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16-ICT Mentorship Core Content - Month 2 - Market Maker Trap False Breakouts

Last modified by Drunk Monkey on 2022-09-02 11:07
1 00:00:31,770 --> 00:00:41,400 ICT: Okay folks, welcome back. This is the eighth and final teaching for the second month of the ICT mentorship is THIS MONTH october. We're dealing
2 00:00:41,400 --> 00:00:53,520 specifically with market maker traps of false breakouts. And we're talking about specifically, in this teaching one side of the marketplace just for the sake of
3 00:00:53,520 --> 00:01:02,400 saving time, everything that we show you will be just a reverse everything's been shown. So a false breakout above price consolidation. This condition
4 00:01:02,400 --> 00:01:12,630 generally manifests in primary bearish markets. In other words, if the markets in a downtrend or presently trading lower or expected to trade lower, a false
5 00:01:12,630 --> 00:01:22,830 breakout above the consolidations is reasonably expected and generally what you see manifests itself at some measure of equilibrium in price, the market will
6 00:01:22,830 --> 00:01:35,850 move into a trading range. neophyte traders or breakout traders will bracket the trading range in price. With orders. That means that are going to have buy stops
7 00:01:35,940 --> 00:01:44,940 to break out on a buy above the old highs or sell stops below the old lows to sell short or break below the old lows. In other words, they're trying to
8 00:01:44,940 --> 00:01:52,230 capture a trend. And you're going to put a buy order above the marketplace and sell order below the marketplace because they absolutely have no idea what's
9 00:01:52,230 --> 00:02:02,430 going on. Or breakout traders they just want to bracket the marketplace like long term trend followers. They don't mind taking a lot of losses, with the
10 00:02:02,430 --> 00:02:12,150 hopes of eventually catching a large trade. But market makers will typically set price above the range to neutralize by stops. So we're gonna focus primarily on
11 00:02:12,150 --> 00:02:19,770 one side of the marketplace and again, assuming that the market is primarily bearish. That's what the market makers Mo is going to be okay, their playbook is
12 00:02:19,770 --> 00:02:31,950 to run, the buy stops above the marketplace. Now false breakout below price consolidations as obviously the opposite. This condition generally manifests
13 00:02:31,950 --> 00:02:43,080 itself primarily in bullish markets, and at some measure of equilibrium in price. The market will move into a trading range neophyte traders and or
14 00:02:43,380 --> 00:02:50,160 breakout traders again we'll bracket the trading range in price with orders. Again, looking to focus on buying on a breakout or selling short on the
15 00:02:50,160 --> 00:02:58,800 breakout. They are not privy or astute enough to know what direction they just simply want to react to whatever the market gives them in terms of breaking out
16 00:02:58,800 --> 00:03:06,390 above or below what the market makers will typically send price below the range to neutralize the sell stops.
