07-ICT Mentorship Core Content - Month 1 - Liquidity Runs

Last modified by Drunk Monkey on 2022-08-29 04:07
1 00:00:29,640 --> 00:00:37,650 ICT: What is liquidity? Liquidity refers to the degree to which a market or asset or security can be quickly bought or sold in the market without affecting
2 00:00:37,650 --> 00:00:52,380 the assets price dramatically. When we look at price, it doesn't matter what time frame you're looking at. Time is irrelevant for right now. specifics about
3 00:00:52,380 --> 00:01:02,940 price action, as it relates to liquidity, we as price action traders, we're looking specifically for reference points where we can hone in on where there is
4 00:01:02,940 --> 00:01:15,540 a high probability of liquidity resting in the marketplace. Now, liquidity as it relates to ICT concepts, it relates to buy orders and sell orders. It's as
5 00:01:15,540 --> 00:01:27,930 simple as that. When we have a swing in the marketplace, as we note here, and the market trades lower, our understanding is Is there someone that went short
6 00:01:27,930 --> 00:01:40,530 here, this position would be net positive, or profitable, as the market moves lower. As the market turns around, if those same positions were still held,
7 00:01:41,280 --> 00:01:52,200 their open profits would be eroding. And at some point, at this point right here, they would be a losing position. Our understanding is, is if there's a
8 00:01:52,200 --> 00:02:02,910 short position, or traders that are bearish on the marketplace, if they have positioned a profitable trade here and moved lower, their stop loss order would
9 00:02:02,910 --> 00:02:13,590 be resting right above this high, we're generally many times just right at that high, the market tends to find an interest in going back to where that large
10 00:02:13,770 --> 00:02:27,750 body of interest, or what we call liquidity in the marketplace, it would be by liquidity. As the market finds these lows down here, as the market rallies away,
11 00:02:27,840 --> 00:02:38,130 we are our understanding is that there's going to be buyers that have positions that are net positive or profitable. As it trades higher. At some point, when
12 00:02:38,130 --> 00:02:49,890 the market starts to trade back down lower back into the area in which the buy orders would have originated from their open profits will be eroding until
13 00:02:49,890 --> 00:03:04,260 eventually moving into this area here, they would be at a net loss position. So when we look at when we look at price, the idea is we're not looking for
14 00:03:04,740 --> 00:03:15,870 specific patterns. For the sake of patterns, we're looking at where existing orders will reside. So essentially, what you do is is you're targeting areas at
15 00:03:15,870 --> 00:03:26,970 which the market has already seen a willingness to go higher or lower. In this case, we see a swing high and the market moves lower. We view that as a Smart
16 00:03:26,970 --> 00:03:39,690 Money trader, or as a market maker perspective, we know that there's going to be buy stop or buy liquidity above that high. When we look at the lows, when the
17 00:03:39,690 --> 00:03:53,430 market moves away from these lows, we see that as sell liquidity. Identifying both of these positions on both sides of the marketplace, we're going to teach a
18 00:03:53,430 --> 00:04:01,770 concept called Open float. While that's not going to be covered in this specific tutorial for this month of training, it's important to understand that the
19 00:04:01,770 --> 00:04:11,430 beginning bout foundations to understanding liquidity as it relates to buying and selling in the marketplace. Our first fundamental understanding is is that
20 00:04:11,430 --> 00:04:23,220 there's going to be liquidity above old highs and below old lows. When we understand that, we can see that they will eventually target the same levels
21 00:04:23,850 --> 00:04:37,500 moving price just above and previous high. knocking out the liquidity that will be resting just above those highs in the form of buy stops. Below old lows, the
22 00:04:37,500 --> 00:04:52,890 market will seek liquidity for the sell side or the sell stops. Taking those orders out. Understanding this premise when we view price action, it removes all
23 00:04:52,890 --> 00:05:04,440 of the retail minded perspective but heavily leaning on indicator based ideas when we to adopt these principles with study of price, it gives us the most
24 00:05:04,620 --> 00:05:19,050 truest purest view of how price is delivered. We have no confidence or direct relationship to our directional bias on price relative to anything except for
25 00:05:19,050 --> 00:05:27,360 price itself. If the markets moved from an old high, we know that there's going to be liquidity resting above that old high. If the market moved from an old
26 00:05:27,360 --> 00:05:31,920 low, we know there's gonna be resting liquidity below those lows, it's just that simple.
