Bread & Butter Buy Setups

Date: 2024-12-31

Two bullish price engines

[00:15] Welcome back, folks, to Lesson 6 of the May 2017 ICT Mentorship, ICT Amplified Day Trading and Scalping. This teaching is Bread and Butter Buy Setups. Okay, bread and butter buy setups—daily opportunities in scalping. What you’re going to be focusing on is consistent small price movements that can be harvested, not every day, but just about every day. In buy programs, IPDA will perform one of two price engine models. The first is accumulate sell-side liquidity by repricing under an old low. Sell stops will be triggered, inducing counterparty sellers to pair long entries with. Price will seek a higher short-term premium array to offset positions.

[01:11] So offset accumulation is the first price engine model. The second is reaccumulate fair value in retracements lower at discount arrays. Weak long holders will be squeezed in the retracement lower. In other words, anyone that’s already long—when you see the retracement intraday, many traders are usually using way too tight of a stop loss, and they’ll be squeezed out. They’ll be providing short-term sell-side liquidity to pair up orders with. Price will seek to expand higher to a short-term premium array to offset positions. All right, engineering sell-side liquidity.

[01:55] Offset accumulation: IPDA will reprice the market below an old low to promote sell stops that will be residing there for current long holders. Now, this in essence engineers sellers at a deep discount price. The open float, which is the existing orders that are actually in the marketplace above and below the current market price—the open float below that old low may also have sell stops for breakout systems that wish to sell on weakness. This model is called offset accumulation. Its primary purpose is to offset current long holders or induce more sellers at discount pricing.

[02:35] The model is seen frequently in bullish market conditions and while higher time frame institutional order flow is suggesting higher prices. Typically, offset accumulation models unfold quickly, and you must learn to anticipate them at key lows intraday. All right, providing banks new long entry points or pricing with reaccumulation. IPDA will reprice the market lower to a fair value PD Array to provide Smart Money discount pricing for long entries. The market will be bullish from an institutional perspective and many times unfolds after a recent sell-stop raid.

[03:16] The retracement lower in price will place pain on current long holders and tends to induce selling, thus providing sell-side liquidity to pair Smart Money long entries with. This model is called reaccumulation. Its primary purpose is to reaccumulate new long entries and/or induce more sellers at discount pricing. The model is seen frequently in bullish market conditions and while higher time frame institutional order flow is suggesting higher prices. Typically, reaccumulation models unfold quickly, and you must learn to anticipate them at key discount arrays intraday. Okay, realistic objectives.

Scalping parameters and timing

[03:56] The trade duration, when we look for scalps, is going to be typically one to two hours or less. Many times a lot less, but usually about two hours is the maximum. Pips per trade—usually you’re going to see a low end of 15 pips to 30 pips on average. Timing the market, we’re going to be using the 5-minute chart. Now, the frequency of setups per week—you get as many as 15 or more. Yes, 15 or more per week. You get about two to three setups typically per session.

[04:37] You generally get about one per session. That means one in London, one in New York, one in London close, and one in Asia. Doesn’t mean you get one every single session for every single pair. It just means if you look across a handful of pairs and get a basket of four or five, you can watch and see that there’s a scalp usually setting up in one of these sessions, in one of those pairs or another. There’s going to be more volatility in one pair over the other.

[05:00] So if you look at, for instance, the majors across the dollar—if you look at all those majors paired with the dollar—if you look at every major at London, obviously London’s so volatile you’ll get something there. But New York, the same thing. Usually London close and Asia both will have something crop up in either one of those major crosses with the dollar, but not all of them, just one of them. Now, your risk-to-reward typically is going to be 1:1, which isn’t hot, but sometimes you can get a little bit better than that.

[05:36] But generally, if you’re thinking scalping, think 1:1, and that’s about all you’re going to get. Ideal risk per trade is 0.5% to 1%, and 1% may be a little high. But as you start to get better at it, you can start seeing more setups. Then obviously you can graduate to the 1%, but I wouldn’t do anything more than that. Now, this is the offset accumulation model. Basically, it’s a stop run on sell stops—the buy profile for offset accumulation. In other words, it’s engineering sell-side liquidity, knocking out sell stops to take it higher.

