Original subtitles

Welcome to lesson seven folks in the swing trading model.

This teaching's going to be teaching the keys to selecting

markets that will move explosive.

Caitlin cover the hallmarks to explosive swing trades.

And the first in the list of.

Eight things I like to look for that are going to deliver, in my

opinion, the highest probability for explosive price moves, where it's

just dynamically moving one sided.

You want to be in those types of moves.

And obviously as a swing trader, we want to focus on markets that provide these

in terms of the highest probability, what we look for as the market profiles that

show that the major four asset classes that mean the interest rate market.

Stocks, commodities and currencies.

They are all trying to trend.

They're not held in consolidation.

They're not at odds with one another.

They're not conflicting.

And if you get one or two of the asset classes showing willingness to trend,

that gives us a really favorable market condition to trade in for swing trades.

It doesn't matter that all four of them were trending.

We want at least to have a see at least half of the four or two

of them showing a profile where there's trending environments.

Intermarket analysis, confluences.

This is the approach that using all the other asset classes to justify

or confirm the ideas that you have as a trade are in fact in alignment.

So I'll give you an example.

If we think.

There's a bullish dollar underway.

Uh, we should see commodities, therefore at resistance levels across the, uh, the

major sectors in the commodity markets.

Uh, that means that we're also going to see commodities

fail, to make higher highs.

Even if they break out, there'll be false breakouts and we'll see

commodities, uh, very easily breaking their lows or failing to make a rally.

Okay.

All of those conditions would be there.

If we're expecting to see bullish dollar, the opposite would be.

If we're looking for a barest dollar, if the dollar is expected to go lower,

based on our analysis, we will be looking for commodities to have very

little resistance in terms of wanting to go higher and strong support levels.

Okay.

So highs, we're going to be broken on commodities and Lowe's are going

to be supported and very little breakdown on commodities will be seen.

That would be an idea that would support the idea of a bear scholar.

Same thing would be said with, uh, you know, Once we arrive at

that condition for the dollar.

If we're expecting dollars to be bullish, we would be looking for bear scenarios

where like Euro dollar Aussie dollar pound dollar, New Zealand dollar,

uh, those pairs would be at resist.

Okay.

And they would be breaking lows and have difficulty making higher highs,

or if they make higher highs, they're false breakouts and they trade lower.

That would be supportive of Bush dollar.

Or the reverse would be said for a dollar that we would bearish.

And then it means that we'd be seeing your a dollar pound dollar, New Zealand dollar,

all the dollar, those pairs at support.

And they would not be willing to make lower lows, or if they do they're quickly

rejected and highs in those foreign currencies would be easily traded.

Okay.

And that would also support the idea that weak dollar third on our list

is the cot hedging program alignment.

This is where we look back in the last 12 months on the net positions

held by the commercial traders.

And then we get a range over the last 12 months with the highest level was

in the lowest level for their holdings, regardless of their net short and long.

And whatever that range is, we divide that in half.

And then we define that in terms of being bullish or bearish.

If we are supporting the idea that.

Foreign currencies are going to go higher and therefore the

dollar index is going lower.

Uh, we would probably see the cot hedging program show bullishness for like

Euro dollar cable, um, Aussie dollar.

And the more you see the commercials holding net long positions in their

hedges or their hedging program, the more likelihood you're going to have

an explosive move in your favor with a bullish foreign currency idea in a weaker.

And the reverse would be said in terms of when you're looking for stronger dollar,

you would expect to see the bearish stance in the hedging done by the commercial.

And I'll show you examples that that would make this.

And an open interest.

We look at that because all of the parents, I trade are

the majors and they're calm.

They're calm down to commodity dollars.

So I can get the insight gleaned from commitment of traders

and the open interest that cannot be seen in spot market.

So if we look at the open interest, we can actually track the smart

money movement of buying and selling.

And I'll kind of go over that again, in this teaching and seasonal tendency.

We can see that there's times when there's a very good probability

for markets to want to trade higher or lower based on seasonality.

And if you can have that in alignment with your trade idea, it obviously

pushes the probabilities for an explosive move in your favor.

And we now talk about volatility filters.

Okay.