27 00:05:38,910 --> 00:05:50,940 Now, there's another concept, when we understand liquidity, the market has a tendency to run out old highs and old lows. But it has a very difficult time to
28 00:05:50,940 --> 00:06:01,020 do that, when the market has conditions like this. When the market moves higher, okay, generally we can see a move higher, and then it moves lower here. Now, in
29 00:06:01,020 --> 00:06:11,730 the context of this entire move lower, there's a lot of peaks and troughs here. A lot of peaks and troughs did. The idea is if this is an old high back here,
30 00:06:12,480 --> 00:06:22,440 for this high to be ran out, okay, or to seek the liquidity resting above that old high. If this is where the current market action is right now, or current
31 00:06:22,440 --> 00:06:37,770 price at market price. For it to get all the way up there, it has to encounter a lot of resistance in the form of old lows, and old highs. So you have the old
32 00:06:37,860 --> 00:06:51,360 lows acting as standard resistance, then you have the old highs acting as buy stock liquidity. So even if the markets gonna go up, if the market is going to
33 00:06:51,360 --> 00:06:59,760 seek the liquidity above this high, how do we know it's going to stop there, you could go another level higher for these buy stops. And you could reach for this
34 00:06:59,760 --> 00:07:09,930 level of buy stops, and then maybe this buy stop level here in the direction the run all these buy stocks, it's got to go through a lot of resistance in the form
35 00:07:09,930 --> 00:07:20,520 of these old lows. Just to get back up to this old high when the market presents these opportunities, and again, this is not specific to any time frame, it's
36 00:07:20,550 --> 00:07:30,810 universal. But when we see the market give this, this very thick area of resistance, okay, it's a lot of price action that the market has to trade
37 00:07:30,810 --> 00:07:40,860 through. To get back to an old high of significance. We view this as a high resistance liquidity run, the market is going to have a very hard time getting
38 00:07:40,860 --> 00:07:50,730 through all of these previous lows and previous highs, just the run out the liquidity that will be resting above this old high. When we trade, we are not
39 00:07:50,730 --> 00:08:00,900 looking for these opportunities. While there are opportunities to trade with this in mind. In other later teachings, it's important to understand that this
40 00:08:00,900 --> 00:08:12,090 is the least probable trading condition to look for Long's because you have so many levels of resistance and old highs to encounter before you get back to the
41 00:08:12,090 --> 00:08:21,960 old significant high. We understand that the market has been presenting lower lows and lower highs and somebody in this market is obviously would be being
42 00:08:21,960 --> 00:08:30,870 profitable. Those individuals with stops above this old high in the form of a fund, they're actually very highly defended because of this type of price
43 00:08:30,870 --> 00:08:42,300 action. So it's going to take a very sharp economic market release the data, kind of like nonfarm payroll or FOMC. That type of event will knock through all
44 00:08:42,300 --> 00:08:51,360 of these levels of resistance to run out that liquidity. But generally without that type of influence or injection of volatility. These old highs generally are
45 00:08:51,360 --> 00:08:52,200 well defended.
46 00:08:57,540 --> 00:09:09,450 Obviously, the opposite can be said when we see the market make a low of some kind, it could be take a long time really the foreignness but the old low would
47 00:09:09,450 --> 00:09:19,470 obviously have cell stops below it or sell liquidity. And as the market makes higher highs and higher lows, if we're seeing price action right here, we can't
48 00:09:19,470 --> 00:09:29,400 reasonably expect the market to just drop straight down and make a run on the sell stops below this low without encountering first all of these higher lows
49 00:09:29,850 --> 00:09:40,200 and higher highs as the market went higher. So to get through each one of these highs, okay, there's going to be a lot of resistance to just run down out the
50 00:09:40,200 --> 00:09:50,640 stops that will be progressing below this low. Again, just like we just mentioned with the high resistance liquidity run for old highs. The same is true
51 00:09:50,640 --> 00:10:01,140 here for high resistance liquidity runs on an old low. It's going to be very difficult for price to reach down through all of this price action and The more
52 00:10:01,140 --> 00:10:11,070 time is spent in this area, again, the more unlikely it is to make a market move all the way down to this old low. Despite the fact that there may be really high
53 00:10:11,070 --> 00:10:21,210 levels of liquidity, resting below that low, without the evidence of a significant market driver coming into play with like an FOMC, interest rate
54 00:10:21,210 --> 00:10:29,280 announcement, or Non Farm Payroll, or something that would be completely unexpected in the marketplace, a black swan event, something like that, that's
55 00:10:29,280 --> 00:10:39,300 generally the only type of thing you see that will cut through this type of price action to get to the sell side of the liquidity here. So for shorts, we
56 00:10:39,300 --> 00:10:49,260 avoid these types of occurrences. There are opportunities that we'll learn with trading with this profile, or this market condition for high resistance
57 00:10:49,260 --> 00:10:58,530 liquidity runs. But for now, we want to understand that this is the element of price action that we want to trade very less frequent in.
