All language subtitles for Lesson 1 - Interest Rate Effects On Currency Trades

Okay folks, we're gonna be looking
at the first of eight in the

teaching series for December, 2016
as the other, the ICT mentorship.

We're going to be dealing
specifically with the interest

rate effects on currency trades.

Okay.

Now, in this module, we're going to
talk about smart money, accumulation and

distribution, fundamentally speaking.

And that comes by way of our understanding
and hopefully your acceptance to the fact

that interest rates are the single most
influential driving force behind mark.

Understanding interest rates shifts and
changes can assist you in selecting trades

technical analysis and key interest
rates can unlock professional

money management movement.

Technical analysis of key interest rates
can unlock professional money, movement,

interest rate triads provide a
visual depiction of smart money,

accumulation and districts.

All right.

So what are interest rate triads?

Well, you have to start with a
30 year bond, which is the key

long-term interest rate benchmark.

The 10 year note, which is an
intermediate term interest rate

and the five-year note, which
is a short term interest rate.

Now these three interest
rate markets are all futures.

Okay there they're traded on
the futures market exchanges.

And by looking at the price action
of these three in relationship to one

another, it will unlock a lot of the
things that most of the time evade

you when you're looking for price
action type setups, but overlaying

or comparative analysis on these
three interest rates, unlocks price.

Failure swings at opportunistic times
can validate institutional order flow.

Now, what do I mean by that?

Well, in the very first teaching of
this mentorship, the whole content

delivery of September of 2016, I
gave you specific things to focus on.

Those things that we talked about in
September are going to be amplified

and be able to highlight much more.

Probable trade scenarios after going
through this particular module.

Okay.

So what does smart money
look like in price?

What's it look like?

How do you know when smart money's
moving in, in the, in the marketplace?

Well, first let's take a look at what
it looks like in bearish conditions.

Obviously there has to be
some diametrically opposed.

And yet to start by looking at a base
asset or benchmark and in bearish

conditions, uh, that base asset or
benchmark would be making higher highs.

Now the base asset or benchmark could be
the Dow Jones industrial and for trading

stocks, it could be the dollar index.

If we're trading currencies,
uh, it could be the CRB index.

If we're trading commodities.

The smart money distribution can be seen
by comparable assets that are closely

correlated that are making lower highs.

The reason why this is occurring
is because the smart money is

heavily distributing while the base
asset or benchmark is moving on.

The public or less informed traders
will be looking at the market,

making higher highs, for instance,
on like the Dow Jones industrial,

uh, they will attribute that as this
is underlying strength to therefore

the market should keep going higher.

But if the general market averages
start making lower highs, that's

actually indicating their smart
money distribution on their way.

And it's not new buying.

It's sending the price
higher, but heavy districts.

In bullish conditions.

The opposite is seen.

You have to have obviously a base
asset or a benchmark to compare and

assume that the base asset or benchmark
is moving lower and it's going to be

forming lower lows and smart money.

Accumulation will be seen with that
condition being met with higher than.

And again, using the analogy that we
just used a minute ago, assuming that the

base asset or benchmark is the Dow Jones
industrial, it could be making lower lows

and by all standards looking at it, the
public or less informed traders would

attribute that as underlying weakness,
therefore stocks should be continually

going lower, but a closer look, we'll see
that some stocks are not making lower.

And that is showing a graphic
depiction or visual representation

of smart money accumulation because
those docs will making higher lows.

And the reason why this is occurring
is because if they're heavily

buying the price will not be
permitted to go lower because that

is the basis of supply and demand.

If there's a high demand for
something, it doesn't go on discount.

It goes at a steady or higher
price in many times at a higher.

So to accumulate or buy more of
that, it will be forced upon the

buyer to pay a premium on it.

It will not ever go.

It won't ever go to a discount.

And the opposite is seen with the bear's
conditions when the underlying base

asset or benchmark is moving higher.

The reason why that heavy distributions
taking places, because they're selling

it, they don't want to hold onto it
for higher prices because there'll be.

From a smart money's perspective, is
this recent rally higher on a base asset

or benchmark or in this case would be
represented by an example like the dowel

Jones, just because the Dow Jones is
making higher highs, it doesn't mean

always that's underlying strength.

It could be just a heavy
distribution cycle and you'll see

that with heavy numbers of stocks,
failing to make higher highs.

The S and P 500 and the
NASDAQ composite index may be

failing to make a higher high.

And when that happens, that
is a warning sign that you're

probably in a distribution cycle.

Okay.

Interest rate triad.

Again, we start with the 30 year
treasury bond market, the 10

year note and the five-year note.

Okay.

By overlaying these three marks.

You'll be able to highlight when
accumulation and distribution

is in the interest rate market.

And when this takes place, it represents
smart money movement, or how you as

a trader can view smart money in the
form of seeing where accumulation in

buying or distribution and selling is
actually occurring in the marketplace.

