ICT Mentorship Core Content - Month 10 - Open Interest Secrets & Smart Money Footprints

Summary

In this informative video, the Inner Circle Trader delves into the secrets of open interest and its impact on commodity trading, focusing on the insights and techniques taught during the ICT Mentorship program. The discussion highlights the significance of interpreting open interest to track trends and identify smart money footprints. By referencing personal experiences and foundational teachings from industry experts like Ken Roberts and Larry Williams, the mentor shares detailed analyses of how open interest reflects market sentiment and influences trading strategies. The video offers valuable lessons for traders intrigued by commodities and futures markets, illustrating the art of reading market movements and exploiting prevailing trends.

Highlights

• Discover the secrets of open interest to master commodity trading. 🔍
• Learn how smart money influences market dynamics and trading opportunities. 💼
• Unveil techniques to decipher market trends and open interest signals. 📊

Key Takeaways

• Open interest is pivotal in understanding market sentiment and anticipating market moves. 📈
• Tracking smart money through open interest can provide an edge in trading strategies. 💡
• The teachings build on foundational insights from trading legends like Ken Roberts and Larry Williams. 📜

Overview

The video begins with an introduction to the use of open interest in commodity trading, geared towards offering critical insights derived from the ICT Mentorship program. The speaker recounts personal trading journey milestones, crediting foundational courses and mentors that aided in understanding market dynamics. A detailed explanation of open interest follows, elucidating its function and implications in determining market trends.

Midway, the discussion transitions into a methodical breakdown of open interest's role in trading decisions. The mentor outlines how contrasting open interest and market trends reveals bullish or bearish signs, thus helping traders align with smart money footprints. The narrative is spiced with anecdotes from the mentor's professional endeavors, linking theoretical concepts with real-world applications.

Towards the conclusion, the mentor provides case studies and chart analyses, demonstrating open interest application in different market scenarios. These educational instances enrich the viewer's comprehension of predictive trading, underscoring the necessity for combining historical data, market trends, and open interest insights. In essence, the session invites viewers into a systematic approach towards strategic trading, equipping them with the knowledge to recognize and harness market patterns effectively.