Now volatility filter is a way of gauging when the market gets quiet.

Okay.

And, or there's a contraction in the range of.

If this is seen, what you're seeing is the market going into contraction right

before a big explosive type of move.

That is a hallmark that spells wild profitability.

If you get the direction, right.

Okay.

It doesn't mean that you know that direction because the

markets are going in small ranges.

It just means that you're going to see another big explosive move.

And if you have the direction.

Many times you're gonna see that Xplosive moot takes off in a direction you

anticipated based on your major market ideas, you're in your market analysis.

And with the hedging programs, suggest by the commercials, are they buying?

Are they selling and open interest?

Are we tracking smart?

Money's buying and selling in relationship to those ideas.

If that occurs at the same time, there's seasonal tendency for it to rally higher.

And about until he starts to squeeze into small little ranges, there's

going to be a high probability that moves are going to be explosive to the.

Major news headlines.

I like this one because if we have a condition staged and we think that

the market's going to go higher based on our major market analysis markets

as a whole on the four categories or, uh, asset classes, stocks, interest

rates, commodities, and currencies.

If two of the four groups are in trending environments, because one

can always be held in consolidation.

Uh, not really trending.

Uh, if we see at least half of the four major asset classes, At least we are in

a good swing trading model environment.

If that happens and we are bullish on an environment or a particular

market and a news event comes out and starts jawboning and weak it's weak.

It's not, it's not as bullish or something's wrong with that idea.

Don't expect it to go higher.

Anything a talking head would have in their headline.

That to me is fuel on the fire if I'm bullish.

So if I see there's headlines at a time when I want to be a buyer,

that to me helps my trade many times to be explosive in nature.

And lastly, in our list market sentiment, and all I do is gauge the bullishness

or bearishness based on the retail universe is a use of indicators.

Okay, let's take a closer look in, in discussion about major market

analysis and being one-sided and this being a trending profile.

If we look at the currencies stocks, commodities, and interest

rates, those four asset classes.

We use those for our intermarket analysis.

But before we get into our intermarket analysis, we have to look at,

are those markets now trending or are they held in consolidation?

Again, we're looking for at least two of the categories to be true.

And if they are trending, that means that the other two Navy just lagging

and they're going to eventually go into a training environment to preferably

all four of them should be trending, but there's not going to be times

where it's going to be like that.

You have to demand at least just two of the major categories to

be in a trending environment.

If that's the case, then we're going to see a swing traders environment unfold

in the markets that you've whittled down through a top-down analysis.

Through the things we're going to talk about here and then actual process

in lesson eight, it'll give you the framework and it'll give you the,

uh, the hallmarks that look for to frame out high probability trades

with explosive nature in price action.

If we see a market asset class, like, uh, the commodity market being in

consolidation, if that's the case, then stocks should be trending.

Okay.

Or vice versa.

If stocks are in consolidation, then commodities should be.

Interest rates and currencies.

One of those two should be trending as well.

Okay.

So if we're going to divide it in the end, the two special, special

groups you want to group commodities and stocks together, one of those

must be in a trending environment and currencies and interest rates.

One of those two must be in a training environment.

Okay.

So you have to have one of the two.

Being in a training environment.

And that helps really frame the models that the algorithms will use to move price

around, not just in foreign exchange, but in all the other asset classes with the

exception of commodities, which are really focused in, on real supply to me, in fact,

Okay.

Intermarket analysis conferences.

Okay.

We talked about intermarket analysis.

We've already taught how I look at it and what things I look for, but

I want to bring it up as a hallmark here in not leading to death, but you

already know how I look at intermarket analysis because there was a specific

teaching in January about it.

The market as a whole.

Okay.

We look for specific inverse relationships and positively correlated markets to

suggest that if we're bullish on one asset class or that one market in

that asset class, is there supporting ideas through the use of intermarket

analysis to build a confluence?

Is it supported in another asset classes or other markets?

Hmm.

If we're going to be trading Forex, if we're looking for the dollar index

to be bullish, we would look for commodities to be at levels of resistance.

Okay.

Or an ability to, to rally higher.

Or if it does make a higher high, it fails and goes low.