[06:11] And for reaccumulation, using fair value or the reaccumulation buy profile for the price engine model, this is what it is. It’s typically the Optimal Trade Entry. All right, consistent small price movements are going to be specific to kill zones. All scalping should be done during ICT kill zones. Since the duration and style of trading is so short-term in nature, we need the most volatile times of the trading day to ensure that we get a move. There are times when, using limit orders, an entry may execute outside a kill zone.

[06:48] This tends to happen in London lunch—that means between 5:00 AM New York time to 7:00 AM New York time—or post-New York open, basically around 10 o’clock and later in the afternoon. So it’s best to be actively following the market if you’re going to be scalping intraday. In other words, what am I saying? Try to do all your scalping with market orders. You can get fancy if you want to with limit orders, but my opinion is, if you’re going to be scalping, just use market orders.

[07:16] Just get in there, use market orders, and use limit orders for your exits. Now, I gave you here a little chart for the major sessions, and you can see how they overlap with GMT time and Eastern Standard Time. The kill zones aren’t completely lined up with this, so you have to use the lesson I gave you in earlier months where I actually give you the specifics about what each kill zone’s start and end times are. All right, up-close days or bullish days. We’re going to be revisiting the daily range here for completeness’ sake.

Bullish daily range framework

[07:49] When the market is poised to trade higher based on higher time frame institutional order flow, in essence, we expect the open to be at or near the low of the daily range. There can be a small decline below the opening price. And you’re probably asking yourself, “Well, Michael, which opening price are you referring to?” Remember, we look at both the 0 GMT open at Asia’s open, and we’re looking at midnight in New York. So higher time frame institutional order flow—that means monthly, weekly, daily, 4-hour—we’ve done our analysis, we’ve done all of our directional bias studies, we looked at the IPDA data ranges. Where is the quarterly shift most recently?

[08:33] Is it looking to go higher? Is it looking to go lower? Are we recently trading off of daily bullish discount arrays? Are we seeing bullish Order Blocks support price and bearish Order Blocks breaking away? Are we coming down and filling in liquidity voids and rallying? Are we filling in Fair Value Gaps and rallying? What that’s telling you is institutional order flow is bullish. You don’t need trend lines or moving averages to do that. You just need to see what price is doing. Are up candles, up-close candles, being broken, and down-close candles finding support every time price comes down to them?

[09:09] That’s institutional order flow. So if you’re looking at it on a higher time frame—monthly, weekly, daily, and 4-hour—and you see those evidences in price, and you did your PD Array Matrix, and you see where those PD Arrays are, where’s the one that you’re most likely going to see facilitate a long entry? It’s the next one that price trades to. Once you get in there, obviously you’re going to be looking for something as a premium to be counterparty to, so that way it frames your trade.

[09:37] You have to have an entry point. Number one, you have to have a consensus of whether the market’s bullish or bearish, and we don’t use anything except institutional order flow to get that. That means we’re looking at price action to tell us what’s occurring. Are old highs breaking, but lows not being broken? Or are those lows being broken quickly and then price snaps higher right away? What that’s showing you is the price engine model was offset accumulation. They took it down, took the sell stops, and now it’s going higher.

[10:04] These are all fingerprints or hallmarks of IPDA showing institutional order flow is bullish. London Open posts the initial leg higher intraday, then waits for New York Open. Typically you’ll see that London Open swing—pretty volatile, pretty aggressive move, one-sided—and usually does anywhere between 40 and 60% of the daily range before we get to 5:00 AM New York time. Then there’s a small period between 5:00 AM and 7:00 AM, which is the London lunch, and usually you’ll get some measure of retracement or consolidation there.

[10:44] Then you have the New York Open. So New York Open sees a continuation higher when we’re bullish and usually tends to expand up to 10:00 AM New York time. Usually they’ll start to consolidate there or create the high of the day and retrace a little bit, or it could be a complete market reversal. But in this case, what we’re looking for is bullish environments for the higher time frame. Institutional order flow is bullish, and we’re expecting a big range day where we can get some scalping done.

