying to trade big moves like this they still maximize their leverage and they still maximize their risk and there's no reason to do that don't try to put too much risk on your trade and try to get rich in a handful of Trades it doesn't work don't try to double your account every single month it's not it's not necessary and especially for some of you that are in this mentorship they're aspiring to be fund managers you simply don't want to do that you want to keep your risk really really small because that sells your business model to potential clients when they see how very low your risk is and how consistently you're pulling in returns and as we're going to outline in this teaching how we're going to get those returns to be really big in relationship to the risk that's used again looking at higher time frame PD arrays and using for our entries this is going to permit your setups to have tighter stops now obviously if we go into later teachings in this mentorship you'll be able to reduce the risk even more than we're going to outline in here but for the average jodus you know operating a business or working a job a desk jockey someone that has no real free time to be in here day trading every day you don't need anything less than a four hour if you can't check your phone a couple times throughout the day and you don't need a whole lot of time checking it but you just need to be able to have access to a four hour chart and many times you're going to see that the setups actually are around the close of the day you'll be able to do a lot of these trades framed the day before or the night before so it's not like you have to be in here every five minute basis and checking it all the time but by using the higher time frame PD arrays as we discussed a moment ago and we reference to the monthly and weekly levels if we are looking for that to frame our trade think about the massive range that could potentially be there and then we're going to reduce down to a four hour time frame to frame the entry by doing so we remove all the necessity have a big huge stop as we discussed in the position trading method in January we were frame it entirely on a daily chart now I'm not going to rehash the entry techniques that was taught in January I'm going to refer to you back to that same limit order and buying I want to stop and selling on a stop there's entry patterns or those entry techniques they're going to be applicable to your swing trading okay so just go refer back to those previous lessons that we don't have to do a lot of rehash but those same entry patterns used with your swing trades on a four hour basis those patterns for entry can help you reduce your risk now if we are focusing on these maximum time frames monthly and weekly and that's giving us the context for our trade again the range is being very large monthly ranges can be several hundred Pips weekly range could be a couple hundred Pips daily 100 Pips or so by having a four hour it reduces the the ranges to a smaller more conservative number in terms of what we can frame our risk around use nothing less than three to one reward the risk ratios now I say this as this a reminder but you're going to absolutely have a difficult time having trades with just three to one using this criteria and many times it's going to be five to one ten to one is not unheard of and we'll show an example in this teaching and actually give you homework to go in and look for other ones but 301 is easy and when you trade with reward to risk ratio conditions you only need to be accurate thirty percent of the time to be profitable now think about you can lose 70 percent of the time if you're trading with three to one reward the risk imagine being wrong seventy percent of the time and only write thirty percent of the time and still be net positive being profitable being wrong that many times now if you compound that with the fact that you can get with five to one ten to one reward the risk how many times can you afford to be wrong in those conditions you can be wrong a lot and still be extremely profitable now Leverage is your Holy Grail and swing trading okay you're going to look to control your leverage and you're not trying to maximize it just because your broker's trying to give you 50 to 1 in the States and who knows where you're at in the globe where they're trying to give you 100 or more I don't know I don't keep up with it anymore in terms of who allows what brokerage firm then you give that type of unheard of leveraging but I'm gonna be frank with you uh you don't need that much you know in Futures it's about ten to one generally it's that the uh The Leverage you get when you're trading uh commodities uh Forex in States we have a maximum leverage Benchmark at 50 to 1. and you don't need that to get wealthy you certainly don't need that to get wealthy um in a very short period of time and I'm not trying to Define that in terms of late weeks or months but you can certainly get there before your 401k would get you there all right so maximizing the reward okay this is obviously what everybody does when they're trying to trade they're trying to get the most bang for their buck well the key is only trade on higher time frame monthly and weekly level we already said this but I have to keep beating it in your head because you're so interested in these lower time frames not so much now because we've been spending such a long time on the hard time frames and you've seen the importance of it but these higher time frame levels they are exactly what you're looking for in relationship to Smart money plays smart money can't see the five