The three interest rates should confirm.

Each hire high or lower, low at
moments when the us dollar index

is Eddy significant price point

failure, swings, highlights, smart
money participation in the markets and

trading opportunities are validated.

For instance, let's look at the top.

We see this graphic depiction of
this could be the 30 year treasury.

It could be the ten-year or
it could be the five-year.

There's no demand on
either one of these three.

Um, The failed lower, low.

You just need one to break that pattern
of moving lower and when it happens,

it invariably will show smart money
participation in the marketplace

because large volumes will be moving
by way of their entries and exits.

It causes that real supply and
demand factor take place in.

So therefore the model will
show underlying strength in

one of the interest rates.

In other words, they
won't make a lower low.

The one on the bottom most obviously
makes a lower low, just like

the one on the top graphically.

But the one in the middle it's
highlighted in blue that is

representing a failure swing.

So when that happened, what we're
seeing is, is there's an interest rate.

So there's going to be a
shift in the marketplace.

And if this occurs at a moment
when you're identifying a potential

institutional order reference point
or focal point in the us dollar index,

that confirms that particular idea.

For instance, if you're looking for a
bullish order block on the dollar index,

if you're looking for a buy at a bullish
or block or SU supposedly support to come

into the marketplace for the dollar index.

You would see a opposite
of this indication here.

It would see a higher high probably
on two of the interest rates,

but a lower high on one of them.

And what that would do is it
would confirm the bullshitter

block for the dollar index.

Okay.

So when you're looking at the interest
rate market, Now every chart I'm showing

you here, you can get this@barchart.com.

It's free.

It doesn't cost you any money to get
that, that charting service from them,

not looking at the chart like this.

It's, it's not easily ascertain what
it is it's supposed to be telling you.

And this is the reason why evades
majority simply because we can show a

chart plot and open high, low, and close
on these specific interest rate markets.

Doesn't always indicate understanding
and specifically going through the 30

year, the 10 year and the five-year like
we just did having these on your charts.

Your analysis of the markets.

If you break them down in
the right manner, just simply

having a chart, doesn't do it.

It's not found with the new
traditional technical analysis.

You have to look at things
and want a comparative basis.

Okay.

So what I mean by that, let's take
a closer look and look at this.

Move in the dollar index just
took place the week of this.

You see the dollar index came
down into that 99 point 50 level

and had an aggressive rally away.

We talked about the dollar being
foolish in this area in the market,

moved higher all week as a response to
that strong move off of 99 50 level.

But if we go back and look at the
interest rate market, okay, this is

the 30 year treasury bond market.

This is at 90 minutes.

Okay.

And I'm looking at over about 15
to 18 days and you can get, and you

can do all that one bar chart.com.

The, the bond market between the
fifth and the eighth and seventh.

In other words, uh, there
was a failure swing get.

You can clearly see in the
30 year treasury bond market

celebrants, we had a failed.

Now, when this takes place by
itself, it doesn't mean anything.

But if you're looking for things
to justify a long on the dollar

and you see a lower high on the
30 year bond market, then we go to

the lower timeframe interest rate.

When we're looking at another
opportunity to comparing the same.

Huh?

This one is relatively unchanged.

We'll just say it's flat to neutral.

So it didn't make a lower high in, in
comparison, but it still didn't make

a, a considerable higher high either.

And finally, for the five here, we
can see that there was clearly a

higher high formed on the five-year
interest rate or short term.

So in the short term
curve, we meet a higher.

When a five-year note, an Unchained
high on a ten-year note, any lower

high on the third year now by
itself, that highlights there's a

shift in the interest rate market.

Now, what did we first
start with this module?

That interest rates are the number
one leading driver for price

action in concurrency markets.

There's nothing else that
drives markets more wild in the

currencies than the interest.

That's the that's what makes
the whole world go around.

So if we understand that we're seeing
a divergence between the actual

underlying five-year ten-year and 30
year interest rate markets, you can

see that shift is pronounced it's.

You can clearly see it.

You don't go in to looking at the bond
market, just for these types of scenarios.

You have to have a predetermined idea
of what the market that you're about

to trade should see in terms of, for.

That brings us back to the U S dollar
index, the same reference point in time

between the fifth and the eighth or so
we saw that the dollar index went lower,

made a lower low, and it traded down into.

A significant price level.

Now this is on a closing
basis and that's all you need.

But the point is we're seeing a
significant divergence between the

lower, low on the dollar index and
that of the 30 year treasury bond

failing to make that higher high,
as it should have made comparably.

When price moves into previous levels of
institutional order flow, we as traders

have to anticipate dynamic prices.

That looks like this.

And we talked about this this week in
the live sessions, we had an old order

block back in, uh, mid point of November.

It was the last down candle that
had already been traded back

down into it in November 15.

One more time and, uh, it bounced away
from that, but we trade all the way back

down this week during the 8th of December,
just to get back into that 99 50 level.