[11:15] Price should trade up into the 5-day Average Daily Range high. Now, that’s a little indicator I can give you. It’ll be attached to the forum so that way you can download it. I’m not going to give it to you until we do the Bread and Butter Sell Setups, so that way you’ll have a complete understanding of what you’re going to do with it, because I’ll give you additional instructions about that in the sell setup teaching. Then, once the 5-day Average Daily Range is hit and we go into London close time of day, usually price will be posting its high and then it’ll start retracing off of that high.

[11:53] So between 10:00 AM and noon New York time, we expect the high of the daily range to form at or above the 5-day Average Daily Range projected high. Price will normally retrace lower and close off of the high of the day. Now, normally doesn’t mean every time, okay? Some of the folks in our mentorship take a statement that is not highly specific and rigorous about its context—it’s a normal thing, but it doesn’t mean it’s a panacea. It’s not a be-all, end-all. It’s not an absolute.

[12:32] Price will normally retrace lower and close off the high of the day. What am I supposing there without actually saying it? It can go higher. Sometimes it can go a lot higher. So just be mindful that while we understand the daily range is typically formed like this, on highly explosive up moves 10 o’clock isn’t going to stop price. 11 o’clock isn’t going to stop price. Noon isn’t going to stop price. 1 o’clock isn’t going to stop price. It can rally all the way up to bond close at 3:00 PM New York time.

London session buy setups

[13:03] All right, the London Open. We’re going to be scalping the London session, go over some details about that. Now obviously, when the higher time frame institutional order flow is bullish, we’re going to be anticipating the London session low-of-the-day formation. The open at 0 GMT or 12:00 AM in New York can see a protraction phase lower in price. This can be scalped from the open or just above it prior to 1:00 AM New York time. Now, what am I saying here? You can look at price action on a bullish day, and if you’re going to be scalping, you’ve got to be really nimble about this.

[13:41] You’ve got to know exactly what you’re looking for in terms of a discount array. In other words, you’ve got to really be confident that your convictions are so strong that you think when price drops down to create that Judas Swing, creating the low of the day, where you’re going to be getting out and where the opening is—if there’s a large enough range there, that can be scalped. I teach people not to try to do that, but more appropriate would be to wait for the Judas Swing and then buy it down there.

[14:10] Okay, but for scalping, some of you guys are really excited about being nimble, in and out both sides of the marketplace. Again, I’m not trying to promote that idea, but I’m just giving you a complete array of tools and guidelines. I came up through the market using all these things, but I gravitated away from doing that, just highly specifically looking for the Judas Swing down on days that are bullish and I expect it to be an up-close day. I’m trying to nail down that low or get real close to that low.

[14:38] The classic London Judas Swing lower can be scalped even easier if you’re looking at the midnight candle in New York. That move that drops down from that candle, that in my opinion is a little bit easier to scalp even if you’re going to be seeing a higher close on the day. But Asia’s open, that can be a little bit tricky because you could have a really tight Asian range and it doesn’t do anything. The market retraces between 5:00 AM and 7:00 AM New York time, and this can provide a long scalp entry once a discount array is hit.

[15:12] Now think about this for a moment. There are times when we look at price and after the London Kill Zone closes, there’s that little quiet period of time where markets generally go quiet and it’s in consolidation, and then it’s waiting for New York Open. Around 6:30 in the morning, 7 o’clock in the morning New York time is the New York session open for ICT. So what’s going on between that time? It’s the London lunch. But just like in New York, sometimes traders can work through lunch.

[15:44] They can say, “Well, the markets are really hot right now. I’ll eat lunch when I go home.” So if the markets are really busy, many times you can get a retracement into the London lunch that creates an early entry and it moves before New York Open. That’s going to happen sometimes, and you can get mad and cuss at the screen all you want. But sometimes, if you’re really seeing a very volatile market in London, or it was quiet early in London and then towards the 4:30 time period when news comes out it gets really active, usually it’ll cross over into London lunch.

[16:15] You’ll get maybe a small little 15- or 30-minute consolidation, and then you get the retracement back into New York and then it runs. Not always, but very infrequently you’ll see setups occur where the entry point would be really good if you were trading between 5:00 AM and 7:00 AM. But it’s better just to not even trade that time period. Don’t even look at it and think that you have to. Having the expectation that there’s a quiet period in the marketplace between 5:00 AM and 7:00 AM—just keep that as a general rule of thumb.