minute order block okay the algorithm is just allowing the price to get down to those levels and then you're getting responsiveness off that off-based on limit orders but those responses are really patterned off of a higher time frame price level that means a daily a weekly or a monthly and they layer their orders just above or just below these levels they don't all have the set entry order at the same price so when we have these daily levels or four hour levels there's going to be a specific level in mind for instance could be the big figure it could be a 20 Level it could be a 80 level or 50 level but just above it would be for instance if we're looking at the mid figure level and we're expecting some bullishness it could be a bullish order block that forms at the 60 level which is just 10 Pips above the mid figure but overall they're averaging or in and at 50 as a whole but you can see orders start building in with the lower time frames as we'll talk about when we get into short-term trading and day trading and scalping but we don't necessarily need any of that to get involved with these types of Trades using a four hour so timing of four hour entry on higher time frame levels that offers the maximum R multiples now what's an R multiple that's your reward on the the risk that you're associating to that trade so if you're trying to get a multiple of say five or get 5r on your trade you're trying to get five dollars for one dollar risk so if we're framing our trades with nothing less than three to one and again it's very very hard to find a three to one trade on these types of setups many times it's like I said five or higher sometimes 10 12 even fifteen the one in some instances if you look hard and you wait for the setups to come believe me they are there but having these R multiples that's what professionals do we put very little money at risk to get huge price moves massive price moves in relationship to the overall risk that we put to our account now higher time frame levels to offer ranges of 200 to 500 Pips they can yield up to 10 R wins that means imagine you put a dollar up you're gonna get ten dollars back for that win how many times do you need to do that over the course of a year if you're managing funds to return a return of I don't know twenty percent thirty percent where everybody goes to static that's the uh you know the industry standard if you can hit that man you're killing it you don't have to do very much to do that and that's why I'm trying to stress that if you think you have to trade a lot to do very well in this business you are mistaken because you can manage other people's money and get a great deal of money doing that and do very little Trading the public to the uninformed money that place funds in your hands they're basically uneducated they assume for you know General principle that you're in here every day like a day trader basically like you've been doing before you join this mentorship every single day scouring over in today's charts working your wearing off to get very little so if your clients think that you have that work ethic and you're working very very hard when you're really not working all that hard that's why these fund managers live the lifestyle they have because they do very little to get what returns they have they put very little risk in there because they don't want to scare the clients away with a lot of drawdown but if they take big massive moves out of the marketplace with very small risk it looks amazing on paper and it compounds the bottom line and it's a very handsome reward of the year now granted some of you are probably thinking I don't want 30 Michael that's just simply not enough I need more than that per year let me tell you something when you have 10 million dollars in your management and you show a 30 return believe me you don't just keep 10 million dollars people will start knocking on your door beating your door down bringing your phone off the hook please take my money large big buyers large investors will be beating your door down to get a hold of you so you can manage their money and remember there's typically one to two swing trades per every four to six weeks so about a month and a half or so about a month month and a half generally you're going to get one maybe two swing trades the second one is just basically usually beginning around that time but the frequency is about one every four to six weeks and that's a pretty safe assumption and if you look at the the time frame on the daily chart you'll see that that's pretty much the average so that means you're presented a lot of time to prepare for these trades you're not over the charts every five minutes you don't have to be there every single day either you can miss a day if you have to you have a life you have a business you're on you know you got to do a business trip or whatever you can still swing trade you don't need to do a whole lot to do this by removing High leverage and coupling higher time frame setups with high ours this is key so if you can remove the high leverage in other words we're not trading with 50 to 1. we're not trading with a hundred to one two hundred to one or four hundred one if they even still allow that anymore by removing the height Leverage you can actually trade with just three to one Leverage that means if you have a ten thousand dollar account you're only trading with three Minis and then it'll probably just blew your mind what I didn't come here to learn that sure you did you came here to learn to be profitable and have risk managed low risk High reward the way you answer that equation is number one