Understanding Bond Trading Consolidation Days

Welcome back folks. Again as a reminder, please reduce these disclaimers because I am not a CTA. I'm not licensed to get trade advice. In the discussions we are having pertaining to commodities and futures, we are only referring to them as paper trades only. Okay folks, June 2017, ICT Mentorship, ICT Bond Trading, Lesson 3, Consolidation Days. Okay folks, Consolidation Days. Before we get into this, let me preface it by saying I'm not teaching specific setups, I'm teaching thought process and how this is incorporating. the bond analysis into the whole grand scheme of things and trying to draw it back to forex. When we have consolidation days or we're anticipating a consolidation day, which we'll talk more about that in a moment, we want to refer to overnight price action. Okay. And overnight price action can have seen trending environments or could be range bound. There is no specific with a precursor to overnight. price action. So don't think that there's anything that leads to, for instance, the London trading. Whatever takes place in London doesn't always translate to future prognostication for the New York trading hours because the market could be making a move overnight and then during a New York session just simply go dead. New York session news. Generally, when there's a lack of noteworthy reports that are due, the New York session vacuum, if you will, will create a dead space in the bond market. Economic calendars. If we see high to medium impact U.S. reports due to release on another trading date later in the week, this is going to promote the idea of a consolidation day. If we know that, for instance, the time of this recording, we saw a FOMC day at 2 p.m. in New York time. So also that same very morning, the New York session had a plethora of high-impact news dollar-based. That, coupled with the FOMC later in the day, created a high-volatility day, which we anticipated. before the trading week began. If we had a lack of high impact news during the New York session, AM session, and FOMC was the only high impact news event, then generally we would see a consolidation day leading up to this particular day and it would carry over into the morning session. And then we'd see a vault in volatility in the latter portion of the day or the PM session. Formation characteristics of consolidation days. After a higher time frame premium or discount array is met, for instance, if we've been trading for a while higher, moving away from a discount, and we met a premium array, one of two things can happen. One, it can pause and consolidate there, waiting for another point at which it can continue higher for another PD array, or... It can retrace after that consolidation, or it can simply just reverse. When price hits this higher time frame PD array, in this case, if we were assuming that price was moving up from a discount, reaching for premium arrays, once it hits that premium array on the higher time frame, generally what will happen is profit taking will come in and there'll be a pause in the advancement higher in price. It may not require a retracement, but it can pause in there. So knowing that that higher timeframe premium array has been hit, we can look for or anticipate a point at which the market might take a breather or pause or consolidate. Knowing this helps us with our Forex trading. It helps us with our commodity trading. It helps us, obviously, if we're going to be a bond trader. It helps us with our. objectivity, and other things that goes along with all the intermarket analysis. When price hits an equilibrium of a higher time frame price swing or midpoint, we can anticipate a pause just like we said in our example of reaching for a higher time frame premium array or discount array. When these mile markers are met in price action, it's reasonable to expect some measure of consolidation or a pause. Remember, the markets move from consolidation to expansion to consolidation to expansion. In the midst of all that… we will have retracements and or reversals. Consolidations, by far and large, will be the most dominant consideration when we look at price action. So if we know that there's going to be a likelihood of a pause or a consolidation before price makes its next move higher or lower, if it's been met by premium array or discount array on a higher time frame, or it hits the equilibrium price point, of a measured move or a longer term price swing that we think is going to unfold, price can consolidate at that midpoint. Or if we retrace back to an equilibrium price point, don't always anticipate or expect an immediate response in price because it can stay around equilibrium because the higher time frame requires the larger traders to work on that time frame. So they're going to work that level sometimes more than one time. So that's why it's important that when we look at these reference points, it's not that we anticipate equilibrium being explosive or that we anticipate just because price hits our premium array for our buys or our discount arrays for our sales and that's the end of it. No, it can create a pause and then it can continue on. When there's a bank holiday in the United States, there's going to be obviously an impact on the markets. So it's going to cause consolidation days ahead of holidays in the United States. For instance, our next big holidays coming up at the time of this recording is the 4th of July. So going into that holiday, if there's a trading day that is before the 4th of July, there's generally going to be a quiet. Period in the marketplace, and there's going to be consolidation. That consolidation is going to reverberate throughout the marketplace. Bond auction days. So if we look at our economic calendar and we see there's going to be a bond auction, the day