Core Concept
Interest rates are the single most influential driving force behind market moves.
"Understanding interest rate shifts and changes can assist you in selecting trades."
"Technical analysis of key interest rates can unlock professional money movement."
"Interest rate triads provide a visual depiction of smart money accumulation and distribution."
There's nothing else that drives markets more wild in the currencies than the interest rates. That's what makes the whole world go round.
Interest Rate Triad
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.
"These three interest rate markets are all futures markets... they're traded on the futures market exchanges."
By overlaying these three markets you'll be able to highlight when accumulation distribution is in the interest rate market and when this takes place it represents smart money movement.
"The three interest rates should confirm each higher high or lower low at moments when the US dollar index is at a significant price point."
Smart Money Accumulation and Distribution
Base Asset or Benchmark Examples
The base asset or benchmark could be the Dow Jones Industrial if we're trading stocks. It could be the Dollar Index if we're trading currencies. It could be the CRB Index if we're trading commodities.
Bearish Conditions (Distribution)
In bearish conditions... the base asset or benchmark would be making higher highs... 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 higher."
Bullish Conditions (Accumulation)
In bullish conditions the opposite is seen... assume that the base asset or benchmark is moving lower and it's going to be forming lower lows. Smart money accumulation will be seen with that condition being met with higher lows.
"If they're heavily buying the price will not be permitted to go lower because that is the basis of supply and demand."
Public vs Smart Money Perception
"The public or less informed traders will be looking at the market making higher highs... they will attribute that as this is underlying strength so therefore the market should keep going higher."
"The public or less informed traders would attribute that as underlying weakness so therefore stock should be continually going lower."
Just because the Dow Jones is making higher highs doesn't mean always that's underlying strength. It could be just a heavy distribution cycle.
Failure Swings
Failure swings highlight smart money participation in the markets and trading opportunities are validated.
"You just need one to break that pattern of moving lower. 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 pricing so therefore the model will show underlying strength in one of the interest rates. In other words they won't make a lower low.
Failure Swing Diagram
"One of them will fail to make that lower low" - indicates interest rate shift
When that happens what we're seeing is there's an interest rate shift. So there's going to be a shift in the marketplace.
Validating Order Blocks
So many people ask me how do I validate what order block 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 year... 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 setup."
Example: Dollar Index at Order Block
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.
"If you're looking for a buy at a bullish order block or supposed support to come into the marketplace for the Dollar Index, you 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 bullish order block for the Dollar Index."
Interest Rates and Price Direction
If the interest rate markets are dropping lower that means interest rates are going to go higher which means the interest rate is going to drive the Dollar Index higher. If the Dollar Index is going to go higher that's going to drive foreign currencies lower.
"As these 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."
Action Plan
We have to use the points of focus taught in the first month of the mentorship.
When to Reference the Interest Rate Triad
"When price action trades to a focus point like an order block, a liquidity pool, a liquidity void or fair value gap... you refer 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 funds, pass on the trade idea and look for new ones that do.
Bearish Dollar Validation
"If you're looking to be a buyer of dollar, the interest rate market is going to show you the divergence... with a failed higher high among all three. They should all be moving higher highs if the dollar is moving lower."
Bullish Dollar Validation
"If we see a bearish tone on a Dollar Index... you would see the interest rate markets making a lower low, another one making a lower low, but eventually one of them will fail to make that lower low and what that'll do that'll validate the sell signals that you're getting in the Dollar Index."
It's not simply just looking for every up candle to sell into or every down came to 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 shift in the interest rate markets.
Study Flashcards
Click each card to reveal the answer (all answers are direct quotes from the lesson).