you have to remove your leverage your Leverage is going to kill you when you build your positions up to the point where you can eventually trade at a larger size and say you get into two million dollar Mark you can start considering going into and you really should consider going into Prime brokerage Prime brokerage will not allow you to leverage your D leverage so that means whatever you have on deposit that's the maximum you're going to do and then frankly you're not even going to trade with that leverage either you're going to actually be under leveraged in other words if you have a million dollars on deposit you're not trading with a million dollars Leverage many times you're trading with a half a million dollars and it probably sounds counterproductive but you're actually doing very well when you have those seven digits and you don't need very much return to keep doing very well and again at that moment at that point you don't want to risk anything you want to keep your risk very small and still allow your big profits in terms of reward to pan out now if you consider that leverage a three to one okay and you're looking for setups that pay out as high as 10r you can it can yield up to 15 percent so if you're risking one and a half percent on your Equity per trade and you get a reward of 10 for one dollar you're making upwards of 15 on that one transaction or that one trade how many of those do you need per year now through the math say you're getting an average of six really Choice swing trades per year and I already know somebody thinking man this is not active enough I need to be doing something more no you don't no you don't Wahoo says you have to do more if you're here to learn how to be profitable so if you can have a life do other things outside of trading and still do exceptionally well think about it 15 percent if you manage funds okay and you're risking one and a half percent risk and you're using three to one Leverage and you're using an average of 50 50 Pips per stop okay when you do that focusing on just six swings per year alone and that that setup an offering of 10 reward to risk for one dollar you get back ten if you do that you're more than doubling that equity now think about that for a second folks if you can look for setups that yield ten to one and believe me when you go through the homework I'm going to give you in this teaching you're going to see just how easy ten to one multiples are defined in swing Trading if you just take six of them per year six trades that's it six trades risking one and a half percent using three to one Leverage and about a 50 pip stop you're more than doubling your equity every single year now that's not doubling your money every single month it's not getting 25 percent every week it's not getting fifteen percent on your day trades it's being very very conservative very low frequency the opportunity for drawdown is very very low because your frequency is low and your risk is already predefined at one and a half percent you know what you're looking for there's a frequency of about one trade every four to six weeks and you're looking for ideal setups around a monthly and or a weekly level by Framing these ideas and hunting setups that offer ten to one this will give you the context and framework to double your Equity or your managed fund equity in the course of just six trades per year you don't have to rush you don't have to take every single swing trade if it doesn't look right just wait there's something setting up something you know every four to six weeks there's some kind of trade that offers you an opportunity to do something in the marketplace but if you're framing the setups on a monthly and or weekly level these can offer huge multiples of reward to risk all right we're going to take a look at an example here and start giving you some ideas how you can flush this out about maximizing reward and reducing risk in this example we're going to be looking at the euro dollar and I want to take a look at this High here the high was formed in 2011 in April and we're using an old monthly high so we're high in the range so we're deep deep deep in terms of the premium in relationship to an old high back in 2009 in October we've defined the bearish order block which is the last stop candle in October and we've defined the mean threshold of that last up candle as well we extended that out in time and we got to April and March of 2011 where we hit those levels and we're going to now take that idea and reduce it down to a lower time frame executable time frame of four hours I want you to take a look at this down candle here okay so now we're actually going to start looking at the monthly PD arrays so we're trading off of a level of Premium of a bear shorter block and focusing on the mean threshold and below that level would be this old high that would be the very first discount PD array remember it's an old High that could be a potential discount PD array so we have a down candle here which is an old high that's left or to the left of the entry technique or pattern that we're looking to trade short at and that's this level here so all we're looking for is the range between that Down Candles high and entering up at that mean threshold from the order block from October 2009. and we're going to say that that level is 142.80 drop down into a four hour time frame at that same level going into may we can see price trades up into that level and we have the mean threshold and bearish Order block noted here and we have 14865 is the mean threshold and I want you to look very closely we can see here we have a a bearish