before the bond auction could be a consolidation day. And the day of that bond auction day, the AM session of that particular day, generally is a consolidation. So I want you to think about. what causes or what promotes the idea of consolidation in the bond market. Because if we can figure those individual conditions or characteristics out, know what they are that routinely and generically repeat themselves over time, we will have a game plan and also be able to incorporate these ideas in our trading. Too many times in my trading, I've been overzealous about a specific price move. Early on, I would be frustrated because the moves wouldn't pan out or they wouldn't take place at all. They wouldn't even begin or just simply stay stagnant. It wouldn't go anywhere, not high or low. It wouldn't even stop me. It just wouldn't even move, and that's very frustrating. And over the years, I've learned that obviously the incorporation of the interest rate markets and the bond market, that's that missing link. So having that in our analysis is paramount. So if we know that there's going to be… a consolidation period in the bond market, we have to reasonably expect the same thing occurring in the other asset classes. Now, when we have consolidation days, when we are looking to trade in the AM session, we can scalp, obviously, for 5 to 10 ticks. And again, remember, one tick is $31.25. So, 5 ticks, it doesn't sound like a lot. But you can do very well with just 5 ticks day trading in the bond market a couple times a week. But 5 to 10 ticks, we can see if the opening range is small, as we learned in the first lesson of this topic of bond trading, if the opening range is small, and what's small? Well, if you look at an opening range of 12 ticks or less, if the opening range is 12 ticks or less, Generally, you'll have an expansion move of some kind and it may just blow out a previous overnight high or low, but If you get that small little opening range, that usually will allow that little bit of a squeeze, that volatility squeeze, and then finally it'll snap and move in a direction that you would have predetermined based on institutional order flow. Scalping the PM session again in consolidation days, you can look for 5 to 10 ticks, but there's one caveat with trading the PM session on consolidation days. You only want to trade the PM session if… the AM session has not yet ran a stop run. In other words, if there's a liquidity pull that has obviously not been tapped, that's generally what's going to be seen in the PM session. Once it takes those stops, don't be greedy. Just run the stops with the professionals and take your profits and move to the sidelines. But the PM session on consolidation days, generally, that's not happening as an average or a general rule of thumb. When we're consolidating or we're anticipating small ranges, do your trading in the a.m. session before noon. Avoid trading the a.m. session on bond auction days, as I mentioned in the previous slide. The market usually is on hold waiting for the auction to come. Avoid trading the p.m. session when there's interest rate drivers due. Usually it's 2 o'clock in the afternoon New York time, so simply just avoid it. Regardless of how good the volatility looks, Trust me, just avoid it. We're going to focus on trading the higher time frame premium arrays are met. As I mentioned in the previous slide, when we reach a premium array, for instance, in a market that's been going up for a while. Say we've been bullish on a market. The seasonal tendency is implied that the market should be trading higher. Are we looking for an advancement in price? It's been… providing that for us and maybe we've had a profitable position even if we haven't had a profitable position or even position at all when the premium array is hit obviously as i mentioned in the previous slide we want to be anticipating some measure of pause or consolidation that is when we shift our gears and don't think big moves we think okay well i have to adapt to what price is telling me so either i'm going to move to the sidelines or Operate in a scalper's mentality and look for very small little fluctuations in the bond market. That's going to translate into small movements in all the other asset classes. By having this idea, it removes that insatiable desire to be doing a whole lot and swinging for the fences. Recall, small ranges precede large ranges on daily. So it can be frustrating when we anticipate the consolidation days formation. If we are action hounds and we want to get in here and trade like cowboys, obviously that's going to be detrimental to your trading. But we as professional-minded traders, we are welcoming these consolidations because it allows us time to formulate a plan on how we can study where the next move is going to be, where's the next liquidity run. All these ideas help frame our next trading opportunity. One of the worst things we can do is trade on such a short-term time frame that it doesn't permit us an opportunity to plan our next move. So consolidation days, even for a day trader or a scalper, they provide those little periods of time where we can take a breather, take a step back, maybe even don't even worry about trading that particular day. Wait for end of day. Go back and do some analysis and figure out where the liquidity is and then formulate an idea based on that consolidation day what is price going to reach for next. Because the next move. It's probably going to come on the heels of a large range expansion. So consolidation days are like big banner signs. Hello, there's a big opportunity coming. It's going to be a juicy price move. Be aware of it and start doing your homework and figure out what it's going to be. Don't cuss at the screen and get frustrated because these pauses or these consolidation