58 00:11:04,230 --> 00:11:15,360 Now, obviously, there's going to be times when the market really provides us an opportunistic time to take action in the market and trade with price action and
59 00:11:15,360 --> 00:11:27,420 have very little resistance in our trades. And obviously, that comes by way of trading in low resistance liquidity runs, a low resistance liquidity run would
60 00:11:27,420 --> 00:11:36,990 be in the form of something similar to this. Now, that is crude depictions. While they are rather Elementary in in way that they're being shown here, the
61 00:11:36,990 --> 00:11:46,050 concept is very easy to see in price action, as we'll look at, when we get done looking at the actual crude diagrams I've shared here, if we see the market come
62 00:11:46,050 --> 00:12:00,390 off the old high, okay, and it comes down rather quickly. If there is a very sharp or one way, tight direction, very little retracements of any kind, when we
63 00:12:00,390 --> 00:12:16,320 see this, okay, once that market breaks below, an old low from that point at which it breaks the old low until it gets through a short term high. In other
64 00:12:16,320 --> 00:12:25,560 words, the market comes down makes a low here starts to trade off comes down makes a higher low. Once it starts running through if we get a market break
65 00:12:25,560 --> 00:12:38,940 through this short term high, this run here begins its climb back up into the range that's created by this low being broken. It's been defined by this level
66 00:12:38,940 --> 00:12:55,290 here all the way down to this high once it's broken, this area of price action is deemed low resistance. Now every time that a new short term high is formed,
67 00:12:56,370 --> 00:13:07,710 before this low is retreated to or retested as resistance, every time there's a new short term high, what's going to form above that short term high, it's going
68 00:13:07,710 --> 00:13:19,560 to have buy stop liquidity. So by side liquidity is going to be above these old highs. If we get a buy signal, after a retracement, we know that there's going
69 00:13:19,560 --> 00:13:30,420 to be very little resistance for that move to go higher running out the buy stops just above the short term highs. As we get closer to coming up into
70 00:13:30,420 --> 00:13:41,760 hitting this low that's been violated here. When then we start encountering high resistance liquidity runs. So the probabilities fall off precipitously. Once we
71 00:13:41,760 --> 00:13:54,900 get back to the area which the range is defined in terms of low resistance, then it becomes a high resistance liquidity run to make any higher highs or run on
72 00:13:54,900 --> 00:14:06,390 higher highs, it becomes a lot more resistance to do that because we move back into an area where the market has moved in a range this expansion Okay, that's
73 00:14:06,390 --> 00:14:15,330 the easiest part of trading when we can trade inside that range. So every time we created another short term high in here, if we get a buy signal, that buy
74 00:14:15,330 --> 00:14:26,640 signal will have very little resistance to get through the old high that it retraced from and you continuously look for those until you fill in that break
75 00:14:26,640 --> 00:14:35,940 on this old low. Once it gets back to this old low over here, the market goes into what is referred to as a high resistance liquidity run. Anything higher
76 00:14:35,940 --> 00:14:40,170 than this price point here becomes a high resistance liquidity
77 00:14:40,170 --> 00:14:59,130 run much like everything else I've always taught everything I teach one sided obviously is easily communicated by using the reverse of it or just turning it
78 00:14:59,130 --> 00:15:11,520 upside down. This is a sell side of the marketplace, low resistance liquidity run, we have a consolidation in here, the market expands goes into expansion, it
79 00:15:11,520 --> 00:15:20,610 breaks above a short term high. So at the moment the short term highs broken here market structures bullish and then we go into a real quick run up to market
80 00:15:20,610 --> 00:15:32,160 will create a high start to break down. And once the market starts trading below an old low, the market will have a very easy time trading back down into the
81 00:15:32,160 --> 00:15:41,730 point at which the short term High was broken on the upside. So all this one way direction price action, where all of it looks this one sided for buys only very
82 00:15:41,730 --> 00:15:51,000 little retracements. This is the easiest time to trade in the marketplace right in here. It's defined by the short term high that's broken on the upside here.