17 00:03:14,490 --> 00:03:24,660 So graphically, what I'll show you here is a breakout trader or neophyte traders perspective on a market that goes into a trading range above the old high or
18 00:03:24,660 --> 00:03:35,730 recent high, they will have buy stops for long breakout traders and anyone that would be short obviously, their buy stop would be resting above the high and
19 00:03:35,730 --> 00:03:45,090 below the lows there'll be sell stops for long traders and sell stops for short breakout traders in other words, they want to capture a move that will hopefully
20 00:03:45,180 --> 00:03:53,850 continue going for a long period of time lower they would like to get short on weakness and obviously bulls would like to be on their breakout traders they
21 00:03:53,850 --> 00:04:03,090 want to be buying on strength they think by breaking out above an old high thereby stock would trip them into a long position and their belief is that
22 00:04:03,090 --> 00:04:05,460 they're going to hopefully capture a long term trend up
23 00:04:12,840 --> 00:04:25,020 now from a market makers perspective we look below the marketplace when we have lows in the form of sell stops now I'm going to focus primarily on a buying
24 00:04:25,020 --> 00:04:33,840 environment okay focusing on you in the market is underlying the bullish everything that I show you here will just be reversed for when the markets
25 00:04:33,840 --> 00:04:46,020 bearish okay just to save save time. When the market breaks below the consolidation, those sell stops are used to pair long orders. Now who's buying
26 00:04:46,020 --> 00:04:58,350 those sell stops? It's smart money. But what types of orders rest above here? If we know below the marketplace itself stops what's resting above the highs by
27 00:04:58,350 --> 00:05:08,430 stops. So now As the as the market moves away from those sell stops being ran out below the consolidation, they're going to expand price. Think of it that now
28 00:05:09,120 --> 00:05:17,160 you're going to expand the price up to the liquidity above the old high. So there's buy stops are gonna be used to pair long selling. In other words, you're
29 00:05:17,160 --> 00:05:28,050 gonna scale out their long positions or take some profits. Eventually the market will go into another area of consolidation or another trading range. The market
30 00:05:28,050 --> 00:05:39,090 drops below that trading range to take out the sell stops below consolidation. Now, soon as this happens, your thought process should internally be going on
31 00:05:39,090 --> 00:05:48,990 inside your mind with Okay, they've already shown a willingness to take the sell stocks below 108 55. Now they rally price above the 109. Big figure, we've
32 00:05:48,990 --> 00:05:59,880 retraced a little bit. Okay. So if they are taking the market below this short term consolidation, they're probably going to run the price higher. So where
33 00:05:59,880 --> 00:06:13,740 would those objectives be? What's resting above that old high by stops. So after taking the market below a consolidation in our understanding or expectations is
34 00:06:14,010 --> 00:06:22,860 the market is bullish. They're taking the market below the consolidations to run sell stops out, the only reason why they're going to want to do that is to
35 00:06:22,860 --> 00:06:32,910 absorb those sell stops to be counterparties. For their Long's when they are long, when smart money's long, how do they look to exit their positions and book
36 00:06:32,910 --> 00:06:43,440 a profit or hedge, they have to get out in a place where there's willing participants to buy. Buyers are always above the highs, either in the form of a
37 00:06:43,440 --> 00:06:53,040 buying breakout, or buy stops on short positions. That's where the liquidity is remember that market paradigm shift that's been spoke about in this mentorship?
38 00:06:53,370 --> 00:07:03,930 Well, we're talking about a here again, just using in terms where you can see how it's applicable and price. Price runs above that old high. And now we have
39 00:07:03,930 --> 00:07:16,500 two areas at which the market makers have booked long positions. So now they're pricing in a BI model. So as the market moves higher, okay, they're going to
40 00:07:16,500 --> 00:07:24,390 liquidate some of their positions to hedge. And they're also going to liquidate positions that those traders don't at the bank level or actually speculating for
41 00:07:24,390 --> 00:07:31,350 profit. So this is how they actually take their their trades and put them on, and how they scale them off where they're placing their entries and where
42 00:07:31,350 --> 00:07:41,370 they're placing their limit orders to get out with a profit. But what's over here, what rests above that, remember, I showed you in the first month of this
43 00:07:41,370 --> 00:07:51,360 mentorship in September, specific things to look for clean highs and clean lows? Well, there's an area right over here that clean highs rub off from where we're