And it was strongly rejected
and the market rally hard on the

dollar index, which obviously would
do what for foreign currencies.

It would give us reasons to trust.

They're shorter.

Bears turtle suits or return
back to fair value closing in a

big ranges that drop the lower.

Once those are closed in after a
retracement higher, we could look

for continuation and roll over for
lower prices on foreign currencies.

But this previous order.

Is what you would be looking for at
that moment when price trades into

that order block, you want to take
a look at the interest rate markets

to see if there's any clue that the
smart money is working that level.

So many people ask me, how do I validate
what we're about to trade off of?

And I just told you with this teaching,
if you can see the interest rate

divergence or interest rate triad
by looking at those 30 10 and five.

If there's a divergence between
the three and prices hitting in a

specific order block on the dollar
index that gives you the green light

to go in and start refining the
idea on that trade because it's most

likely a high probability set up.

So if we saw a bullishness for the
dollar index, then obviously we would

be looking for bearish situations
for the fiber and the Euro USD.

We had a level of buy stops
indicated before the weeks.

And the mark came all the way back
up to an old reference point at

1 0 8 65, which is an old low.

If you go back further on your charts,
I'll leave that for your homework.

But if you take a look at what's happened
here, the market rallied back above

that 1 0 8 15 1 0 8 20 clearing out.

The buy stops rolled all the way up
through to 165 trading back to an old low.

That's not shown on this chart again,
I'll leave that to you for your own home.

But the selling scenario was
justified because we seen the

bullishness on the dollar.

That's the reason why we were expecting
the dollar to keep pressing higher this

week, all through the rest of the week.

And it kept doing that.

And as it relates to the foreign
currencies, it just kept driving them

lower in cable failed to make a higher
high when Euro dollar made the higher

high and dollar means a lower low.

So it's not always just
simply looking for a diverse.

In one specific location or one asset,
you have to blend a couple things.

Sometimes they get to understanding
what the smart money is doing.

You can see that the market has a
couple of different opportunities to be.

Relative to the strong dollar,
but what makes that strong dollar

so significant is that it had a
divergence in the interest rate triad.

So 30 year, 10 year five-year HETI
failure swing at the moment that

the dollar was trading down here.

So once you see that, and it gets
everything back in sync where the

market's going to be driving in one
direction or another based on what

direction the interest rates are going.

So if the interest rate markets are
dropping lower, that means interest

rates are going to go higher,
which means the interest rates.

Drive the dollar index higher.

If the dollar index is going to go higher,
that's going to drive foreign currencies

lower, and everything fits together.

Like a, uh, like a, like a cog, you
know, on all the gears come together.

And he started turning
everything makes sense, but it

doesn't always work like that.

Sometimes there's a shift that takes place
on a longer-term basis and it may mess

up things on a short-term time basis.

And you'll have to allow some of
those things to come up in your.

And just trust the fact that
over a long period of time, these

scenarios will repeat themselves.

And when it does, it'll give you a
plethora of trading opportunities.

All right.

So what do we do with this information?

You know, what can we do to build
some kind of an action plan?

So we can use the information in
a context where it helps us not

just talk about it in hindsight?

Well, we have to use the points of focus
taught in the first month of the month.

When price action trades to a focus
point like a water block, uh, liquidity

pool, liquidity void, or fair value gap.

He referred to the interest
rate triad and the dollar index.

This will confirm smart money
is behind your trade idea.

If there is no obvious indication
that they are moving large.

Pass on the trade idea and
look for new ones that do.

So what do I mean by that?

If you're looking to be a buyer of
dollar, the interest rate market,

it's going to show you the divergence
that I showed here today with the

failed higher high, among all.

They should all be moving higher
highs at the dollars moving lower.

But if we see a bare stone on a dollar
index, this is what you would see.

You would see the interest rate
markets making a lower, low.

Another one may be making a lower,
low, but eventually one of them

will fail to make that lower level.

And what that'll do, that'll validate
the sell signals that you're getting

in the dollar index at eight, they
are shorter block at a, um, old high

that's being ran out for a liquidity.

Or trading up into a fair
value gap, closing in a range.

Then you can expect to see that dollar row
lower and interest rates on these three to

start trading higher in their price, which
means interest rates will be dropping

because as these, uh, interest rates on
charts, as they move up or trend higher,

that's actually interest rates declining.

And that's going to be bearish for dollar.

So, hopefully this has given you one
more insight to understand how to

validate the or block liquidity pools
and liquidity voids, and fair value gaps.

It's not simply just looking
for every up Canada sell into

or every down Canada buy into.

You want to look behind the scenes
and get closer to the underpinnings

of the marketplace because the smart
money is going to make a very clear

fingerprint when they're in there.

And it's going to be seen in a shit.

And the interest rate markets like
this and it validates your setups.

So until I talk to you next time, I
wish you good luck and good trading.