Um, the commodities would be moving lower very easily or

trending lower in that environment when a dollar would be bullshit.

And then obviously it would be said that opposite terms.

If we're looking for a bear's dollar commodities would be easily trading

through their old highs and very stubbornly going below their old lows.

And they would be moving aggressively higher with very little consolidation,

more upside than they do anything else.

And anything below an old low.

When the dollar is weak for commodities, if they take out an old low, many times,

you can expect turtle soup scenarios in that condition and it would rally higher.

So that's, that's what we'd be looking for for intermarket analysis in conferences.

So if we have those ideas seen across many sectors and commodities, not just, uh,

the CRB index that's being indicated here.

Yeah.

Are the grain markets, if we're bullish on the dollar, um, are we seeing soybeans and

wheat and corn fail to make higher highs?

So if they do make higher highs, are they rejecting them quickly?

And are they seeing their lows blown out and are they trending lower?

That's supportive of bullish dollar and the reverse would be seen, you

know, and looking for a weaker.

We would see those commodities making higher highs and very little resistance

at all in strong support levels.

And if Lowe's are taken out and commodities while the dollar's weak

or expected to be weak, those lows and commodities would just be turtle

soup, longs, whether it be a false break below and a low, and then you

see higher prices and commodities.

If you see that you have confirmation that the dollar is in fact strong

or weak relative to those ideas, if the dollar is strong in.

Classifications then we can see there's business in foreign currencies.

And if the dollar is weaker, you know, you pair that up with stronger

foreign currency and it's goes without saying that's how we use the

conferences for intermarket analysis.

So we look for training environments as a whole, either stocks or commodities

have to be in trending environments.

And I'm sorry.

Intermarket analysis suggests that we see the reflection of training environments

in currencies and interest rates as well.

One of those two have to be in a training environment.

So between the two major asset classes, we have to have at least two in a

training environment to support the idea that there's going to be an

explosive high probability swing, trade cot, hedging program alignment.

What we look for in this is the last 12 months of the commitment of traders

report held by the commercials.

The commercials are the largest producers or providers of a commodity,

and they may manufacture it.

They may grow it.

They may offer it in terms of like a currency, like a bank, uh, that's

their commodity, if you will.

So they make it available to they're the storehouse of it.

And I'd like to look back over the last 12 months because hedging is usually done

over a plan using the last 12 months data.

So what was pricing like last 12 months?

What was the commodity price based on real supply and demand factors last March?

What was it last January?

What was it last August?

What was it?

Last December.

Okay.

And by looking at a range of 12 months, It gives them an idea on how they

should hedge pricing because they use the last, last 12 months to frame their

expectation on what may be normal or what would be reasonable to expect

going forward for the next 12 months.

So they use that for hedging because of that many times,

they're going to see long-term net short positions in a commodity.

Through the use of the commitment treasury report.

So by looking at their net position, being heavily net loss and net short, for

instance, if we're looking at a market that has a long term, long net short

position being held by the commercials that would be seen with the red line

here, in this example, you can see from January, 2016, all the way to the present,

they have been below the zero line.

That in itself by standard definitions and by way of, uh, teachings by

Larry Williams, who did the majority of the early work on commitment,

shows, reports being made public.

This would be deemed as bearish.

And this was a frustration for me, and I'm not going to rehash all that

because of the teachings on this.

But I like to look as a hallmark.

I want to see are commercials buying or are they selling in their hedging

program right now, as I'm doing this.

We're about to take the trade.

And what I do is I frame the last 12 months and look at the highest highs

and lowest, low, and divided in half.

And then I have a new zero line.

So I ignore the zero line on the standard net treated physician

chart that everybody has access to.

You can find this on bar chart.com.

The lesson number eight, Oxley.

Do a walk through.

You can actually see me do this whole process.

I define that new range in the last 12 months of the commercial activity.

That's my net short or net long basis.

The 50% mark of that range, January 16, you can see that it's where the highest

portion of their holdings, where that at the time was still underneath the.

Some zero line.

So they would be either neutral or bare slightly in January, 2016.

And then in July of 2016, the red line went as low as it shows there.

And that's the range.

