The Sentiment Effect

Date: 2024-12-24

Sentiment and Asian Range

[00:10] Okay, folks, welcome back. This is the first lesson of the May 2017 content from the ICT Mentorship. This month we're teaching ICT Amplified Day Trading and Scalping, and this lesson is specifically dealing with the sentiment effect.

When are buying or selling probabilities the highest? For day trades, as we're teaching this month, the Asian Range and opening price are key. On bearish days, when you're looking to sell short, ideally you're looking for a move above the opening price and/or the Asian Range high.

[00:55] When you're looking to go long on bullish days, ideally you're looking to buy below the opening price and/or the Asian Range low. The market will have a short-term shift in sentiment, and less-informed traders will chase price on the impulse or initial intraday swing.

This is classically known in my teaching as the Judas Swing, where the market moves in a direction that opposes the general direction of the close for that particular day.

By focusing on strict conditions such as the daily and/or 4-hour directional bias based on institutional order flow, and combining that with the PD Array Matrix for the next level objectives, you create the highest-probability setups.

[01:39] We wait for opposing market directions to create high-odds setups.

In the example on the left-hand side, if institutional order flow on the daily or 4-hour chart suggests the market is bearish or likely to go lower, we're primarily looking for a move above the Asian Range high and away from the opening price.

Smart Money sells above the Asian Range high.

When institutional order flow is bullish on the daily and/or 4-hour chart, Smart Money buys below the Asian Range low and below the opening price.

Choosing the Opening Price

[02:22] You're probably asking, “What opening price?” It can be the 0 GMT opening price early in the day if price has consolidated very close to that level. In other words, if the range from the 0 GMT hour hasn't produced much movement to the upside or downside, you can still incorporate that opening price.

But in this lesson, we're focusing primarily on the New York midnight opening price.

Conversely, when institutional order flow is bearish on the daily and/or 4-hour chart, the market will often trade above the Asian Range high. That move frequently draws in street money, with retail traders buying the breakout above that high.

[03:06] When institutional order flow is bullish on the daily and/or 4-hour chart, moves below the Asian Range low will many times entice street money into selling short. That puts them on the wrong side.

Okay, buy conditions for a proper setup for long entries. What we're going to be referring to is IPDA's suggestion based on a daily or minimum 4-hour discount array. It must be in play. In other words, on the daily and/or 4-hour chart, price has recently respected or traded down into a discount PD Array, and it's showing a willingness to support price.

Long Setup Requirements

[03:49] In other words, we've had a reaction of some sort. So if we see that on the daily and 4-hour chart and institutional order flow is bullish, we have a very high-odds condition for a buy in a day trade.

There also has to be a sufficient range in pips between market price and the opposing premium array found on the daily and/or minimum 4-hour chart. What am I suggesting here? Is there enough of a range for you to profit if you want to be a buyer today, based on the fact that we've traded down to a daily and/or minimum 4-hour discount array?

[04:22] If we've done that, then the stage is set for a potential buy or an up-close day. By itself, it doesn't mean much at all, but there also needs to be a sufficient range between the current market price, when you're looking to take the trade, and the opposing premium array that would be found on the daily and/or 4-hour chart. In other words, is there something like 50 or 60 pips available? That's a healthy range for a day trade. Anything less than 40 pips is a scalp. It can be done, but I prefer to see 50 to 60 pips for my own tastes.

[04:59] Price declines below the opening price—and again, this is the midnight candle in New York—and below the Asian Range low. Ideally, the decline below the Asian Range low will be to a logical discount array on the 15-minute time frame. Typically, price will not spend much time at that discount array on the 15-minute chart. Expect price to sharply trade higher away from the 15-minute discount array. The longer price stays or hovers near that 15-minute discount array, the odds drop off precipitously. We want to see an immediate response because the banks won't keep that price level at a discount for very long if it's going to be good, and short-term sentiment will be most bearish at the time when we enter our long trades.

Measuring Sentiment Confluence

[05:53] For sentiment purposes, I use a 10-period Williams Percent R, and I plot that on my 15-minute time frame. As you can see in our chart here, it gives us a very clear, discernible measure of sentiment. But we don't look at the overbought and oversold conditions that this indicator is usually associated with. We're primarily looking at price, and if we get a sentiment confluence like we see here, that gives us higher odds that we're probably going to be on the right side of the marketplace.

