Okay folks, welcome back to Lesson 6 of the April 2017 ICT Mentorship. This month is ICT Day Trading Model. This lesson is When to Avoid the London Session. Okay, this lesson is going to be completely void of any charts, any kind of examples, any kind of distractions because I want you to think about the... characteristics that I'm outlining here.
It's not a long lesson, but it's very, very important. I want to make it separate apart from everything else because many of you look at the charts and you try to question why I'm drawing a line here or I'm highlighting this or why is this time delineated there and why is it not this. I want you to think about the things I'm outlining in this lesson from a conceptual or characteristic viewpoint because they're not ambiguous.
They're very specific things I look for and these are the types of things I want you to think about when you're going into trading the London session for day trades. So when is the London session not ideal? Well, typically after a large range day, which is greater than two times the average five day range. In other words, if you look at the average daily range of a particular pair, if you ever have a day prior to the day you're wanting to day trade or trade the London session.
If the previous day or previous trading day had a huge or large range day that went greater than two times its five day average daily range on the day that it had the large range day. OK, that is a day that you do not want to trade immediately the day after. Typically, there'll be a consolidation or it could go choppy. After a series of three consecutive up closes on a daily chart, you want to avoid trading longs, at least in the London session, because typically you can get a retracement that could be rather deep, creating a down close day on a candle on a daily chart or a really long wick intraday and then maybe continuing in the direction of the three consecutive up closes.
But generally, after three up closes, you're going to either get a pause. retracement lower. After a series of three consecutive down closes on a daily chart you want to be avoiding London shorts. Again just the same thing we just mentioned with three consecutive up closes as daily chart would indicate. Many times when you see three consecutive down closes on daily trading short in London the next day or the fourth trading day in a row many times you can get caught up in a deep retracement or can go sideways.
And it makes it not ideal for London session. Now, with both of these conditions outlined here, three consecutive up closes and three consecutive down closes, again, that's relative to a daily time frame. So if we see that criteria, what that will do is help filter out when we have that situation. Generally, you won't see a big range day.
Now, it doesn't mean it can't happen, but it's highly unlikely to occur on the fourth trading day. After a FOMC event that produces extreme whipsaw. Now, this could be linked to the very first one I said as well.
After a large range day greater than two times its average daily range on a five day basis. That can be the factor that puts you on the sidelines not trading London. Or if there's an FOMC event that produces extreme whipsaw, it means that if there's an interest rate announcement that comes out.
If they don't change interest rates or if they do change interest rates or it wasn't as high as they thought it was going to go or low as it thought, whatever that release is, I don't care. I don't care so much about that. What I want to see is what was the action in the marketplace. So if the FOMC event creates and produces an extreme whipsaw up and down, generally FOMC comes out at 2 o'clock in the afternoon New York time. So if we see that big whipsaw price action, that's going to mess up London.
It's going to screw up the central bank dealers range. and possibly roll right on into the Asian session. So just avoid trading London Open after FOMC events that create whipsaw. Ahead of non-farm payroll numbers, typically the first Friday, not always, but generally the first Friday of every trading month, we expect to see non-farm payroll.
If we are looking for non-farm payroll to occur, we are not trading London session at all on that Friday. Now the same trading day that's heading into a long weekend or a holiday, that day we avoid trading London as well because it could be an early leave. A lot of trades are going to go on an early escape from the marketplace and a lot of money is going to be sitting on the sidelines.
Now this is going to be a hit and miss type thing. Invariably you're going to be able to go back and find instances where ICT look at this it went 300 pips okay going into the holiday and it was a short day is it going to happen possibly Yes, sure. It was I mean anything can happen, but we're we trade in the world of probabilities and statistical edge So if we know that historically the normal event is if there's a day Leading into a holiday usually it's a Friday could be a Thursday Generally you want to avoid trading the London session because it's going to probably be a quiet session It's not worth taking on the risk multiple high to medium impact news drivers for that particular market. So if we look on the economic calendar, you can use Forex Factor, you can use any other reputable economic calendar that tracks what news releases or market drivers that are going to be released throughout the week in each particular trading session for every major pair.
