Understanding AMD and Power of Three in Trading

Aug 4, 2024

Lecture Notes: AMD and Power of Three in Trading

Introduction

  • Mandatory Viewing: Must watch all previous episodes of ICT Simplified Series to understand this lecture.
  • Presentation Link: Available in the description.

Introduction to AMD and Power of Three

Overview

  • Power of Three: Concept by Inner Circle Trader (ICT) breaking down market movements into three phases: Accumulation, Manipulation, and Distribution (AMD).
  • Application: Applies to all time frames, especially daily and weekly trading ranges.
  • Key Point: Can use AMD without focusing on specific time periods.

Trading Focus

  • Daily and Weekly Power of Three: Sufficient for day trading and scalping.
  • Higher Timeframes: Monthly candlestick views can improve trading success but are not mandatory.
  • Identification Variances: Differ on each time frame (daily, weekly, etc.).

Chapter 2: Understanding the Power of Three

Definition

  • Sequence: Accumulation, Manipulation, Distribution.
  • Market Actions: Reflect actions by significant market players.

Phases Breakdown

1. Accumulation

  • Description: Market participants build positions; price consolidates within a range.
  • Goal: Identify quiet accumulation before a price move.

2. Manipulation

  • Description: Large traders create false moves to mislead others.
  • Techniques: Generate false moves (e.g., Judas Swing) to trap less informed traders.
  • Goal: Recognize and avoid traps set by institutional traders.

3. Distribution

  • Description: Traders who accumulated positions start selling off.
  • Goal: Identify selling signals, indicating a market reversal or significant move.

Chapter 3: Phase 1: Accumulation

Characteristics of Accumulation

  • Consolidation: Price moves sideways within a range (narrow or wide).
  • Low Volatility: Low trading volume; appears quiet.
  • Support/Resistance: Price hovers near strong support/resistance levels.

Patterns

  • Flat Price Action: Price remains stable, moving sideways.
  • Ascending Triangle: Higher lows with horizontal resistance.
  • Descending Triangle: Lower highs with flat support.

Identifying Accumulation

  • Sideways Movement: Highs and lows forming a rectangle.
  • Volume Increases: Subtle increases indicating accumulation.
  • Reversal Candlestick Patterns: Doji or hammer after downtrend/uptrend.

Scenarios

  • Bullish: Market in an uptrend; accumulation indicates a breather before continuing upwards.
  • Bearish: Market declining; accumulation indicates potential reversal.

Chapter 4: Phase 2: Manipulation

Understanding Manipulation

  • Definition: Actions by smart money to influence market prices.
  • Techniques: False price moves; Judas Swing.

Recognizing Manipulation

  • Timing: Specific times like 9:30 AM (New York session) or 10:00 AM news release.
  • Impact: Creates confusion and influences retail traders' decisions.

Scenarios

  • Bullish: Price pushed down to initiate a buying spree.
  • Bearish: Price driven up falsely to attract buyers, then sold off.

Practical Example

  • Bullish: Accumulation, false downward move (Judas Swing), sharp upward reversal.
  • Bearish: Accumulation, false upward move, sharp downward reversal.

Chapter 5: Phase 3: Distribution

Characteristics of Distribution

  • Unwinding Positions: Selling off or buying back positions.
  • Price Spikes: Unpredictable price action.
  • Volume Increase: Higher trading volume.

Identifying Distribution

  • Candle Patterns: Larger candles indicating increased participation.
  • Support/Resistance: Breaks and retests signaling unwinding.
  • Volatility: Increased price swings.

Scenarios

  • Bullish: After price drop, institutions buy back positions.
  • Bearish: After temporary rise, smart money sells off positions.

Simplified Explanation

  • Big Traders: Begin to sell or buy back assets, influencing market direction.
  • Indicators: Larger trading actions, sudden price changes, increased volume.

Chapter 6: Application in Trading

Daily and Weekly Trading Ranges

  • Understanding Power of Three: Applied to daily and weekly ranges for trading.

Weekly Trading Ranges

  • Bullish Bias:

    • Accumulation: Start of week, move below/above opening price.
    • Manipulation: Low forms between Monday and Wednesday.
    • Distribution: Return above opening level signaling reversal.

  • Bearish Bias:

    • Accumulation: Start of week, move above/below opening price.
    • Manipulation: High forms between Monday and Wednesday.
    • Distribution: Return below opening level signaling reversal.

Daily Trading Ranges

  • Daily Power of Three: Use opening level to pinpoint zones for entry.
  • Manipulation: Wait for Judas Swing to capture liquidity.
  • Example:
    • Bullish: Accumulation, false downward move, upward reversal.
    • Bearish: Accumulation, false upward move, downward reversal.

Applying Power of Three in Different Timeframes

  • Higher Timeframes: Weekly and monthly improve success.
  • Lower Timeframes: Weekly and daily sufficient for scalping/intraday.

Tips for Scenarios

  • Bullish: Wait for manipulation below open, confirm bullish trend.
  • Bearish: Wait for manipulation above open, confirm bearish shift.

Chapter 7: Conclusion

Key Takeaways

  • Accumulate Knowledge: Understand each market phase.
  • Use Opening Price: Benchmark weekly opening price.
  • Track Actions: Monitor Monday to Wednesday for manipulation.
  • Trade Distribution: Wait for trend change post-manipulation.
  • Use Kill Zones: Recommended for trading.
  • 15-Minute Timeframe: Suggested for scalping/intraday.
  • Pair with Strategies: Combine with other SMC strategies.

Final Thoughts and Recommendations

  • Stay Observant: Look for three phases in action.
  • Practice Discipline: Implement Power of Three with discipline.
  • Educate Continuously: Stay updated with new techniques and insights.
  • Biblical Wisdom: Proverbs 15:32 - Discipline leads to understanding.
  • Support: Seek help if needed, either from the lecturer or within the community.

End Note: Thank you for watching. Happy trading and may the Power of Three be with you.