Weekly Low Case Study

[06:29] Why did price go up? As you saw throughout this week, I mentioned that we would probably see the weekly low form during Thursday's New York session. Price came down and hit the sell stops on two bases. They hit the intraday stops on the New York open around the 8:30 employment number, but they did it before the numbers were released. I mentioned during the live session that Thursday that this wasn't good and that they were probably pricing in the low of the week. It was also a sell-stop discount PD Array, an old low on the daily chart, and price rallied up through two Fair Value Gaps and hit the gap resistance on the second, uppermost Fair Value Gap, stopping dead in its tracks there.

[07:15] So we had a draw on the daily chart up to a premium array in the form of two Fair Value Gaps, pricing off the accumulation of those sell stops, along with the weekly template of Thursday's low of the week forming.

Then we see that subsequent price move. Again, that New York session Thursday weekly low was defined before the fact, so we're seeing something in this teaching that otherwise could be looked at as hindsight cherry-picking, but we watched it unfold under live conditions.

Sell conditions: proper setup for short entries.

Short Setup Requirements

[08:01] Again, IPDA suggests that a daily and/or minimum 4-hour premium array is in play. There must be a sufficient range in pips between market price and the opposing discount array found on the daily and/or minimum 4-hour chart. Price rallies above the opening price—the midnight New York candle—and above the Asian Range high. Ideally, the rally above the Asian Range high will be to a logical premium array on the 15-minute time frame. Typically, price will not spend much time at the premium array on the 15-minute chart. We expect price to sharply trade lower away from the 15-minute premium array.

[08:48] The longer price stays or hovers near the 15-minute premium array, the odds fall off precipitously. Short-term sentiment will be the most bullish at the time when we enter our short trades. In this example here, using a 10-period Williams Percent R for sentiment purposes, we can see that when the bearish Order Block was traded up into above the Asian Range high, market sentiment was at its most bullish. It created the two subsequent highs of the day, and price moved lower. This pair, again, is Dollar Swiss.

[09:29] This is in concert with our bearish idea after that gap was filled on the Dollar Index for this week's analysis. That's why this pair had such a significant move lower and why it respected the outlines we're giving you here in the teaching. On the daily chart for Dollar Swiss, we traded up into a Rejection Block on Thursday. Friday opened, rallied above the Asian Range high, and traded down to fill the discount array, which in this case is the Fair Value Gap seen on the daily chart.

Selective Day Trading

[10:05] As you can see here, before Friday's close, the gap was filled. So when we're looking at day trades, notice that there are specific criteria I like to use. Every day isn't going to provide a scenario like this as an entry. It won't give you an opportunity every single trading day, and that's the whole point. Day trading is not everyday trading, okay? I don't think there's any reason why, every single trading day, you should be in there trying to find something unless you're practicing, looking for concepts to be reinforced, and simply studying general price action.

[10:41] I think you should be aware that while that study is profitable, it doesn't equate to profitable everyday trading. So when we teach the 20 pips per day session this month, that's not an enticement for you to go in every single day trying to find 20 pips. There are going to be conditions I teach that help you find 20 pips generally in something, but I don't want to build this idea that you need to become a tradeaholic, because that's not a healthy lifestyle as a trader.

[11:19] It's all-consuming of your time and energy, and it doesn't bode well for long-term success. You end up becoming pip drunk. That's what I called it years ago, and I actually fell victim to it myself. So I don't want to pass those same poor characteristics as a trader on to you, or even imply that you wouldn't be subjected to the same thing. You would be if you went through that same process of trying to trade every single day. Number one, the more you trade, the more likely you are to take a loss, and the faster that next loss is going to come.

[11:58] If you're trying to trade every single day, chances are you're probably going to build a false sense of your ability. The worst thing that can happen is that you get a good string of wins and it makes you think you're much better than you really are. The market has a tendency to go into a dry spell, and what you might think is in the charts today may not be there tomorrow or the day after. So what we're looking for, as outlined in this specific teaching, is sentiment combined with a rule-based idea around the Asian Range. That helps us ferret out the better trades.

[12:34] We won't get this condition every single trading day, but on the days that we do, those are the days when the highest-probability conditions for day trading are going to be in your favor. Until the next lesson, I wish you good luck and good trading.