If we're looking at that for the London session and we see multiple high impact or medium impact events, for a particular currency that can spell a pretty tricky London session. Not all the time again there's always a caveat there where it can happen but generally if we see multiple drivers like for instance maybe there's a two o'clock event that's coming out and then at three o'clock there's another one or maybe there's a three o'clock event coming out and then there's a five o'clock in the five o'clock in the morning event as well one may be medium impact or one may be high impact or they move They both may be one or the other in terms of medium or high impact news. If we see multiple events due out on the economic calendar for that particular pair, it could be problematic for your London session trade.
So what we ideally look for, like we learned in the first portion of this mentorship, is we want to see generally one high impact or medium impact news event. And that way we know there's going to be probably one stage of manipulation for that particular day and then the profit release portion of the day. or the expansion of the daily range will unfold going into New York. An absence of any news during London can be a wild card day. That means it could go either way.
It could be a real easy technical day where your profiles unfold exactly as you expect, or as we just recently seen in the time of this mentorship, the UK Prime Minister came out with a snap election decision right on the heels of the holiday break. it took the cable by storm. So we had a 400 pip move in one trading day for the British Pound USD. So, and there was an absence completely of any London time-based news events.
So it was sprung on the market last minute, and then that was the result. So there's always some kind of a black swan, unexpected, didn't see it coming curveball. And that was one we just seen while we were doing the mentorship. Now, what characteristics do I look for to look for an avoidance of London session? The first one is the central bank dealers range.
If it's greater than 50 pips, I'm already knowing firsthand I'm possibly going to pass on a London session. It doesn't mean it's a guaranteed set in stone, but if I have plans the next day, if I have you. plans with my family and I want to be rested, I'll just pass on the London session. And even if it moves well, I won't even get up at night to see how it sets up. I'll just avoid the London session altogether, get a good night's rest if I can, and be rested and spend my time with my family.
If I don't have any plans the next day going into the New York hours, then I will still wake up around midnight time to see what the Asian range did. And that'll set up my... decision factors like we just learned in lesson five.
If the Asian range is greater than 40 pips, I'm going to consider the delayed protraction profile, but it has to meet every one of those criteria for it to unfold. Otherwise, I'll move to the sidelines and avoid trading London. If the market starts a sustained rally or decline from 8 p.m. New York, that's usually a poor indication of a London session. That means that the real event is started at 0 GMT.
And they're probably going to keep a sustained move going through and very little retracement. Usually the retracement will occur, if at all, during a New York session. If central bank dealers range and or Asian range is not visually, and it means obviously, consolidating, I'm going to look to avoid the London session.
So that means there has to be a completely different market profile from that what we saw of the intraday price action between the London Open and London. close of the previous day. So after 2 p.m.
of the previous day going into 8 p.m., if it isn't a quiet, small little consolidation range, that's not an ideal scenario. It means it's going to be a poor setup going into London. Same thing with Asian range. If the Asian range gets really wild or widens up, that again lessens the statistical edge that IPTA will give us by moving into a protractionary state. right after midnight.
So bottom line, central bank dealers range and or Asian range must trade down into a small tight consolidation range. If we don't see that, if it's trending in both or either or, it makes the London session highly suspect. And you'll know clearly by looking at the time window that creates the central bank dealers range and the Asian range, if it's not in consolidation or if it is in consolidation.
Very clear, obvious. You'll see what I mean by going through your charts and going back over a 15 minute time frame You'll see it clearly when it creates a consolidation It looks very very distinct small little narrow range in contrast to all the previous days Intraday action if it's wide or erratic or trending in either one of those ranges Central bank dealers range or Asian it makes London highly suspect and I don't want to trade in those conditions Now we as traders as a day trader We're going to be aiming for days when the banks will hold the market to build open float. And again, that builds on the idea of the previous point.