periods are gold mines in the making. Always allow your limit exits to exceed your targets. Because this will give you a bonus. We don't know for certain that the market is going to stay in a predetermined consolidation range. So when I'm looking to trade in small ranges, I will have especially this is why I said if you're going to be scalping, you want to be looking at the marketplace live. Have the charts right in front of you, not reading, not watching TV, not watching your children play, whatever. If you're going to be in the marketplace and you're scalping, you need to give the market your 100% undivided attention. If you have an objective of making 8 pip or 8 ticks, By having these consolidation days, we already know that the probability is going to be lower for a big expansion move. So if we're wrong, we allow that tendency to be human once in a while and say we anticipate a small range, but it takes off and blows off. Well, if we put a 16-tick target on the bond market, we could originally be only looking for 8, but say it expands quickly and it starts to run. It can pay you for being wrong a bonus. So have that mindset when you're looking for small range days or operating in small range days as a scalper. Always offer your limits to be larger than really what you're trying to make. And then manage those positions accordingly. Then you can always watch and see what price is doing when it gets to your objective. Because many times I've been wrong, and using this technique, it's paid me more than I would have if I just simply would have took my first objective and moved to the sidelines. Keep overnight short-term highs and lows in mind for low resistance liquidity runs. As the chart here is showing, obviously you can see there is a London session high and a London session low. That was rated for opportunities for that AM session move in the bond market. So by knowing the overnight highs and lows, even the short-term swings and highs and lows, that's where your liquidity is going to be. That's where the market is going to reach for. during consolidation days during a New York session. Unless PM session news drivers are due out, consolidation days typically offer setups in AM session most of the time. So by knowing that, what we need to do as a general rule of thumb, a practice that we do day by day, is when we're in a short-term, small volatility, the very tight consolidation environment or consolidation day, We want to avoid forcing PM session trades routinely. In other words, if we are anticipating a little bit of activity, not a whole lot of expansion, you need to be doing your work before noon. And before noon, all of your trading has to be done, preferably before 11 o'clock a.m. New York time. Be done. Move to the sidelines and don't worry about the rest of the day. There's going to be opportunities that take off and something happens that you didn't see coming in the PM session. Let it happen. and don't be worried about it. Don't be upset about it. Consolidation brings expansion. Now, when we identify the market is likely to trade in small range or consolidation day, we should immediately note the next trading day or the day not long after it will produce a large range day or trending day. How do we know this? The economic calendar. We already identified that Wednesday. The day of this week and the day of this actual recording was going to be a high-impact day in news, and we're going to see a lot of volatility and wild price action. True to form, we saw it happen. While the bond market is held in a narrow range, this will create a stranglehold on volatility for the other asset classes on average. So just because the bond market is in consolidation doesn't mean it's going to be the wild, wild west in the Japanese yen or the Swiss franc or it's going to be craziness in the crosses, you know, don't think that way. If you're going to be working with a professional mindset, that means that you have a faith in knowing there's a probability of the market doing this or that. If we're not going to have rules, then simply don't even watch these videos and don't worry about doing anything and trade how you want and be impulsive about it. But if we're going to be professional-minded traders, we have to have rule-based ideas and parameters to operate in. Because if you don't have that, if you don't have parameters to work within and act as guidelines, you will always deviate outside that, and you'll never get an accurate measurement on your development or your consistency. But if you know over a long period of time that operating in small-range consolidation days like we're describing here, it adopts a mindset that promotes professional trading, professional perspective. It will, by default, remove a lot of the anxiety as... traders encounter, the psychological effect on not making enough or the market's not moving enough for me. It changes, it's a paradigm shift that takes place when you understand what the market as a whole should be doing. 