order block last up candle right before the down move and let's highlight with the arrow above and below it delineating that and we split the candle in half at the mean threshold as well and we delineated the low on that for the very shorter block we're going to assume that we're going to use the four hour for our entry we're looking to go short and we're using the mean threshold on the monthly candle and it's also the opening of that bullish candle that makes the high and we're going to risk a stop one pip above the highest high of that candle so we have a 70 pip stop loss the blue shaded area is our potential reward the horizontal line that's delineating 142.80 that's that old monthly High this comes to a reward range of 585 Pips so we're risking 70 Pips I know some of your cringing by now 70 Pips I can't handle 70 Pips 70 Pips risk to make 585 Pips and you can see that that monthly old high that again is the first discount PDA rate that we would come to from that high at 149 20 or so so basically what we have there is an eight to one reward the risk so for every one dollar we're risking we're getting a potential of eight dollars back as a reward so in essence what we can see here is just in this trade framework we have the potential in just one trade to make as high as 12 and a half percent return now that's an amazing amount of money in the amount of percentage for one trade and the amount of risk is minute compared to the reward it's framed on a monthly level and the objective to take profit is framed on a monthly level so by Framing the PD arrays and using the PD array Matrix properly we can frame trades that have an enormous amount of reward to risk potential foreign this is going to be homework okay now we're going to focus on this High here or last bullish candle right for the down move and we're going to be looking at that candle here as a potential short and this is for homework and I want you to look at the bullish order block the last up candle that opening price that comes in we're going to round it to a level 141.55 I want you to go into your charts on the euro dollar and use a four hour time frame and use the entry techniques that I taught in the position trading Concepts for January's content go into that four hour time frame as price hit that 141.55 level okay studies out on a four hour and use the entry techniques that I taught you in January for position Trading where would you look to take profits at the first one you're going to be looking for the mean threshold of that last down candle in 2010 we've already traded there once but I want you to consider that as your first objective and then you would consider the down candle in October that same candle's low it has equal lows with the green candle to the right of it seen here that would be your objective looking for an opportunity for a low end swing trade so again we're looking for the opportunities to be short at that 140 155 level using the entry technique that I taught you for position trading in January and I want to see the homework shared on the Forum you can do it in one chart just post your four hour chart and put it in our February questions in the answer section on our forum and I'd like to see some real interaction this time so that we can see I know there's a lot of people doing the homework don't copy everybody's answer don't read through the Forum first to see what everybody else is doing there's no wrong answer just again it's for interactive purposes and for study and also for feedback for me so I can get a collective um view of what you're all doing with the content I believe that you'll find that there's a setup there as well and the reward again here is well if you consider it's 135 is a potential area as a downside objective I mean 141.55 if that's the price you get and it's probably going to be higher than that you would use to get entry for short that is over 650 Pips for one setup so if you can frame your trade with a 60 pip stop loss you can find a 10 to 1 reward to risk scenario on this trade here premium PD arrays and then using the monthly discount PD arrays as we noted here with the mean threshold of the last down candle in October 2010 or that'll be November actually probably the downside objective is again several hundred Pips so suddenly when you start doing these things you start applying it don't stop here with this example for the remainder of the weekend go through and try to find five examples somewhere else in another pair it doesn't matter where at doesn't matter what time of year go in and look for a scenario just using a monthly and or weekly scenario and framing out a couple trades how to find five that yield at least five to one reward the risk scenario so you have really two homeworks you have the one that I'm giving you here and then you have a secondary where you have to look for five scenarios using only a monthly or weekly PD array for premium or discount and try to find actually still like this try to find four two buys and two cells using this criteria the frame out swing trades and look for five to one payouts or potential to pay out and obviously you have the benefit of hindsight and that goes without saying but this is how you study this is how you get in there and you get excited about seeing how powerful it is and how infrequent you need to worry about trading you don't have to worry about trading all the time you can get a massive amount of return on your Equity you're doing very little work putting very little risk exposure to your account so hopefully you found this insightful until next lesson I wish good luck and good Trading