When we anticipate the banks holding the market in a small, tight consolidation, what they're doing is they're allowing orders to build above and below the intraday high that's being formed between the Asian range open and the Asian range close at midnight. So we're looking for that building up of orders. We don't need to know what the orders are or how much they are because we're never going to know what that is.
But we can see it indicated in how they maintain a very narrow price range through central bank dealer's range time window and the Asian range. Again, if it's not clear, if it's not obvious in a small, tight range, it's probably going to be an ugly London session and you're not going to see a clear manipulation cycle or protractionary state. If the market is trending from 8 p.m.
New York. Generally, this is going to create London sloppiness. That means the move is most likely occurred at the beginning of zero GMT, 8 p.m. New York time, and it's going to keep on rolling through until we see the New York session. So, again, we don't want to see an Asian session trending environment for an ideal London entry.
When the market is conditioned for London slop, as we just described in the previous point. sleep in, trade New York. That means if any of these things that we mentioned so far are there, that means that the London session is going to be sloppy. If it's going to be sloppy, does that mean it's a high probability condition? Absolutely not.
We want it to be so slanted in our favor. That means not trading every day. Every single trading day will not have the recipe for a clear profile as we described in lesson five. But when we see these characteristics here, it lends very well for us to weigh whether or not we're going to be participating in London.
Or if we do participate in London and we just second guess it and we have to see it for ourselves by experience, trade with very, very, very little risk because you're probably going to regret doing it. Accumulation, manipulation and distribution is the business of intraday trading. That's all it is.
Intraday is the short-term horizon where banks can manipulate and knock people out, push in orders, facilitate false sentiment ideas. So what we're looking for is these orders to accumulate in the marketplace. We don't necessarily know how many orders are above and below these consolidations that we look for in the central bank dealers range and agent range.
But we know based on our directional bias from the daily chart in 4-hour with using the PD array matrix and the IPTA data ranges where price will most likely draw to on the higher time frames. So if we know that and we're bullish, we can anticipate the next stage, which is manipulation, taking the price lower down into an area where traders will be induced to sell or get knocked out of premature entries that are already long. They're going to unseat those positions.
Then they distribute those positions they've accumulated going long near the low of the day, near the high of the day at London close or late New York. That's the model we're trading off of. That's what we're looking for.
So if we don't have clues or fingerprints, if you will, to lend to these ideas being in price, it's not ambiguous. It's not a guessing game. It's not, well, I wonder if it's going to do this or I wonder if it's going to do that.
No, we know exactly what we're looking for. There's hallmark, trademark characteristics that make these London session entries perfect and ideal. And it's based on the criteria we've given you. for the Central Bank Dealers Range and the Asian Range. There are specific things that you look for.
If they're not present, you do not have high probability conditions to trade in. If they are, as we were describing here, and you take the trade, or you take a supposed bullish order block or a supposed turtle soup or something, and you lose money, now you know why. Because you don't have IPTA in your favor. where they're clearly going to draw a price one direction or the other based on the criteria we've given you in Lesson 5. If the conditions we're showing you here in Lesson 6 are there, you have a great deal of odds in your favor of losing money. So pay attention to these points because it will keep you, at least in my opinion, it's kept me from doing a lot of trading where I was better off sitting on the sidelines than there of getting in their marketplace.
If you look at some of the conditions that we've outlined over the course of this mentorship, some of the days are ideal for these events right here. Then other days, there are instances where they're not so prevalent in the conditions we're probably in our favor to trade. But you still can be wrong.
So, again, this helps you avoid the ugly periods, but you're still going to get these once in a while moves where. It would have been better had you taken a trade. And all this is doing is help you know when the odds are less in your favor. And believe me, if you avoid this lesson, if you discount it, if you think, oh, you know, I'm just going to look for the signals. You're going to look for the signals in this kind of mess.
And you're not going to see the results you're hoping for. And you're going to attribute to this stuff doesn't work. ICT doesn't have an edge.