83 00:15:51,180 --> 00:16:00,270 That's where you would begin your point at which it's deemed a low resistance liquidity run. So you're focusing primarily on selling short, every retracement
84 00:16:00,600 --> 00:16:13,050 is going to find very little resistance going lower to run out to previous low. That's going to be what resting below these lows. Sell Stop liquidity. So the
85 00:16:13,050 --> 00:16:22,680 market goes lower breaks below the short term low here expands, has a small little retracement what's going to be forming below this short term low bottom
86 00:16:22,680 --> 00:16:32,040 chasers folks that want to be long. But we understand that the market has broken an old high here and had real quick sudden price action, great little
87 00:16:32,040 --> 00:16:42,240 retracements. So we have very little resistance on the downside getting back to that point which market structure broke. So between this point here, and where
88 00:16:42,240 --> 00:16:52,740 the market breaks down this low here, this is the easiest area to trade in price action because you have very little resistance allowing price does cut through
89 00:16:52,740 --> 00:17:00,900 all that. But you're waiting for a short term load of form. And every time a short term low forms, there's going to be sell stopped liquidity resting below
90 00:17:00,900 --> 00:17:13,740 those lows. Okay, so let's take a look at more examples of a high resistance liquidity run and a low resistance liquidity run. And what makes those two types
91 00:17:13,740 --> 00:17:25,260 of liquidity runs different. We have an old high back here, noted here. And the market starts to move lower. And we showed this example of price action here
92 00:17:25,260 --> 00:17:34,320 with this old high violating this old high here selling off these old lows being violated here. And the market starts to rally up. Notice there was very little
93 00:17:34,350 --> 00:17:46,680 resistance in the marketplace, when this high eventually traded lower taking out the liquidity resting below these lows here. This run from this high taking out
94 00:17:46,680 --> 00:17:57,870 these lows is referred to as a low resistance of liquidity run, because we have a longer term high to the left of us and the market has shown a willingness to
95 00:17:57,870 --> 00:18:11,460 take out a low and then we came back above cleared out of stop above the high retraced had an unwillingness to go above these up candle here. So institutional
96 00:18:11,460 --> 00:18:23,550 order flow as you'll learn more about throughout this entire mentor ship moves back to bearish and expands to the downside expands down to the downside. To run
97 00:18:23,550 --> 00:18:40,470 out these stocks below these lows. The market rallies up again and fails to get above this swing high. This run higher is a high resistance liquidity run. The
98 00:18:40,470 --> 00:18:48,930 fact that it's going to have very difficult time getting above this high is because we've already priced in a longer term high the intermediate term high
99 00:18:49,530 --> 00:18:57,480 and this high is going to have a very hard time struggling to get through this high, it's going to have a very difficult time getting through to this rally up
100 00:18:57,480 --> 00:19:05,850 if we were buying long here, we know that there's gonna be a high probability that this is not going to be Ryan out, the highs going to be intact it's going
101 00:19:05,850 --> 00:19:17,280 to be defended, and the higher high over here will be defended. So when price goes back up into this high, this actually becomes a low resistance liquidity
102 00:19:17,280 --> 00:19:20,820 run to see price come all the way back down to take out this low here.