98% of traders out there, even professional traders, get sucked into emotional and psychological effects of trading. Neophytes that have no idea what's going on. They are always falling victim to it. They end up in the trader's graveyard within the first 90 days, many times in the first month. You're learning how to do what's necessary to cultivate a professional mindset but also to alleviate all of the problems that every trader encounters. I encounter trade psychology issues. I encounter fear and greed. Many times it's greed. The effects of these things can't be overstated. There's never a shortage on keeping those things in the forefront of your mind as a trader because they will be your undoing. But if you focus on rule-based ideas and an expectation of what the characteristics are in these environments, it removes your focus on fearing and being greedy because you're focusing on the process and the parameters you have to operate in. Your mind is a wonderful tool. It's a resource that many times because we misappropriate our time and our energy and our efforts and our attention on the worst toxic things, our mind is so powerful and our imagination is so powerful, it will bring things to life that aren't really there through wood of thinking. So by having rule-based ideas that you develop over time a faith in and seeing them by case study after case study… seeing the effects of following this, you'll see that it's profitable for you, not only monetarily, but also psychologically and emotionally to operate in a rule-based idea. By having this process of knowing what you should be doing or how the market should be behaving in consolidation periods and consolidation days in the bond market, it removes all of the fear, intrepidation, and all of the uncertainty about what you're going to do or what's going to happen, when's the next big move going to happen. Well, if you know... by analysis that the bond market is predisposed to be a small range and low volatility, right away, what does that tell you? Don't expect a whole lot from the markets right now. So by having that, it's very sobering. It gives you peace of mind. It doesn't force you into thinking, uh-oh, where's the next move? And I'm afraid I'm going to miss it. It gives you context. And here's the wonderful thing. When you see it working, And it frames your idea and your context about how you interpret price action as a whole from a macro perspective. You harness trade psychology. You harness and rein in fear and greed. You master them. You put them on a leash where all the other traders are going to be drawn in and dragged by their hair into trades or out of trades because of not knowing what's going on. You're going to be calm, cool, and collected because you're going to know exactly what it is that you are going to do. You can't make the market do what you want it to do, but you can align yourself with what most likely will occur based on these conditions. So it's not that we're teaching consolidation trade techniques to go in there and try to make a killing. It's to keep your perspective as a professional-minded trader, not getting in here like it's casino time. This is not Las Vegas. We're in here. For longevity, we want to be able to hold onto our account to wait for the inevitable expansive moves where trading becomes a lot easier. And then we can feel the elation, not because we've mastered the markets, but because we've mastered ourself. We've operated in a clear, defined realm of rule-based ideas. We have parameters. We color inside the lines, and we can measure our progress and feel good. about following that process and its positive feedback. When we take a loss or we miss opportunities, we don't worry about it because if it wasn't in the context of our rule-based ideas, it doesn't matter. And there's going to be lots of things that occur in the marketplace. They're going to happen outside your rule-based ideas, but you already should have given yourself permission to miss some of them. Everybody's going to work somewhere and everybody's making more than you. You can't worry about what they're making at their job, doing whatever they're doing, and worry about spending someone else's money. And that's the same thing you're doing when you say, I missed that trade, and I wish I would have been a part of that. And who knows who got part of that move? Who cares? Stay in the rule-based idea and keep your perspective and the mindset of consolidation, low expectation across the board in all asset classes. The use of this observation serves as well as forex traders, in that we can reduce or limit our expectations on FX pairs movement and operate in a more reserved fashion. sticking to low-hanging fruit and small gains. If you've studied the bond market, as I indicated today in a live session, we should be relieved at least to know this is the reason why the markets have been rather fickle, because the bond market as a whole has been in a range-bound consolidation. There's going to be a move out of this consolidation, and when we leave consolidations, it tends to be a trending environment. The longer the consolidation, and it's been many months this year, we have seen consolidation take place in the bond market. When it leaves the range, it will have a protractionary state where it moves in a trend. That's when salad days are coming, easy trading days. And guess what? It's a couple months away, and fall will be here. Everyone's looking to summer because we're now in it at the time of this recording. But the thing I'm looking at is we've been consolidating ahead of fall. which bolsters my confidence about how well I believe the price action is going to be in the last four months of 2017. So when we look at consolidation, we should be elated about the future opportunities that come after this period, where everyone else is pushing really, really hard to try to get as much as they can out of this little bit of movement that's being offered by the marketplace. Don't arm wrestle the market. Sit back. Let the market grind everybody else down. Let them wear down emotionally and psychologically. But we know during consolidation periods, the smart money is setting up the next big move. And if we understand that principle in the bond market, it's going to reverberate through all the other asset classes. And since we're primarily Forex traders in this mentorship, the bond market speaks volumes when it's in consolidation. And when it's not in consolidation… It allows all the other markets to move more fluidly and more efficiently. And until next lesson, I wish you good luck and good trading.

