DETAILED TOP DOWN ANALYSIS RULES

USDX is a measure of the value of the U.S. dollar relative to majority of its most significant trading partners. Basket index of 6 currencies (the euro, Japanese yen, Canadian dollar, British pound, Swedish krona and Swiss franc.)
Risk Off Environment - If USD Index is poised to go higher (lack of risk tolerance), foreign currencies may see selling pressure. Example: GBP/USD would move lower
Risk On Environment - If USD Index is poised to go lower (risk tolerance), foreign currencies may see buying pressure. Example: GBP/USD would move higher

Consider the Commercial Traders as the “Smart Money”. Examine actual positions of traders and the net change from prior report (commercials)
Look for extreme net positions in the data, warn of major trend change
Commercial sentiment is contrary to commercial activity (i.e. hedging)

When sentiment is bearish while commercial hedges hold large net longs, expect a rally to unfold or trend change long
When sentiment is bullish while commercial hedges hold large net short, expect sizable decline to unfold in the market
When above is not in effect, trade the trend with Large traders; commercials are hedgers on other side of positions, large traders will have largest net on at extreme levels, look for extremes between large and commercial positions for clue of market change

Increasing interest rates, increased foreign currency value, decreased local currency.
Decreasing interest rates, decreased foreign currency value, increased local currency.

Bond Yield Divergence - Monitor yields of 2, 5, 10, and 30 year notes. Identify divergence of one or more of the yields as a chart overlay.

As yields move higher (or lower) at some point, 1 will form a failure sign as one yield fails to post higher highs or lower lows on the line chart, this is signal confirmation that USDX poised to change direction

Swing Highs - Ideal setup is having two lower high candles on each side of the Fractal High candle. Most recent Swing High is the Pivot Point and must be breached to the upside before Market Flow turns up.
Swing Lows - Ideal setup is having two higher low candles on each side of the Fractal Low candle. Most recent Swing Low is the Pivot Point and must be breached to the downside before Market Flow turns down.

Only the most recent Swing High / Low are utilized for determining Market Flow with old Swings disregarded
There is strong agreement of Market Flow if Daily, 4 Hour, and 1 Hour timeframes are in line. Focus on 4 Hour Market Flow for consistency.
Fractals by definition can be identified from the higher time frame on down to each lower time frame. You should be able to find an OTE at each time frame down to the lower ones. (July 12 - Pro Traders Club 32:00)

Look at future contract closing and whether the lead month closed higher than 2nd month (i.e. this month’s contract closed higher than next month’s contract)
Backwardation– when 2nd month closes lower than lead month, indicates that premium is no lead month and therefore there is strong demand for the contract
If a huge difference in close prices, can indicate a change in price movement…the further the price difference in the futures contract the more price will likely change towards the future price

This is the total number of longs and shorts moving into the future’s instrument
If increase in OI, indicate commercials increasing net shorts, when OI decreases, commercials reducing net shorts (i.e. price will go up)
OI useful in the following case: want to see market trade in direction, go into consolidation, then see OI drop or rise around 15% suddenly during consolidation

If market trades up, consolidates, and OI drop, probability market will move up
If market trades down, consolidates, and OI increases, probability market will move down (as commercials are adding to hedge)

Trade in line with the long term (Top Down) directional bias and when the 4-hour Market Flow is in sync.
When there is no clear definable direction, we remain flat and sidelined until there is a clear bias.