Chapters

• 00:00 - 00:30: Introduction and Overview The chapter titled "Introduction and Overview" serves as the last discussion on commodities for June 2017. It mentions that commodities will be revisited in August using top-down analysis templates. The chapter emphasizes a disclaimer that the speaker is not a licensed commodity trade advisor and all discussions are in the context of paper trading only.
• 00:30 - 02:00: Open Interest Secrets This chapter titled 'Open Interest Secrets' is part of the ICT commodity trading course, specifically lesson five. The focus is on understanding how open interest can reveal insights about smart money behavior in the commodity markets. The instructor mentions their beginnings in commodity trading and intends to share secrets about leveraging open interest effectively.
• 02:00 - 03:00: Understanding Open Interest The chapter discusses the influence of Ken Roberts on commodity traders in North America during the 1980s and 1990s. His basic trading course sparked a deep interest in the financial markets, although it was not sufficient to make money on its own.
• 03:00 - 04:00: Using Open Interest as a Trading Tool The chapter titled 'Using Open Interest as a Trading Tool' begins by introducing the narrator's involvement with Ken Roberts through purchasing his course. This interaction led to the narrator's information being passed to a mailing list, which eventually caught the attention of Larry Williams, a well-known figure in the trading circuit. The narrator became interested in Larry Williams' concepts, particularly those related to open interest. Larry Williams becomes the narrator's first mentor, and his widely recognized concepts on open interest are introduced.
• 04:00 - 06:00: Open Interest in Trends and Swings The chapter builds upon the general guidelines provided by Larry Williams, with some additional twists learned by the author. The chapter begins by defining 'open interest' as a foundational concept, acknowledging that while some may know the term, it's included for the sake of completeness.
• 06:00 - 09:00: Open Interest in Consolidations The chapter titled 'Open Interest in Consolidations' explains the concept of open interest in futures markets. It defines open interest as the total number of outstanding contracts held by market participants at the end of each trading day. Unlike volume, which indicates the pressure or intensity behind a price trend, open interest reflects the flow of money into a futures market. The chapter clarifies that for every futures contract transaction, involving a seller and a buyer, only one contract is formed. Therefore, to calculate the total open interest, only one side of the transaction (either buyer or seller) needs to be considered.
• 09:00 - 12:00: Seasonal Averages and Open Interest The chapter discusses the concept of open interest in commodity markets, emphasizing its importance for traders. Open interest can be used to measure the strength of a trend or price movement and to track the actions of large commercial traders, providing valuable insights for trading decisions.
• 12:00 - 16:00: Case Study: British Pound The chapter focuses on analyzing trends and price movements through the lens of open interest, using the British Pound as a case study. Open interest refers to the total number of outstanding derivative contracts, such as options or futures, that have not been settled for an asset. Key insights include: 1. **Bullish Signs in Uptrends:** If prices are in an uptrend while open interest is rising, it typically signals a bullish market. This suggests that even as some short sellers are stopped out, new sellers are stepping in, and buyers (longs) are gaining strength. As the market continues its upward trajectory, confidence among the longs increases and pressures the shorts. 2. **Market Dynamics:** The interaction between longs and shorts as prices rise indicates robust market dynamics where long positions are continuously reinforced, creating a stronger market condition against short positions. The chapter illustrates how understanding these aspects of open interest and price movements can be crucial for market participants, particularly in identifying the strength and potential continuation of price trends. The British Pound serves as a practical example of these concepts.
• 16:00 - 19:00: Case Study: Euro In the chapter 'Case Study: Euro', the text focuses on market trends, specifically in relation to open interest and price movements. It describes a scenario where if prices are in a downtrend and open interest is rising, it's indicative of a bearish market. This suggests that while long positions are being stopped out, new buyers continue to enter, strengthening the shorts and weakening the longs. The text emphasizes that as long as open interest increases during a major trend, the trend has the necessary support to continue. Conversely, if prices are rising but open interest is falling, this is also considered a bearish sign.
• 19:00 - 20:30: Conclusion and Application The conclusion discusses the behavior of the 'smart money' and other market participants in response to changing market conditions. As old, experienced investors (Longs or smart money) secure their profits and exit their positions, they are replaced by new, less experienced buyers. At the same time, weak short sellers are also exiting, giving way to stronger short sellers. In scenarios where prices are declining and open interest is falling, this is seen as a bullish signal. It suggests that the smart money or strong short sellers are covering their positions, anticipating a market reversal.

ICT Mentorship Core Content - Month 10 - Open Interest Secrets & Smart Money Footprints Transcription