Welcome back folks. Again as a reminder, please reduce these disclaimers because I am not a CTA. I'm not licensed to get trade advice.

In the discussions we are having pertaining to commodities and futures, we are only referring to them as paper trades only. Okay folks, June 2017, ICT Mentorship, ICT Bond Trading, Lesson 3, Consolidation Days. Okay folks, Consolidation Days. Before we get into this, let me preface it by saying I'm not teaching specific setups, I'm teaching thought process and how this is incorporating.

the bond analysis into the whole grand scheme of things and trying to draw it back to forex. When we have consolidation days or we're anticipating a consolidation day, which we'll talk more about that in a moment, we want to refer to overnight price action. Okay.

And overnight price action can have seen trending environments or could be range bound. There is no specific with a precursor to overnight. price action.

So don't think that there's anything that leads to, for instance, the London trading. Whatever takes place in London doesn't always translate to future prognostication for the New York trading hours because the market could be making a move overnight and then during a New York session just simply go dead. New York session news.

Generally, when there's a lack of noteworthy reports that are due, the New York session vacuum, if you will, will create a dead space in the bond market. Economic calendars. If we see high to medium impact U.S. reports due to release on another trading date later in the week, this is going to promote the idea of a consolidation day.

If we know that, for instance, the time of this recording, we saw a FOMC day at 2 p.m. in New York time. So also that same very morning, the New York session had a plethora of high-impact news dollar-based. That, coupled with the FOMC later in the day, created a high-volatility day, which we anticipated. before the trading week began.

If we had a lack of high impact news during the New York session, AM session, and FOMC was the only high impact news event, then generally we would see a consolidation day leading up to this particular day and it would carry over into the morning session. And then we'd see a vault in volatility in the latter portion of the day or the PM session. Formation characteristics of consolidation days.

After a higher time frame premium or discount array is met, for instance, if we've been trading for a while higher, moving away from a discount, and we met a premium array, one of two things can happen. One, it can pause and consolidate there, waiting for another point at which it can continue higher for another PD array, or... It can retrace after that consolidation, or it can simply just reverse.

When price hits this higher time frame PD array, in this case, if we were assuming that price was moving up from a discount, reaching for premium arrays, once it hits that premium array on the higher time frame, generally what will happen is profit taking will come in and there'll be a pause in the advancement higher in price. It may not require a retracement, but it can pause in there. So knowing that that higher timeframe premium array has been hit, we can look for or anticipate a point at which the market might take a breather or pause or consolidate.

Knowing this helps us with our Forex trading. It helps us with our commodity trading. It helps us, obviously, if we're going to be a bond trader.

It helps us with our. objectivity, and other things that goes along with all the intermarket analysis. When price hits an equilibrium of a higher time frame price swing or midpoint, we can anticipate a pause just like we said in our example of reaching for a higher time frame premium array or discount array.

When these mile markers are met in price action, it's reasonable to expect some measure of consolidation or a pause. Remember, the markets move from consolidation to expansion to consolidation to expansion. In the midst of all that… we will have retracements and or reversals. Consolidations, by far and large, will be the most dominant consideration when we look at price action.

So if we know that there's going to be a likelihood of a pause or a consolidation before price makes its next move higher or lower, if it's been met by premium array or discount array on a higher time frame, or it hits the equilibrium price point, of a measured move or a longer term price swing that we think is going to unfold, price can consolidate at that midpoint. Or if we retrace back to an equilibrium price point, don't always anticipate or expect an immediate response in price because it can stay around equilibrium because the higher time frame requires the larger traders to work on that time frame. So they're going to work that level sometimes more than one time. So that's why it's important that when we look at these reference points, it's not that we anticipate equilibrium being explosive or that we anticipate just because price hits our premium array for our buys or our discount arrays for our sales and that's the end of it. No, it can create a pause and then it can continue on.

When there's a bank holiday in the United States, there's going to be obviously an impact on the markets. So it's going to cause consolidation days ahead of holidays in the United States. For instance, our next big holidays coming up at the time of this recording is the 4th of July. So going into that holiday, if there's a trading day that is before the 4th of July, there's generally going to be a quiet.

Period in the marketplace, and there's going to be consolidation. That consolidation is going to reverberate throughout the marketplace. Bond auction days.