There's no benefit to knowing these types of things. And it's all fluff. Wrong. You've seen enough instances where precision is there.
The precision won't come into the marketplace or be evident in price action when these elements are present. So I know what you're probably saying. What's going on in the marketplace when these events are happening?
What are the central banks doing? Ready for this? I don't know. I don't know. And if I don't know or have a belief in what they're doing, then.
That's certainly not a time where I want to put money at risk, and neither should it be for you. We know what they're doing or most likely doing when we have these narrow consolidation ranges between Central Bank Dealers Range and Asian Range, when we have a daily bias, when we know where the draw is on a daily chart. Where is the price going to be drawn to? Is it going to be moving up to a premium or is it going to be moving down to a discount?
We know that for a directional bias. Having that, applying it to our… London session if we can find the standard normal protraction Profile or the delayed profile in that direction of the day we got it licked But you still can have losses if we see these conditions here regardless of what we have as a daily bias Whatever we think Ipt is doing it doesn't matter all those things fall second This criteria here because we're specifically dealing with intraday action. We have to have rule based ideas We have to have filters. These are our filters. You do not trade every single trading day these Conditions will prevent you from taking positions in London and you have to accept it You got to submit to it.
You have to be subordinate to some level rules if you don't have them You're going to over trade. You're going to trade every single day. And yes, you might catch some amazing moves that may appear when these conditions are there.
And you'll be able to show me an email. I didn't do that. And I still made 120 pips here. Michael, look at this. and I'm going to say you didn't follow the rules.
You're going to get mad. You're going to be offended. But I'm telling you up front, if it looks like this and you trade it in London and you make money, I don't want to know about it because all you're doing is just saying you did not follow the rules. Okay, when is London open kill zone ideal? Obviously, we've talked about what makes the avoidance of the London session most apt.
to be the best choice, but what do we do to help formulate an ideal scenario going to London? Well, the daily chart is going to be clearly respecting PDA rates. So are we in an environment where the market's clearly respecting obvious, clear, non-ambiguous PDA rates, where the market just clearly is going to an order block or it's closing in a gap and it's responding as you would realistically expect it to?
When we have those in here and find a high odds probability trade in my favor as a day trade, I'm just going to get in here and get lucky. That's gambling. We don't do that. So we have to have a discernible direction in the marketplace on the daily chart, and it has to be respecting a PDR matrix. And that way we know what our daily bias is.
Is it going to be reaching higher? Is it going to be reaching lower? It's just that simple.
Now, when the market is poised to trade higher on the daily to a premium array. We're going to be looking for London longs because they're going to be ideal entry points because we know that on the higher time frame daily, it's respecting the PDR matrix. And the most likely outcome is it's going to be reaching for a premium PDR.
The range at which it is trading at right now at market price to the next premium PDR, that is going to be indicative of how much we can anticipate for the next price move higher. It may not fulfill that entirely in the day trading day that you're trading. In other words, it won't fulfill that entire range in one day. It can take several days.
And that's going to also facilitate the continuation of the next trading day. Are you going to be trading in London as well? Because you may have that range still to fulfill.
And if it's still there on the daily chart to reach up into that premium, you have still range to work with. And you may end up getting another setup in the following consecutive trading day in London and do the very same thing you did in. the day before buying. When the market is poised to trade lower on the daily to a discount array, London shorts are ideal.
Same scenario, just reversed in the previous point. If we have just recently traded off of a premium array and we're going to be reaching down into a discount array, that means a bullish order block, closing a fair value gap to below market price, closing a liquidity void below market price, trade down below an old low. employees to make a low resistance liquidity run to a discount. If we see that scenario on the daily, London shorts are ideal. It doesn't mean circumvent all the previous slides that I just mentioned.
Those conditions have to be eliminated. In other words, they can't be present. Even in this condition here, in the previous point as well, as it relates to premium raise, either one of these conditions can be canceled out. if we've seen the conditions that we've just shown in the previous two slides.