They need to find that by a high level, 11 divided in half, and that's

going to be your new zero level or, but bullish or bearish level.

You can see in December of 2016, we went above that new.

Adjusted or makeshift zero line as I'm indicating here by

looking at their hedging program.

So they were buying again aggressively in December.

So if the, see, if we see this, even though they're below the net sum

zero line from a net trader chart from everyone's perspective in the

retail world, I see that as buying in December, going into January and still

presently now they're they're buying.

So if we see this.

And alignment with the expectation that the market should be going

in a training environment.

And intermarket analysis suggests that the market itself is going to go higher

and other markets that are inversely correlated to it are going to go lower.

Uh, then we have the cot hedging program in alignment stating that yes, the

commercials are in fact, they're buying.

So we can go into our next stage of analysis, looking at open interest.

If we see the market, when conditions were bearish, if this is the environment, you

would see where we're above that zero line and the market's been trending lower end.

We are seeing this.

This would not be supportive of a strong sell.

This would be at odds with that idea.

So you'd have to wait for that red line to go back down below.

That new zero basis line or that heavy, thick black line I've created

separating them green and the red line.

Okay.

Open interest.

We're going to look at the relationship of open interest

because it shows us an x-ray view.

If you will, of what the smart money is doing.

Now, open interest real quick.

If we see a increase or reduction of opening, And that's delineated

by that purple line here.

It's a cumulative line showing the total open interests in any one market.

And it's going to be only shown through a commodity cause that's

where you get this information from.

If open interest declines 10 or 15% or more, that's indicative

of commercial short covering.

If there is a.

Reduction of open interest that shows their willingness to not want

to offer liquidity or expect lower prices because they think that prices

are going to go higher significantly.

Otherwise they would hold onto their open positions.

And they're having that short position it's confirmed when you see

the red line, which has commercials in a net traded physician chart

go higher towards the zero line.

So that's a reduction of.

Open interest and a confirmation that they are reducing their short positions.

Otherwise that red line would be either staying flat or going lower.

It's going up at the same time.

That purple line drops down from November through November into December.

And there was a huge reduction in open interest over 500,000

contracts down to just five to 400.

Okay.

So there are over a hundred thousand contracts taken off that were

short, and you can see that that reduction is seen with that increase

or movement higher in the red line.

But by the commercial traders, this is confirmation that your trade would

be a bullish scenario and explosive price action should be expected.

If we see an increase of open interest, 10 to 15% or more at a time.

The commercials increase their net selling.

Okay.

Or the red line goes lower.

That is bearish

to see the open interest declining here, November going into December

at the same time that red line is increasing in value, which is the.

Reduction of short selling.

So they don't have a heavy net short position on, and at the same

time we interest at the client.

This is bullish because they're not trying to hold onto a heavy, short position.

Okay.

Moving on seasonal tendencies.

We want to find obviously times when we take a swing trade, when the seasonal

tendencies aren't aligned for a movement.

So if we have our major market analysis, suggesting that there's training profiles

in two of the major categories, opening.

Is declined.

We have our hedging program suggesting the commercials aren't buying intermarket

analysis suggests that this market is poised to go higher because other

markets are suggesting the confirmation.

That's the case.

And we see a seasonal tendency for the market to want to rally as

indicated here December into January and growing over to the next year.

You can still see January going into February.

There's a strong tendency still for this market to go higher.

If that's the case, we ha we now have.

Five things in our favor, suggesting there's going to be an explosive price

action in this particular market.

And if we're suggesting it's going to go higher, we know now that there's

a strong degree of probability that it's going to be explosive

price move going higher prices.

Some should move higher, not in small ranges, but it should be explosive.

And it shouldn't be able to thoracic price action move.

Now we're gonna talk about volatility filters and about

tele filter is simply a contract.

Idea where price moves from a large range down to a small range.

It's universal.

It can be applied to monthly, weekly, daily, or any other timeframe.

But if we look at the green candle as a monthly candle and we see the next

candle or next month's candle trade down to a smaller range, we look at

the body of the candle, not the Wix.

Okay.

So you can see that that smaller secondary candle or the black candle,

and it doesn't make a difference.