• 00:00 - 00:30 okay folks this is our last discussion for commodities for the month of June 2017 content we will be revisiting commodities in the month of August with the top-down analysis templates but as a reminder it's very important to read the disclaimer here and to remind you also I'm not a commodity trade advisor I'm not licensed to give trade advice everything that's being discussed here as it relates to Commodities is in capacity of paper trading only
• 00:30 - 01:00 okay folks June 2017 ICT mentorship ICT commodity trading lesson five open interest and smart money footprints the real secrets to using open interest okay folks open interest in the commodity markets all right so when I first started as a commodity Trader everyone is familiar with me understands that I got really
• 01:00 - 01:30 um baptized by Ken Roberts much like most of the commodity traders in North America back in the 80s and 90s he put out a rather basic commodity trading course and while it was not enough to make money with it did allow me to develop a insatiable desire about the financial markets
• 01:30 - 02:00 so by getting involved with Ken Roberts um buying his course obviously he sold my name to a mailing list and then Larry Williams of all people on the trading circuit got a hold of my address and then like everyone else solicited information and I purchased it so uh Larry Williams was the first in the list of my mentors and his open interest Concepts is basically widely known and I
• 02:00 - 02:30 built on what he gave as general guidelines so everything I'm going to teach you here is pretty much what I learned from Larry Williams with a couple twists of my own that I picked up along the way so before we begin we have to outline and Define what open interest is because I know some of you are going to ask you know what is open interest and while that could be answered simply with a Google search uh for completeness sake I'm going to include it here
• 02:30 - 03:00 now the urban interest is the total number of outstanding contracts that are held by market participants at the end of each trading day now where volume measures the pressure or intensity behind a price trend open interest measures the flow of money into a Futures Market now for each seller of a Futures Contract there must be a buyer of that contract thus a seller and a buyer combine to create only one contract therefore to determine the total open interest for any given Market we need to only know the totals of one side or the other
• 03:00 - 03:30 buyers or sellers not the sum of both the commodity markets have a built-in advantage or additional Insight shared by the way of open interest the study of open interest can provide a Trader a very important perspective in a commodity there are two ways to view open interest as a trading tool measuring the strength of a trend or Price move and tracking the footprints of the large commercial Traders
• 03:30 - 04:00 I'm going to first take a look at measuring Trends and or Price moves with open interest using open interest in Trends and swings if prices are in an uptrend and open interest is rising this is a bullish sign there are shorts who are being stopped out but new sellers are taking their place as the market continues to rise the Longs get stronger and the shorts get
• 04:00 - 04:30 weaker if prices are in a downtrend and open interest is rising this is a bear sign week Longs are being stopped out but new buyers are taking their place as the market continues to fall the shorts get stronger and the Longs get weaker put another way as long as the open interest is increasing in a major Trend it will have the necessary sponsorship to continue if prices are in an uptrend and open interest is falling this is a bear sign
• 04:30 - 05:00 the old Longs the smart money in this case are banking gains as they're liquidating they are replaced by new buyers who do not have the strength on balance but the declining open interest is an indication that the weak shorts are also exiting they will be replaced by new shorts who are stronger than those old shorts that we're trading earlier but got squeezed out if prices are on a downtrend and open interest is falling this is a bullish sign smart money the shorts are covering and
• 05:00 - 05:30 liquidating profitable shorts they will be replaced by new shorts not as strong as they were but the declining open interest indicates the squeezed blogs are bailing they will be replaced by new Longs who are not as weakened by the lower prices as the old Longs were put another way when the supply of losers is exhausted the downtrend ends are using open interest in consolidations
• 05:30 - 06:00 if prices are in a consolidation and open interest is rising this is a bare sign the reason is the street money plays the long side Rising open interest in a trading range suggests commercial hedgers and professionals are taking the short side and the uninformed speculators will fall victim to the downside break in price now think about what causes open interest if the commercial Hedges are the largest liquidity provider and they offer the commodity for purchase for trading if they're willing to sell a lot
• 06:00 - 06:30 of it that means that they don't believe that price is going to go higher otherwise they would hold out and wait for higher prices so since the most likely the most largest pool of counterparty to commodity Traders if the open interest is rising they have an expectation that prices are not going to increase because on balance they're larger as a supplier or seller of a commodity than they are a buyer
• 06:30 - 07:00 so open interest increasing provides a measure of their willingness to be a heavy seller so if open interest is high that means they have a very High interest again on seeing lower prices we can see that graphically here with the accumulative line that's being drawn crudely by myself when that increases while the market stays in a Range price will break down generally and the commercials will be the indication of that now when we see this we want to