[16:51] But unless the London session is quiet in the beginning and then gets really active after 3 o’clock or 4 o’clock, then you’ll probably see a little bit of bleed-over into post-5:00 AM New York time. Even after the initial Judas entry point has passed—that means, in other words, you missed it, you couldn’t get in when it dropped down—many of you are too afraid to get in there because I say you want to be buying on the Judas Swing down or below the opening price and don’t chase price.

[17:19] So some of you are holding fast to that rule, but you don’t ever do anything. There are opportunities if you use the 5-minute chart. You can use a scalping technique to get you in sync with it. Now, the reason why I didn’t teach it to you sooner is because it’s scalping. We’re in that time period where we can use these tools now. Up until recently, we haven’t even looked at a 5-minute chart. We were always higher time frame and sticking to the rules of each parameter for each style of trading.

[17:45] In scalping, we look at a 5-minute chart now. I’ll comment on the markets with a 1-minute chart a few times before we close this month out, but generally, 5 minutes is what I’m working off of. Okay, this is an example of a London session scalp. You can see price trades back down for a Fair Value Gap for reaccumulation, fills in the gap into London Open, trades up, ADR is hit in London Open, and it’s a 30-pip scalp. It goes a little bit more than that, obviously, but that’s all you would be looking for for a scalp, and it’s over. Done.

New York continuation setup

[18:23] Scalping the New York session. When London Open confirms institutional sponsorship on the long side and posts the daily low, we expect to see New York Open continue higher unless a higher time frame premium array has been hit intraday and/or ADR is reached. We look for intraday swings higher to determine discount arrays to go long at in the New York Kill Zone. Basically, think price has got to move higher, then it starts to retrace. Think Optimal Trade Entry long. Okay, that’s basically what I’m describing there.

[19:00] So you’ll be looking for a discount array, either a bullish Order Block, a Fair Value Gap, or a liquidity void. Using the 8:20 AM New York time CME open—Chicago Mercantile Exchange, that’s when the commodity futures contracts start trading—we anticipate the New York Judas Swing to fade. Targets will be the 5-day Average Daily Range high and the next higher time frame premium array found on a 4-hour or 60-minute basis. If ADR high is reached prior to 10:00 AM, take 80% off of your position.

[19:37] Leave a small portion on to capture any range expansion that might unfold. Let me rephrase that again. If you’re long in New York and you have a move that’s quietly moving higher, but it goes up and hits the Average Daily Range before 10:00 AM, that means it fulfilled its Average Daily Range early. Usually London close creates the high of the day, but if it does it before 10:00 AM, still take 80% of the trade off, but leave a small portion on there because you may end up getting a rather large range day, and sometimes ADR can be doubled.

[20:11] Okay, so you can see an example here of the New York Open trade, very similar in the way we looked at the London Open. Price comes down, fills in a Fair Value Gap, trades into an Order Block, and that blue thin line with the CME open—the price drops down after that. That’s the Judas Swing for the New York session. So every session has a protractionary market state. If you’re bullish in New York, you’re looking for 8:20 and a Judas Swing dropping down after 8:20. If you’re bullish in London, you’re looking for the New York midnight candle and price trading lower after that to be a buyer, and price should expand higher.

[20:54] In Asia, it’s your GMT, 8 o’clock in the evening in my time right now. If you look at that session, you want to see it trade down right after 0 GMT. It doesn’t go down very much at that time of day, though, but it can go down just below a previous late-session swing low like we talked about in previous lessons. That is the Judas Swing at 0 GMT, or Asia’s open. At London close, it can happen, but it’s the opposite. You’re looking for the range to create a—for a bullish day—

London close retracement

[21:26] what’s going to happen is it’s going to go up a little bit after 10 o’clock in the morning. So you’re going to have a line on your chart vertically at 10 o’clock New York time, and then the rally that takes place post-10:00 AM, that’s the Judas Swing or protractionary state where it creates the high of the day. Then you’ll be looking to sell that if you’re going to be a London close trader, which we’ll talk about next. Okay, scalping the London close. Before I get into this, I did a teaching way back—

[21:57] I think it was in 2010, Trading the London Close. Really, what I gave was a lot of the rules I used for my S&P trading, because there were a lot of trades that you can take trading SPUs, which is S&P futures. When you’re day trading the S&P, you’re really trading two sessions: the morning trend, then you wait for lunch to go sideways or retrace, and then you have an afternoon trend. Usually it’s about 10:30 to 11 o’clock in the morning New York time.