So if we look at our economic calendar and we see there's going to be a bond auction, the day before the bond auction could be a consolidation day. And the day of that bond auction day, the AM session of that particular day, generally is a consolidation. So I want you to think about.

what causes or what promotes the idea of consolidation in the bond market. Because if we can figure those individual conditions or characteristics out, know what they are that routinely and generically repeat themselves over time, we will have a game plan and also be able to incorporate these ideas in our trading. Too many times in my trading, I've been overzealous about a specific price move.

Early on, I would be frustrated because the moves wouldn't pan out or they wouldn't take place at all. They wouldn't even begin or just simply stay stagnant. It wouldn't go anywhere, not high or low. It wouldn't even stop me. It just wouldn't even move, and that's very frustrating.

And over the years, I've learned that obviously the incorporation of the interest rate markets and the bond market, that's that missing link. So having that in our analysis is paramount. So if we know that there's going to be… a consolidation period in the bond market, we have to reasonably expect the same thing occurring in the other asset classes.

Now, when we have consolidation days, when we are looking to trade in the AM session, we can scalp, obviously, for 5 to 10 ticks. And again, remember, one tick is $31.25. So, 5 ticks, it doesn't sound like a lot.

But you can do very well with just 5 ticks day trading in the bond market a couple times a week. But 5 to 10 ticks, we can see if the opening range is small, as we learned in the first lesson of this topic of bond trading, if the opening range is small, and what's small? Well, if you look at an opening range of 12 ticks or less, if the opening range is 12 ticks or less, Generally, you'll have an expansion move of some kind and it may just blow out a previous overnight high or low, but If you get that small little opening range, that usually will allow that little bit of a squeeze, that volatility squeeze, and then finally it'll snap and move in a direction that you would have predetermined based on institutional order flow.

Scalping the PM session again in consolidation days, you can look for 5 to 10 ticks, but there's one caveat with trading the PM session on consolidation days. You only want to trade the PM session if… the AM session has not yet ran a stop run. In other words, if there's a liquidity pull that has obviously not been tapped, that's generally what's going to be seen in the PM session. Once it takes those stops, don't be greedy. Just run the stops with the professionals and take your profits and move to the sidelines.

But the PM session on consolidation days, generally, that's not happening as an average or a general rule of thumb. When we're consolidating or we're anticipating small ranges, do your trading in the a.m. session before noon. Avoid trading the a.m.

session on bond auction days, as I mentioned in the previous slide. The market usually is on hold waiting for the auction to come. Avoid trading the p.m. session when there's interest rate drivers due. Usually it's 2 o'clock in the afternoon New York time, so simply just avoid it.

Regardless of how good the volatility looks, Trust me, just avoid it. We're going to focus on trading the higher time frame premium arrays are met. As I mentioned in the previous slide, when we reach a premium array, for instance, in a market that's been going up for a while. Say we've been bullish on a market.

The seasonal tendency is implied that the market should be trading higher. Are we looking for an advancement in price? It's been… providing that for us and maybe we've had a profitable position even if we haven't had a profitable position or even position at all when the premium array is hit obviously as i mentioned in the previous slide we want to be anticipating some measure of pause or consolidation that is when we shift our gears and don't think big moves we think okay well i have to adapt to what price is telling me so either i'm going to move to the sidelines or Operate in a scalper's mentality and look for very small little fluctuations in the bond market. That's going to translate into small movements in all the other asset classes. By having this idea, it removes that insatiable desire to be doing a whole lot and swinging for the fences.

Recall, small ranges precede large ranges on daily. So it can be frustrating when we anticipate the consolidation days formation. If we are action hounds and we want to get in here and trade like cowboys, obviously that's going to be detrimental to your trading.

But we as professional-minded traders, we are welcoming these consolidations because it allows us time to formulate a plan on how we can study where the next move is going to be, where's the next liquidity run. All these ideas help frame our next trading opportunity. One of the worst things we can do is trade on such a short-term time frame that it doesn't permit us an opportunity to plan our next move.

So consolidation days, even for a day trader or a scalper, they provide those little periods of time where we can take a breather, take a step back, maybe even don't even worry about trading that particular day. Wait for end of day. Go back and do some analysis and figure out where the liquidity is and then formulate an idea based on that consolidation day what is price going to reach for next. Because the next move. It's probably going to come on the heels of a large range expansion.

So consolidation days are like big banner signs. Hello, there's a big opportunity coming. It's going to be a juicy price move. Be aware of it and start doing your homework and figure out what it's going to be.