• 07:00 - 07:30 couple this with cot hedging programs or the net Trader's position as a whole we can look at what the commercials are doing in this case we want to see the commercials net short or increasing their Short Selling now if prices are under consolidation and open interest is falling this is a bullish sign the reasons is the commercials hedgers who are most likely shorting are covering Street money will be shorting and expecting a breakout lower in price
• 07:30 - 08:00 this is seen graphically with the cumulative line at the bottom here that would be open interest declining while price stays in a range at a key support level and the market breaks to the upside ideally we want to look for long-term or higher time frames for the levels in price that anticipate this open interest concept in times where price is trading at Key support levels on a higher time frame basis open interest will decline
• 08:00 - 08:30 or drop while price is consolidating at or near a higher time frame support or as we Define a discount array as we outline institutional reference points this will be bullish and anticipate an upswing in price conversely we want to look for long-term or higher time frame resistance levels in price to anticipate this open interest Concept in times where price is trading at a key resistance level on a high time frame basis open interest will will rise while price is consolidating at or near the higher time frame resistance or a premium array as we
• 08:30 - 09:00 outline institutional reference points this will be bearish and we anticipate a downswing in price now when we look at open interest uh there's obviously the way we can see this is we can see it on barchart.com and let me just say this barchar.com if you do the total open interest and volume that will give you the true open interest reflection for declines and rallies uh and it's cumulative basis
• 09:00 - 09:30 line and compare that with price action but to get a better picture you're going to have to Avail yourself a resource or two and I like crb Trader and I like pricecharts.com and the reason why if you're going to be a commodity Trader and yes I still subscribe to these uh mediums even though don't actively trade the Commodities Market I use it for my Forex analysis so when I'm looking for quarterly shifts or if I'm looking for Mega trades as we're going to teach next
• 09:30 - 10:00 month the idea is I look at the seasonal average of open interest and both pricecharts.com and crb Trader both plot this for you what it is is you can see the dotted cumulative line here and all the arrows here you can see where it's pointing to it that is the average of a multi-year or as I'd like to look at it as a seasonal average over the last few years
• 10:00 - 10:30 with open interest usually has done and they can as you can see around the June September and December time periods which are generally the contract expiration and rollover period And when I teach open interest invariably someone's going to say well what you're seeing there is the contract rollover and expiration and while that's generally built into it yes it's not indicative of the entire answer okay so there are going to be times when open
• 10:30 - 11:00 interest reflects a great deal of buying and a great deal of shorting by the commercials so if we are seeing contract expiration and Traders are trading for instance say this is uh you copper okay if copper prices are seeing um a bull market just because the contract expiration is what we're seeing here suggested I'm not saying these are delivery month expirations but this is say that for instance they for it is or it's the S P
• 11:00 - 11:30 500 for instance okay um these months because they're expiring as they normally would upon delivery when that last trading day takes place if Traders are still bullish or bearish they're just not going to stop trading because that contract expires they're going to sell or buy to cover their position in the nearby contract and roll right over into the next month out so open interest will still be reflected
• 11:30 - 12:00 it won't it won't change anything okay because we'll be replacing one for one so by looking at open interest like this what I like to see is if open interest declines or in this case many times it can rally above if it goes above the seasonal tendency or the average of what that dotted line is for instance from the period of June all the way through to the second week of September open interest which is the
• 12:00 - 12:30 solid dark line what I do is I look at the difference between open interest actual number and the seasonal average by getting a better feel or intensity about what the commercials are doing as a whole by taking the black line and comparing it to where the dotted line is the dotted line again is the average over several years and the actual is the solid black line okay so the solid black line is above between June and September
• 12:30 - 13:00 the normal multi-year average so that's actually if it were an embarrassing environment we were trading at a resistance level I could be expecting some really nice increases in open interest at a resistance level while it's above the average of its open interest normal seasonal that would be bearish but when it drops down below the average or that dotted line of open interest that's a multi-year average of open interest so when the
• 13:00 - 13:30 black line drops below that dotted line what that's indicating here is the commercials are really covering shorts they're well below in September than their average of open interest movement so in this case if the commodity that we're trading was at a bullish environment in other words at a long-term support level at discount array and we've seen this condition and price was in a consolidation that would be extremely bullish and I would expect that price to go higher
• 13:30 - 14:00 okay so let's take a look at a case study here we're looking at the British pound and I have a monthly chart here and we're looking back in the 2010 time period and I want you to see that we have a bullish order block outlined from 2009's trading and then we have a bullish order block from early part of 2010. so we have the bullish order block noted here and we have another bullish order block