If it's an up-close or down close, that's not important.

What we look for is the lower high in the higher, low.

This is called an inside candle or inside bar conceptually,

it's a volatility contraction.

So that means there's a high probability that the next candle or the next candle

after it will be a large range candle.

Especially if you have a condition that's poised to go higher or lower.

So if it's trading at a level that would be offering.

And we have all the factors that we mentioned so far in alignment,

suggesting that it's going to be an explosive price move.

And then we had the direction picked as bullish.

The next candle, or next month's candle should be an explosive

up candle or green candle, or if not that one, the very next one.

So it gives us a anticipatory expectation for price to explode the

upside, but it doesn't give you timing.

It just gives you the stage that yes, this is going to.

Very likely have an explosive price move to the upside.

Now this can be seen as also the smallest range in the last seven days.

Uh, that's another, uh, filter you can use, you can do also the last three days,

the smallest range in the last three days.

So I use the last three days, the last seven days, and I use any inside a candle

or inside bar to frame the context around a trait that I have already seen coming.

If I get this, this is really adds to it.

It's like that little wind up of a spring.

Again, that analogy I like to use, and it's going to be let go, and

there's going to be dynamic prices.

Major news headlines.

If I'm bullish on a, up your market and say, we're looking at

gold as an example, if we have all these things lending well to.

The notion that gold should be bullish.

Uh, everything in, in, in the cards is suggested higher prices.

If I'm about to buy or I'm looking to the buyer, I like to see headlines

that show describing weakness or justifying why price went down.

Because if I see that I know it's going to build in market

sentiment for retail minded trader.

When they see this, like the stuff they don't want to buy gold, they think I'm

going to sell gold because they think that the news media or the talking

heads or CNBC, they're smart people.

Therefore they, they are traders.

And that's not the case.

If they were traders, they know what they're doing.

They wouldn't be on the anchor position talking to us about

why something already happened.

They would be home trading it live before the fact.

So if we're also bearish on a.

Particular commodity or, or a pair or a market.

If we were bearish and we see price trade up until a level, we want to be short.

Ideally you want to see news headlines that are talking about how good it's

been moving up or how it's hitting all historic highs, or it's done

something that looks underlying bullish in the commentary that they put on.

Uh, for futures, I subscribed to futures magazine and they do every month they talk

about a particular market or two, and they say, how great this market's been moving

or how bad something's been happening.

Usually I think the catalyst that really sets up a really nice swing trade.

And if you can start seeing that.

At a time when you on the internet, just go through the major headlines, go

like on MarketWatch or CNBC, anything to has a lot of talking heads and a lot of

audience members usually following it.

If they start talking about a market, when you're looking to be a bullish buyer and

they're, and they're giving headlines that are bearish or HMI, and it's like a loaded

deal it's so it's so good to see that.

And it's also diametrically opposed to what you would expect

to see retail sees this and they don't want to trade gold long.

They think it's going to.

But we go in step right in front of and say, okay, we're trading rate in

there when the sentiment is most weak, which brings us to market sentiment.

I use a indicator for this, and yes, you heard that, right?

I use an indicator if the Williams percent R into my opinion, it's

the most accurate in terms of an indicator for overall result.

And what I do is I apply eight, 15 period.

Uh, millions percent are on a daily basis, and I do.

A simple overbought oversold idea.

And I divide it and use anything at the 50 level or below that is oversold and a

buying area and everything above the 50 level is over bought or a selling area.

And if we're at the 50 level and we've left the oversold scenario,

I will still factor a potential.

And if we left an overbought condition recently in traded down, hovering around

the 50 level, I will favor the overbought side to over the oversold condition.

In other words, if we're at a point of equilibrium or at the

50 level, wherever we left most recently, whether it be overbought

oversold, I elect to go with that.

And that's it.

They're the hallmarks that I look for for explosive swing trades.

They actually will be referred to again, later on in the mentorship,

when we start talking about mega trades, but I'm actually going to give

you an outline, um, in lesson eight, to incorporate some of these ideas.

And also we're going to break down the actual swing trading model, what

we do from step one to execution and management on the trade until

next lesson, which could look good.