Don't cuss at the screen and get frustrated because these pauses or these consolidation periods are gold mines in the making. Always allow your limit exits to exceed your targets. Because this will give you a bonus.

We don't know for certain that the market is going to stay in a predetermined consolidation range. So when I'm looking to trade in small ranges, I will have especially this is why I said if you're going to be scalping, you want to be looking at the marketplace live. Have the charts right in front of you, not reading, not watching TV, not watching your children play, whatever.

If you're going to be in the marketplace and you're scalping, you need to give the market your 100% undivided attention. If you have an objective of making 8 pip or 8 ticks, By having these consolidation days, we already know that the probability is going to be lower for a big expansion move. So if we're wrong, we allow that tendency to be human once in a while and say we anticipate a small range, but it takes off and blows off.

Well, if we put a 16-tick target on the bond market, we could originally be only looking for 8, but say it expands quickly and it starts to run. It can pay you for being wrong a bonus. So have that mindset when you're looking for small range days or operating in small range days as a scalper. Always offer your limits to be larger than really what you're trying to make. And then manage those positions accordingly.

Then you can always watch and see what price is doing when it gets to your objective. Because many times I've been wrong, and using this technique, it's paid me more than I would have if I just simply would have took my first objective and moved to the sidelines. Keep overnight short-term highs and lows in mind for low resistance liquidity runs. As the chart here is showing, obviously you can see there is a London session high and a London session low. That was rated for opportunities for that AM session move in the bond market.

So by knowing the overnight highs and lows, even the short-term swings and highs and lows, that's where your liquidity is going to be. That's where the market is going to reach for. during consolidation days during a New York session.

Unless PM session news drivers are due out, consolidation days typically offer setups in AM session most of the time. So by knowing that, what we need to do as a general rule of thumb, a practice that we do day by day, is when we're in a short-term, small volatility, the very tight consolidation environment or consolidation day, We want to avoid forcing PM session trades routinely. In other words, if we are anticipating a little bit of activity, not a whole lot of expansion, you need to be doing your work before noon. And before noon, all of your trading has to be done, preferably before 11 o'clock a.m.

New York time. Be done. Move to the sidelines and don't worry about the rest of the day. There's going to be opportunities that take off and something happens that you didn't see coming in the PM session.

Let it happen. and don't be worried about it. Don't be upset about it.

Consolidation brings expansion. Now, when we identify the market is likely to trade in small range or consolidation day, we should immediately note the next trading day or the day not long after it will produce a large range day or trending day. How do we know this?

The economic calendar. We already identified that Wednesday. The day of this week and the day of this actual recording was going to be a high-impact day in news, and we're going to see a lot of volatility and wild price action. True to form, we saw it happen.

While the bond market is held in a narrow range, this will create a stranglehold on volatility for the other asset classes on average. So just because the bond market is in consolidation doesn't mean it's going to be the wild, wild west in the Japanese yen or the Swiss franc or it's going to be craziness in the crosses, you know, don't think that way. If you're going to be working with a professional mindset, that means that you have a faith in knowing there's a probability of the market doing this or that. If we're not going to have rules, then simply don't even watch these videos and don't worry about doing anything and trade how you want and be impulsive about it.

But if we're going to be professional-minded traders, we have to have rule-based ideas and parameters to operate in. Because if you don't have that, if you don't have parameters to work within and act as guidelines, you will always deviate outside that, and you'll never get an accurate measurement on your development or your consistency. But if you know over a long period of time that operating in small-range consolidation days like we're describing here, it adopts a mindset that promotes professional trading, professional perspective.

It will, by default, remove a lot of the anxiety as... traders encounter, the psychological effect on not making enough or the market's not moving enough for me. It changes, it's a paradigm shift that takes place when you understand what the market as a whole should be doing.

98% of traders out there, even professional traders, get sucked into emotional and psychological effects of trading. Neophytes that have no idea what's going on. They are always falling victim to it.

They end up in the trader's graveyard within the first 90 days, many times in the first month. You're learning how to do what's necessary to cultivate a professional mindset but also to alleviate all of the problems that every trader encounters. I encounter trade psychology issues. I encounter fear and greed. Many times it's greed.

The effects of these things can't be overstated. There's never a shortage on keeping those things in the forefront of your mind as a trader because they will be your undoing. But if you focus on rule-based ideas and an expectation of what the characteristics are in these environments, it removes your focus on fearing and being greedy because you're focusing on the process and the parameters you have to operate in.

