Definition
"momentum divergence phantoms market maker trap"
Core Teaching
"i can tell you now it's a completely different paradigm shift that when we see price action indicating that it wants to go higher not looking at the indicator many times the indicator is going to tell you it's probably stopping now or it's petering out it's making its uh reversal or it's running out of momentum if you will"
The Fundamental Problem
"the indicators don't have any reflection whatsoever about what the market is going to do next price has no awareness of our indicators"
Divergence Types
Type 1 Bearish Divergence
"when we talk about divergence there's two types of divergence there's type one divergence which is your classic higher high but not seeing a higher high in the momentum okay that's type one bearish divergence"
Type 1 Bullish Divergence
"a bullish diversions would be the opposite where we see a lower low in price but a failure to go lower in the stochastic or whatever momentum indicator you use that would be a type one bullish divergence"
Type 2 Trend Following Divergence
"in trend trading or momentum trading there's called a type 2 trend following and it's commonly referred to as hidden divergence"
"it's a trend following divergence where if you have a higher low but the stochastic cycles down makes a lower low that's trend falling in nature and it usually gives us a really good momentum entry for bullish markets"
"nick van nice he was the guy that released it to the trading community at large"
Market Efficiency Paradigm
Three Participant Groups
"retail views price and they want to see what they want to see in the context of an indicator buy or sell overbought oversold"
"market makers look at the participants thought processes about price and they manipulate their decisions based on what they should be seeing in price"
"funds they trade with a trend following nature they're long-term momentum trend followers"
Liquidity Engineering
"we can reverse engineer that thought process and use that market efficiency paradigm i've been teaching since the beginning of this mentorship where we look at how liquidity can be either engineered or neutralized"
"whether they're willing or unwilling participants the market makers can draw traders into the marketplace or take them out of the marketplace and by unseating them they can assume their position or put them in on the wrong side by engineering liquidity runs and then take the market the opposite direction"
Why Indicators Fail
Mathematical Past-Based Output
"i don't teach a lot about indicators because they're mathematically derived and they measure the past"
"all that's doing is looking at the past and it's compressing all that data mathematically and spitting out an output that output has absolutely zero bearing on where the actual orders are in the marketplace"
Institutional Reality
"ubs credit swiss city they're not in they're not in the business of looking at what stochastics is telling them that that's not what they're doing but they are interested in where buy stocks and sell stops are"
"they're attacking the liquidity on the fund level so when i talk about making a run on stops it's not that they're aiming for retail stocks because you're not even even in the same arena with them but if they can push price to an area above an old high or below an old low they know that there's going to be a pool of liquidity in the base of fund trading"
Price Awareness vs Indicator Awareness
"price has no awareness of the divergence but markets have an uncanny ability to be aware of the thought processes that are in all the traders because of their orders because of their trading because of their their leverage because of what they're doing in the marketplace the excitement around specific levels"
Retail vs Institutional Mindset
Retail Thinking
"as a retail share that's what we think the indicators way of engineering a thought process behind a trader it's almost like remote control in many instances"
"the mythology is you can pick tops and bottoms with indicators"
"bearish diversions they're looking for tops bullish diversions they're looking for bottoms you ask any trailer that sees that they're not looking at qualified entries and qualified exits and specific targets what they're looking for is get me in at the low and i'll figure out where i'm going to get out later on"
Four-Condition Trap
"you have four conditions there are we overbought or are we oversold and if we are overbought is it diverging bearishly or if we're oversold are we diverging bullishly"
"if it were that easy then everybody would be making money and problem is there's some things you have to look at to determine if the market is in fact bullish or if it's bearish and here's one for you there's a fifth condition is there really a time to be trading because there's some time there isn't marxist will stay in consolidation and you just don't want to be doing much of anything"
Institutional Focus
"if we're going to be looking for price action to give us clues as to where price is going to be reaching for you can't get that information by looking at an indicator"
Phantom Pattern Recognition
Setup Description - Example 1
"the market made a slightly higher high here than here while momentum was already posting a potential bearish divergence"
"we have a down candle here we have equal lows in here so the market drops down clears out the equal lows dips into this bullish order block"
"indicator folks are going to say okay well this is a solid bearish divergence so we're going to be expecting lower prices price action based traders are saying this is actually a buy"
Hidden Divergence Signal
"we have a low which is directly related to this cycle through on stochastic and then we have this higher low with a lower low on stochastic this is that hidden divergence or trend following divergence okay this actually is a very powerful scenario if you know what you're looking for in price and you see this qualified in a momentum indicator"
The Trap Mechanism
"this is arm wrestling with the guys that are looking at this bearish divergence looking to capture a high"
"yes they're going to see that as a bearish divergence they're going to want to sell short and we expect that same measure of retracement lower as well but we want to see it come back down and hit this order block and wipe out the stops over here"
Why Run Sell Stops
"why would they want to come down below these lows in here to gather up all the sell stops why because they're willing sellers down here why would they want to go down there because they want to pick up those orders that liquidity is offering so they can buy them"
Example 2 - Dollar Swiss
"we're looking at base another scenario where price has made a nice rally higher and we're looking at what would potentially see as a type 1 bearish divergence"
"this is the last down candle prior to this up move so inside this range in here in this wick we expect price to trade down into that"
"we're expecting price to yes cycle down and go lower but not to go below the middle of that body of that candle"
Retail Expectations vs Reality
"retail's thinking this is a top it's selling off it's going to break this low it's going to make the low attempt to retest here and maybe even run down here based on just an indicator what we're looking for is yes the stochastic is going to drop down as price should drop down but the stochastic is going to drop below this low in the indicator but it won't go below this low here because the institutional overflow is supporting higher prices"
Practical Rules
When Using Indicators
"if you're learning what i'm teaching and you're getting still inspired to pull up indicators only pull them up with this basis in mind only draw a contrasting view and it'll give you what the retail minds are thinking"
"if you can do that and also see reasons behind the scenes why institutional order flow is going to suggest the opposite occurring chances are you probably got a good deal"
Not Indicator-Based Entry
"i'm not teaching entries with stochastics or any momentum indicator here but i am going to teach you how to use a means of sentiment or how retail-minded traders are going to think about price"
"not that you're basing your trade on the indicator but i like seeing this because what this is doing is is arm wrestling with the guys that are looking at this bearish divergence looking to capture a high"
Focus on Liquidity
"there's liquidity above this high they're not going to keep price this close okay and not run that high so there's buy stops above there"
"we have a equal high up in here and we have liquidity above this high here we're too close to these levels up here not to run them"
Stochastic Requirements
"notice it's not oversold it's not needed to be oversold what we're doing is we're watching the momentum shift back down just to get the cell stops then they make a run for where the market really wants to be reaching for the orders not what this little indicator divergence is indicating here"
Sequential Divergence Failures
"another bearish divergence this is probably the top now it's got it's got to eventually happen here's your bear's divergence okay what happens price doesn't make a sell-off it just goes higher and it ultimately punches one more time up and then it gives off a cell"
Final Warning
"please don't think that indicators are going to be the answer"
Study & Review
Click each card to reveal the answer (from transcript quotes)