When the daily range has not recently exceeded its five-day average daily range, an expansion day is due to form. So in other words, if you study average daily range, you can do several studies like this. You can look at every single day, what's the expected average daily range on a five-day basis, and what...
What is the actual 5 day average daily range at the close of the day? And keep a running log of that, of the pairs that you trade. This is the reason why you don't want to be trading 20 pairs because you can get really tuned in to your pair or pairs if it's just 2 by doing these types of things. Because when the average daily range of the last 5 days is factored, not every single day will the average daily range be met. Many times it will be just below it or not even.
much more than half the average daily range if we're in a quiet period. But if we have traded several days and the previous day has not seen or exceeded, it doesn't mean it has to go two times the average daily range on a five day basis, but it has yet to trade above the average daily range on a five day basis. The previous day and you're bullish, you have a really good chance of having a large range day the day of your trade. And we don't have the conditions in the previous two slides that would cancel out London.
If we have all those things present and we can see the profile unfolding that we learned in Lesson 5, you have the highest probability of a big expansion day. because the five-day average daily range has not been traded to or exceeded in the previous day. So we have a condition of volatility that's low, and the average daily range many times will be either one and a half or maybe even two times the five-day average daily range in instances where we can get a big range day.
You don't need very many of those over the course of a month to erase a lot of the screw-ups that you'll make if you try to trade every single day. You don't want to take your big winning day and use that to remove all of the stupid trading days. In other words, avoiding the previous two slides conditions and still trying to force a trade and trying to show the community in the mentorship or show the internet that you're smart or you've outdone what was necessarily the ICT rules.
You were able to find a setup. Don't do that. You're not going to impress anyone.
You're certainly not going to impress me, and that may not be important to you. But I can tell you. If you stick with these rules, you're going to do better than if you don't.
But know that when we have these big range days, that's the cream. That's the bonus for the month, okay, when we catch these big range days. You don't want to be trading every single day because you're going to get small little singles, drawdown days, drawdown days, drawdown days. And then when you get a good win.
It doesn't really show as a win because you have all these small little singles, small little singles that are erased by a loss, a loss, a loss. So you're treading water, and then all of a sudden you have a normal trading win, and it won't register that much in terms of your equity growth. It will require you to use the big range days to show all your profit.
And if you look at a 20-day study of every trading month, if you trade it every single day, you're going to see that your results are skewed. in such a way that if you're profitable, if you take out your largest profitable day, you probably aren't making money. You don't want conditions like that in your equity growth. You want to show a smooth equity growth line by ferreting out the times when you don't want to be trading because if you can take the periods of drawdown probability out of the equation or at least do your best to remove it, then you stand a better chance of trading when it's in ideal scenarios. So you really slant yourself to high probability conditions.
So while you still may suffer losses and you still absolutely will, the larger losses will hopefully be avoided because you're forcing yourself in a rule based idea. That way you'll have singles, singles, doubles, three to one wins. And then when you get these really big, huge runners and you're able to position yourself in London and you let them go, that will push your equity. Return for the month way over your average, you know If your average is like eight to ten percent for the month you catch a big average Daily range big move and you hold on to it for the whole day many times that'll push you 10 15 percent more for the month than your normal return and There's a way of standardizing your monthly return, but you have to start with these rule-based ideas so as we learn more things we start applying them to our live sessions.
We start applying them to our exercises and drills and when we practice. So when we have these things, we go through a specific criteria, a list of rules and eliminate certain trading days. And you'll know why we're not trading those days versus if I say I'm not trading today and you're left scratching your head saying, well, why is he not trading today? What makes this day any different from the other? Now you're going to know.
So if I say I'm not trading today. You'll know why I'm not trading it, and you won't get upset. You won't be offended. You won't think I'm trying to go to the beach the next morning and just trying to get some sleep.
You will know why. There's a real reason why, and it's consistent. It's not something that takes a great deal of mental acrobatics to understand. These are very simple things to understand when you look at the price. Study it.