Your mind is a wonderful tool. It's a resource that many times because we misappropriate our time and our energy and our efforts and our attention on the worst toxic things, our mind is so powerful and our imagination is so powerful, it will bring things to life that aren't really there through wood of thinking. So by having rule-based ideas that you develop over time a faith in and seeing them by case study after case study… seeing the effects of following this, you'll see that it's profitable for you, not only monetarily, but also psychologically and emotionally to operate in a rule-based idea. By having this process of knowing what you should be doing or how the market should be behaving in consolidation periods and consolidation days in the bond market, it removes all of the fear, intrepidation, and all of the uncertainty about what you're going to do or what's going to happen, when's the next big move going to happen. Well, if you know...

by analysis that the bond market is predisposed to be a small range and low volatility, right away, what does that tell you? Don't expect a whole lot from the markets right now. So by having that, it's very sobering.

It gives you peace of mind. It doesn't force you into thinking, uh-oh, where's the next move? And I'm afraid I'm going to miss it. It gives you context. And here's the wonderful thing.

When you see it working, And it frames your idea and your context about how you interpret price action as a whole from a macro perspective. You harness trade psychology. You harness and rein in fear and greed. You master them. You put them on a leash where all the other traders are going to be drawn in and dragged by their hair into trades or out of trades because of not knowing what's going on.

You're going to be calm, cool, and collected because you're going to know exactly what it is that you are going to do. You can't make the market do what you want it to do, but you can align yourself with what most likely will occur based on these conditions. So it's not that we're teaching consolidation trade techniques to go in there and try to make a killing. It's to keep your perspective as a professional-minded trader, not getting in here like it's casino time. This is not Las Vegas.

We're in here. For longevity, we want to be able to hold onto our account to wait for the inevitable expansive moves where trading becomes a lot easier. And then we can feel the elation, not because we've mastered the markets, but because we've mastered ourself.

We've operated in a clear, defined realm of rule-based ideas. We have parameters. We color inside the lines, and we can measure our progress and feel good.

about following that process and its positive feedback. When we take a loss or we miss opportunities, we don't worry about it because if it wasn't in the context of our rule-based ideas, it doesn't matter. And there's going to be lots of things that occur in the marketplace.

They're going to happen outside your rule-based ideas, but you already should have given yourself permission to miss some of them. Everybody's going to work somewhere and everybody's making more than you. You can't worry about what they're making at their job, doing whatever they're doing, and worry about spending someone else's money. And that's the same thing you're doing when you say, I missed that trade, and I wish I would have been a part of that. And who knows who got part of that move?

Who cares? Stay in the rule-based idea and keep your perspective and the mindset of consolidation, low expectation across the board in all asset classes. The use of this observation serves as well as forex traders, in that we can reduce or limit our expectations on FX pairs movement and operate in a more reserved fashion.

sticking to low-hanging fruit and small gains. If you've studied the bond market, as I indicated today in a live session, we should be relieved at least to know this is the reason why the markets have been rather fickle, because the bond market as a whole has been in a range-bound consolidation. There's going to be a move out of this consolidation, and when we leave consolidations, it tends to be a trending environment. The longer the consolidation, and it's been many months this year, we have seen consolidation take place in the bond market. When it leaves the range, it will have a protractionary state where it moves in a trend.

That's when salad days are coming, easy trading days. And guess what? It's a couple months away, and fall will be here. Everyone's looking to summer because we're now in it at the time of this recording.

But the thing I'm looking at is we've been consolidating ahead of fall. which bolsters my confidence about how well I believe the price action is going to be in the last four months of 2017. So when we look at consolidation, we should be elated about the future opportunities that come after this period, where everyone else is pushing really, really hard to try to get as much as they can out of this little bit of movement that's being offered by the marketplace. Don't arm wrestle the market. Sit back. Let the market grind everybody else down.

Let them wear down emotionally and psychologically. But we know during consolidation periods, the smart money is setting up the next big move. And if we understand that principle in the bond market, it's going to reverberate through all the other asset classes.

And since we're primarily Forex traders in this mentorship, the bond market speaks volumes when it's in consolidation. And when it's not in consolidation… It allows all the other markets to move more fluidly and more efficiently. And until next lesson, I wish you good luck and good trading.

Transcript for:Understanding Bond Trading Consolidation Days

Transcript for:
Understanding Bond Trading Consolidation Days