[22:31] That’s the end of the morning session, or the AM trend, for the SPUs market. Usually traders go to lunch between 11 o’clock and 1 o’clock, and a little bit after 1 o’clock you have a PM trend that goes into the close at 4 o’clock. But the characteristics that you see for London close for Forex are the same thing that day traders do for S&P. So it’s that time-of-day influence where London traders that trade S&P, they’re going home too.

[23:02] So when the New York and London sessions have moved in tandem—that means they’ve moved in the same direction—and the 5-day Average Daily Range high has been reached, and it is at least 10:30 AM New York time, expect a retracement off the day’s high. Again, between 10:30 AM and 1:00 PM, that’s what you’re looking for for that setup for London close. Ideally, price should exceed the 5-day Average Daily Range high. It should be more than what you expected to see in the 5-day Average Daily Range because then you have a really overbought, really stretched-out range.

[23:39] Look for a 5-minute failure swing at the high and a bearish Order Block to enter on. So basically what you’re doing is waiting for it to create a high, start to back off, and then rally one more time up to it into the last up candle. It has to occur between 10:30 AM and 1:00 PM. You’re going to risk 10 pips above the day’s high, and you’re going to target 20 to 30% of the total daily range in a retracement lower. I’ll show you what that looks like on a Fib.

[24:06] Keep in mind, this trade can be very difficult to see pan out some days, as the range can and could expand far more than the Average Daily Range high. Remember, the Average Daily Range is not a barrier. It’s not a force field. It’s not going to stop price. All we’re doing is getting a calculation of what’s the average expansion we’ve seen over the last five days. Well, if you’re looking for a big move on the upside, wouldn’t you really expect it to go beyond Average Daily Range? And that’s the problem.

[24:35] We’re trying to buy in a preconceived idea that the market should go up. So eventually, if we take everything off at 5-day Average Daily Range highs when we’re bullish, you leave nothing on to capture these double-ADR days. They can happen. So with that in mind, just understand that just because we have both New York and London sessions moving in tandem in one direction doesn’t mean that there’s going to be a retracement of any measure that you can trade short. That’s why I don’t trade London close anymore.

[25:04] I used to do it a lot, but it just fell out of favor with me because I just didn’t get enough pips out of it, or I’d get stopped out and it would just keep on going against me. So I teach it for completeness’ sake here because I’ve done lessons in the past. But when we get into S&P, it’s a little bit more favorable trading that. It’s an index. Ideally, take 1:1 risk-to-reward. Targets are based on the required stop, and try to get no more than 20 pips.

[25:30] Okay, and I mean that. Don’t try to get 65 pips, or don’t try to get a one-shot, one-kill haul on a London close. It just doesn’t do it. Typically—I should have it in my notes here—but it should be about 15 to 20 pips. If you get 20 pips, be thankful. Move to the sidelines. Okay, here’s an example of what a London close looks like. It comes down into the London close time period, and you want to be buying it on a failure swing. You can see here it actually went a little bit lower, and if your stop would have been just below one or two pips, you would have gotten knocked out.

[26:04] But again, we’re using 10 pips below the low. Looking at the Fibonacci on this chart here, you can see that where it says London Close Objective, that’s 30% on the Fib, 0.30. Just add that level and you’ll have that. And 0.20 is the lower level. So in between those two lines, that’s usually where the market will reach up into on retracements. That’s a good rule of thumb for day trading also, because if you have an expectation the market’s going to go higher and you know what the Average Daily Range high is going to be, you can use that projection from the daily low or London low and draw that Fib all the way up to and anchor it to the 5-day Average Daily Range high.