103 00:19:22,230 --> 00:19:34,590 The fact that we keep this old high in place and every low that forms has very little resistance as each time it builds through. It's like a hot knife through
104 00:19:34,590 --> 00:19:44,430 butter, very little resistance every time a lowest formed. Price goes through those lows, this equal lows here price trades through those this short term low
105 00:19:44,430 --> 00:19:57,240 here, price trades through the short term lows here price trades through it so the bias is bearish. So you want to be focusing primarily on a market rally to
106 00:19:57,360 --> 00:20:08,610 take out short term lows or intermediate term lows. The difference between that is every rally is going to be viewed as a high resistance liquidity run, it's
107 00:20:08,610 --> 00:20:15,270 going to have very difficult time getting above the previous highs, sometimes it will happen, but generally you're gonna find it it's gonna have a very difficult
108 00:20:15,270 --> 00:20:27,150 time doing that. But because that's built into price action having a high resistance liquidity run here, it turns into a low resistance liquidity run. For
109 00:20:27,570 --> 00:20:37,770 you to see a move below the short term lows every short term low is an opportunity to seek liquidity or the market to expand down after a retracement
110 00:20:37,800 --> 00:20:49,830 up to take out the stops at rest below the marketplace at every old blow every single blow that you see in price once we identify where the market is, in terms
111 00:20:49,830 --> 00:20:59,460 of high resistance or low resistance liquidity we can find old lows to the left market respects it here comes back within now we have a lot of liquidity pressed
112 00:20:59,460 --> 00:21:08,550 resting below this low here and this low here and the market runs right through it. Solid a retracement there's more liquidity below this low here. So it's
113 00:21:08,550 --> 00:21:16,830 going to expand down through it. We have old lows back here so the markets going to do what it's going to retrace a little bit and then do what expand down the
114 00:21:16,830 --> 00:21:30,480 takeout lose stocks below this old lower here. The same thing is seen when the market finds a low in the market. The market creates a smaller consolidation
115 00:21:30,480 --> 00:21:42,270 makes it a long term low rallies up, retraces moves into consolidation rallies through again. So now we have a lot of price action here. So this old low is
116 00:21:42,270 --> 00:21:51,840 going to be well defended. The fact that we have a retracement going lower each time, every time the market retraces that's going to be in the form of a high
117 00:21:51,870 --> 00:22:03,840 resistance liquidity run, it's going to find very stiff resistance with violating old lows, the old lows are going to be actually defended and you're
118 00:22:03,840 --> 00:22:14,010 going to see buying coming in the marketplace. Your focus is going to be primarily on the highs every short term high is going to have very easy runs
119 00:22:14,010 --> 00:22:26,040 through them that forms a low resistance liquidity run, the resistance levels are going to be very weak, the support or lows are going to be very strong
120 00:22:26,520 --> 00:22:33,870 because the market is going to be capitalizing only on the buy side just the reverse of what we saw over here on the sell side everything's going to be
121 00:22:33,870 --> 00:22:44,010 supporting bearish prices. So every retracement higher sets up another price like to go lower aiming for the lows to be violated. We've changed the tide here
122 00:22:44,310 --> 00:22:52,440 and we made an old low so every time the market retraces lower that sets up new buying opportunities to take out the short term highs or immediate term highs
123 00:22:52,710 --> 00:23:01,470 above the marketplace because what's going to be resting above those highs buy stops and you want to be buying low and selling to willing buyers above the
124 00:23:01,470 --> 00:23:12,000 current market action and that's what the market makers do. So every time the market trades down it's actually just a new low resistance liquidity run to make
125 00:23:12,000 --> 00:23:21,090 a run above an old high and it makes it very easy to find trades that's why market trades down small retracement is old high will be easily ran out. low
126 00:23:21,090 --> 00:23:30,990 resistance the quarterly run market trades back and has a retracement very little resistance to get back up to this old high it runs cleanly through that
127 00:23:31,590 --> 00:23:39,540 nother retracement here, liquidity gonna be resting above this old high and events the market expands through it as well.
128 00:23:45,359 --> 00:23:53,819 And eventually the market trades through those lows as well. Okay, so there's many elements to the things I've sought in this month's teaching, looking for
129 00:23:53,819 --> 00:24:04,259 clean highs where the levels are just too clean. When the market shows those types of levels, it's going to be very opportunistic for you to build the idea
130 00:24:04,259 --> 00:24:12,599 that there's going to be biceps above that. So any little retracement sets the tone for another drive through that in the market continues to find ease of
131 00:24:12,599 --> 00:24:25,499 getting back through old highs. At some point you're going to look at price action. And it's going to be very crystal clear that the more price action there
132 00:24:25,499 --> 00:24:38,399 is around a specific level or a higher low. That is indicating a level is being defended on an institutional price model. So you're going to see very easy
133 00:24:38,399 --> 00:24:47,099 trading when you trade away from that level. And by doing that you're going to be getting yourself in sync with the institutional order flow. Then your trades
134 00:24:47,099 --> 00:24:53,339 will find very low resistance in the form of profitable exits, and very little drawdown