• 14:00 - 14:30 here we're going to look at the second condition here because we have institutional overflow suggesting higher prices because price had respected a mid 2010 bullish order block response off of a 2009 voltage order block and then price rally through the higher order block the second one is being denoted here and price trades down to it and finds some support there so we're going to go into that price level and get a better look and we're going to go into a weekly
• 14:30 - 15:00 chart we can see at that same period in September 2010 the commercials were net long and we're gonna be looking specifically at that little nodule in price or that low you can also see it's trading back down into an old bullish breaker seen in the first quarter of 2010 okay we're going to take ourselves over to an old chart on crb Trader and I'm going to highlight that 153 level that's the higher time frame
• 15:00 - 15:30 support level or below shoulder block and we zoned in right in here during our period of consolidation and price open interest takes a dive and look what it does it goes down below the dotted line or the average or seasonal tendency for open interest that is extremely bullish price as a result rallies with the open interest dropping at a support level while prices and consolidation with the net tradition shown the commercials are bullish that's a wonderful condition to be in
• 15:30 - 16:00 expecting higher prices Footprints of smart money has clearly being shown here they can't hide what they're doing covering shorts and price moves in the British pound over 800 points so in a short span of time less than two months price sees a rally of 800 points or in the Forex Market that would be 800 Pips okay we're going to look at another example here Euro we're looking at the weekly chart here the commercials are
• 16:00 - 16:30 polish you can see them above the zero line right here and look at the extreme bullish reading we had prior to it just left of that when the price made its low in the early part of 2010 then we have price rallying off of that low and having a retracement off of 133 down into a support level 126. uh 126 is a bullish order block the last two down weekly candles you see
• 16:30 - 17:00 that is finding also at the same time the bullish net Traders position okay we see those last two down closed candles here I'm highlighting the high of that series of two down weekly candles there's our bullish order block and price trading back down to that bullish order block as a discount array again with commercials net long so we're going to go into a daily chart back in 2010 you see how I have the range outlined a
• 17:00 - 17:30 small little consolidation there and we see the 126 higher time frame support level now at the same time we see open interest take a dive and again what happens it drops down below the seasonal average of open interest again we don't just simply look at that black solid line that's not enough if open interest is going to decline as you can see in times C with the average in order to dot a black line it does drop down in September but look
• 17:30 - 18:00 how much it drops down in actual open interest that's totally different that's a different storyline altogether price moves in an amazing 1500 Pips or points for this specific commodity open interest drops at a support level while prices and consolation net trading position is bullish amazing price response there and look how fast price moves up does not spend a lot of time Dilly dallying around it completely vaults from the 126
• 18:00 - 18:30 127 level all the way up into the 142s so again in less than two months 1500 points or in a Forex Market that would be over 1500 Pips available as a price swing so now when we talk about these things obviously we're not just giving you know examples of where it works once in a while because it works on the hard time frame basis so these open interest ideas are not day trades they're really
• 18:30 - 19:00 selected for swing trading position trading or to get your trading in sync with that larger move say for instance we looked at this scenario and it was the first week of October we can see that that price move has a lot more significance behind it because it's a large macro play so there's going to be a dominant support structure behind it for higher prices so we can go back and look into that Weekly chart and see where price May reach for for a premium
• 19:00 - 19:30 array and while that still has not been fulfilled we can be looking for day trades where the open is near the low of the day and then rally up or look for one shot one kill for expansions on the weekly range for a higher Friday close from the week's opening so the way I use open interest again is not just simply is it is open it's just declining or is it rallying I have to have it coupled with a hard time frame level because understanding what the hedges are doing the commercials they have a more closely tied relationship to
• 19:30 - 20:00 what price is actually doing based on what it should be doing fundamentally and they also look at the higher time frame charts the value price levels historically for valuation and the the idea of looking for support and resistance on those higher time frame charts by using our PD array Matrix and coupling with cot hedging programs and the net Trader's position and now with open interest declining at supports or
• 20:00 - 20:30 discount arrays or open interest increasing while at resistance levels or premium arrays we can anticipate much more stronger moves much more predictable moves and while it doesn't answer everything and it doesn't give you a signal every day or every week we can be looking for these moves a couple times a year where it gives us a lot of framework to have all the time frames we can trade at our disposal so hopefully you found this trading lesson insightful and until next time I
• 20:30 - 21:00 wish you good luck and good Trading