[26:48] Well before price even gets there. You can actually see, using this 20 to 30 level on your Fib, that’s usually where the close is going to be on that up-close day, or it’s going to close right on the high. But generally, when it trades off the high, it’ll trade off the high and close in between the 20 and 30% levels on your Fib if you add them. I don’t keep them there. I just know what 20 and 30 looks like on my ranges because I’ve been doing it so long.

Asian open considerations

[27:13] But for a crutch while you’re doing it and you’re learning, it’s a good idea to have it in your Fibonacci. That way you can use it. Okay, scalping the Asian Open. When the market is bullish, we can enter long at or just under the 0 GMT opening price and expect an expansion of 15 to 20 pips higher as the Asian range is established. Notice I said 15 to 20. Asian sessions can traditionally be very narrow, and while this trade has proven profitable in the past, nothing is repeating in terms of promised gain.

[27:53] So what was done in the past is not indicative of the future. Like London close trades, we are looking at the lowest-volatility periods of the daily range formation. So while I’m talking about it here for completeness’ sake, and that way I’m teaching you a well-versed perspective on how daily ranges are formed and how IPDA engineers the daily ranges using time of day and the characteristics that go along with them, Asia’s opening and London close are the two smallest, tiny little windows of opportunity, and it doesn’t pay out enough, in my opinion, to take on the risk.

[28:29] But if you just want to do observations and study and you want to do some crunching on the numbers, have at it, man. But just trust me, if you’re looking for more bang for your buck in your study time and seeing movement in price, you want to be focusing on the New York and London sessions. Always aim for 15 to 20 pips in this session, as the range can be limited on the basis that it will be the Asian range formation. Remember, typically we’re looking for a really tight, narrow range in the Asian range.

[28:56] So if we’re looking to be a bullish buyer of the day and you’re trying to day trade and we think it’s going to go higher, yeah, you can scalp that. But what you’re actually trying to do is demand that the Asian range pays you when you really hope that it’s going to be a small range. So there’s a conflict between the rules. While you may sometimes get lucky and you get expansion in the Asian range and it gets like a 30-pip or 35-pip Asian range, you might get something out of it.

[29:26] My question to you is, why are you worried about it? And you’re probably asking, “Why am I including it then?” Because I’m going to get questions about trading Asia. I’m going to get questions about, “What about London close? You used to do a teaching about that.” Yeah, how many times have you seen me trade London close? You don’t see that a lot. You don’t see me doing it unless it’s a reversal time of day. If it’s going to be a reversal market profile, then I’m all over London close.

[29:49] Same with Asia. If I think it’s going to be trading down to a level that would be a higher time frame discount array, but it didn’t quite get down there in New York and it’s just hovering above it, I would look for Asia’s opening to facilitate that entry. Then that would be the low of the day and start rallying up. Take full exits on scalps in this time of day. In other words, don’t leave portions on. Again, it’s not optimal to expect a second leg in price.

[30:17] Avoid greed here. If you are fortunate to get 20 pips, be content and exit. Asia is just a weird animal, and it’s usually very quiet. Again, our understanding about IPDA’s True Day is that we’re forming the initial high and low of the day during this time. So you’re really having to be nimble. And I know what’s going to happen—you’re going to get in here and start monkeying around with this trade, and you’re going to see it shoot up and it’s got 27 pips.

[30:50] You didn’t put a limit order in, but automatically it shoots up 27 pips and you’re in profit. What do you think is going to happen? You’re going to start thinking, “Wow, this is the low of the day. I’m going to hold this thing.” And invariably it won’t be. It’ll end up being a Judas Swing later on after midnight, go lower, and then stop you out. Then what happens is it freaks you out and you get mad, and you miss the actual move that you should have been looking for all along—the main Judas Swing dropping down to be a buyer on that bullish day.

[31:20] So I’ve given you some rules, I’ve given you some context about how I look at scalps, how the price engine models deliver price—the offset accumulation and reaccumulation models that take place for buying. Bank traders will look for these opportunities to pair up their orders, and that’s how we can do the same thing in scalping. Even if we think that the market’s going to be quiet, many times you can get 15, 20 pips in a day, a couple times a week. And that’s all that’s necessary to do well.

[31:55] Remember, we talked that 25 to 30 pips a week doubles your money over a year. And we can actually start doing that with scalping. Until next lesson, I wish you good luck and good trading.