Go back and look at several months of data. I don't care what pair you look at. If you see these things in the marketplace.
It's highly unlikely they're going to get a clean London session, and that's what we want. We want to trade when the market has a clear squeeze on volatility. They're holding it in consolidation, and they're letting the order stack up. We know where the market's going to want to go on a daily chart.
How many times have you seen over the course of the last six, seven months where I'm calling the market on the daily chart? It's almost 98% accurate. It's ridiculous. Okay. So when we apply these ideas and we ferret out… all the times when the conditions we showed in the two previous slides are there, we're going to miss some moves, and that's fine.
We don't care about that. But we're leaning ourselves heavily in the... Basically the salad days, the easy trading days. OK, and we're moving now into a framework where I actually trade with these types of things. So I don't trade every single day.
And there's going to be times now going forward in our mentorship when we have these conditions there. I'll let you know in the forum. This is not a high probability day. We will be sitting on the sidelines waiting for new events or waiting for New York session. So now you have a clear reason why I won't be taking certain.
participation in trading days and you'll know what you're going to be learning from not doing it and we'll see many instances where it will help protect us from taking what would otherwise be a losing trade in London. So hopefully you found this lesson insightful. I know it's not exciting, it's not sexy, it doesn't have all kinds of charts, but it's one of those ones that require you to think. It's one of those lessons that helps You build a winner's mindset. You have to have rules.
You have to. And the best rules are the ones that help you stay out of the marketplace because everybody can get in the marketplace. There's no shortage on reasons to get into a trade because everybody can come up with one.
They make books about it all day long. Every bookshelf in the bookstores has some reason why you need to be a buyer or seller based on something. But very little is written about how do you know when to stay out of the marketplace. That's what this lesson is giving you. So here's one of the beautiful elements to it.
I don't care if you're a position trader at heart, a swing trader at heart. I don't care if you're a one shot, one kill trader. I don't care if you're just going to be a day trader or if you're going to be a scalper like we're going to learn next month.
The criteria I just gave you here will save your backside regardless of what trading discipline you have. Because if you're going to be executing in China trade with the London session as your means of entry, if it looks like these two previous slides, you want to wait. Just wait until a better technical picture. And when you get it, you'll have no problem taking your entry and you'll be much more fortified in knowing that you have all the odds that you could possibly have reasonably in your favor.
And that's where you want to live as a trader. You want to be in the market when it's highly favored on your side of the marketplace. You want to be on side, not off side.
And the way I've learned over a long period. And these are lessons that I had to learn painfully, very painfully, because I'm stubborn. I want to do things the way I want to do things. And if someone tells me I shouldn't do this, I'm going in doing that very thing. You know what it's like.
The sign says on the lawn, don't step on the grass. I'm doing the jig on it. I'm dancing all over it, moonwalking on it.
Not because I'm ignorant. I'm trying to be rude. It's just that's my nature. It's human nature to do the very things you know you're not supposed to do. So you have to have these rule based ideas.
So that's why there's no charts in this. There's no let me show you examples of this. OK, it's rules.
It's 100 percent rules. And I'm going to leave it up to you to have this created as a checklist. I'm not going to give you a checklist that has this stuff because I want you to write it in your own handwriting. Once you write it out subconsciously, you're going to retain that.
And then every day you're going to refer to it. When you look at the marketplace in the previous two slides, if those conditions are there, you already know probability has fallen off the table and it's not likely to be an easy trading session for London. Now think about that. That's very, very empowering. It also gives you context.
Yeah, you might still be bullish on that pair. You might be bearish on that pair. But when you don't have the conditions in favor for technical symmetry where you can expect and clearly anticipate the manipulation on the central banks, when they reprice higher and go into a protractionary state, we're entering in that.
If we don't have the framework to clearly see when they're going to do that, what are we doing in the marketplace then? What everybody else does. Gamble and gamblers sometimes make money but gamblers rarely make a living with that wish you good luck and good trading