44 00:07:51,360 --> 00:08:01,560 showing right now after that 109 15 levels been hit, there really isn't much in way of liquidity voids or polls, that would be a much of interest, except for
45 00:08:01,800 --> 00:08:13,380 those stops rate above those equal highs. As you can see, price expands, think now in the interbank price delivery algorithm, it's going to expand up and it's
46 00:08:13,380 --> 00:08:22,890 going to seek liquidity. That's what we see here. Then what happens price invariably will goes will go back into a consolidation. Now, what's the
47 00:08:22,890 --> 00:08:30,300 underlying condition of the marketplace? It's bullish why? Because they keep taking price below and then rejecting that absorbing the sell stops and
48 00:08:30,300 --> 00:08:39,990 expanding price higher. Is there any reason to suspect that price could go higher? Look at the price action you see here. Do you see anything that jumps
49 00:08:39,990 --> 00:08:50,250 off at you? If it doesn't, we'll come to it as we move forward in this example. But we have a consolidation in here, our reasonable expectation would be to see
50 00:08:50,640 --> 00:09:01,260 price seek the sell stops below the consolidation. Price does in fact go below the consolidation? What's above this old high
51 00:09:02,640 --> 00:09:16,110 liquidity? Now do we always look at the old high? Or what do we look for? Do we consider the wicks we can But primarily, all the volume is seen in the wicks of
52 00:09:16,110 --> 00:09:27,120 the bodies, the bodies of the candles. So the body of the candle is has the most volume, so that liquidity is going to rest above it. So if they took the stops
53 00:09:27,390 --> 00:09:43,440 out below the 108 95 they're going to look to run price higher in the form of 109 40 or higher. But initially we had that short term consolidation. The biceps
54 00:09:43,440 --> 00:09:57,690 are resting above that they could scale off a position right there. And the next objective would be 109 40. As you can see 109 40 is swept, moving just above the
55 00:09:57,690 --> 00:10:08,310 bodies of the candles. Note, the way that the orders are stacking higher each time when they buy, they're buying a little bit higher each time and they're
56 00:10:08,310 --> 00:10:18,150 working their orders in and still offering opportunities to scale off and profit. So the hedgers can work this model, the speculators at the bank level
57 00:10:18,150 --> 00:10:24,930 can work this model. And they're also providing liquidity for those individuals that want cell stops to be activated. If the market goes down to those
58 00:10:24,930 --> 00:10:33,510 positions. And those individual that want buy stops above old highs, they're happy because their liquidity is being provided as well. So think, remember that
59 00:10:33,510 --> 00:10:43,380 market efficiency paradigm, you have to think like a market maker. Now we have a larger trading range. Now I've kept that area of which old buying was done at
60 00:10:43,380 --> 00:10:53,670 109 90. I'm sorry, why don't 895 But now we've moved into a larger range, nothing's changed here, the model is still bullish. So we see market action
61 00:10:53,670 --> 00:11:07,740 trade below that consolidation, trades down into one to 85. So with that movement down into that level, where is the liquidity at? About the old high at
62 00:11:07,740 --> 00:11:19,800 109 45 or so that's what you have up here. So what is it specifically, buy stops, so we have willing buyers that are waiting up there. For price once it
63 00:11:19,800 --> 00:11:31,830 gets there. They're buying smart money is buying at 108 90 or 108 85 in that area. And they know that there's going to be willing participants to be buying
64 00:11:31,830 --> 00:11:45,480 it from them when they want to sell it for a profit at 109 45 to one or 950. So one to 945 to one or 950 is hit. So the buy stops are used to pair long exits.
65 00:11:46,770 --> 00:11:56,250 So now we look at we have here we have a wonderful example of how using consolidations with the expectation of dealing the market with that market
66 00:11:56,250 --> 00:12:09,870 efficiency paradigm off spoke about where we think like a liquidity provider, we can still speculate we can still hedge, we can still make a profit. Using the
67 00:12:09,870 --> 00:12:21,090 same model, it answers all of the problems as it relates to trading. But specifically it offers the answer to liquidity providing buy stops are
68 00:12:21,090 --> 00:12:34,470 activated. And they're actually given the ability to to be effective, and sell stocks in the same way. So what the market makers do, we can vilify them, we can
69 00:12:34,470 --> 00:12:45,030 say, Oh, those rascals, they did this to me, they did that to me. Okay, but what they're doing is their job. They're providing liquidity, the absence or lack of
70 00:12:45,030 --> 00:12:57,330 understanding that traders have, they attribute that as these those guys, they did it to me, they usually misappropriate that to their broker. But what it is
71 00:12:57,330 --> 00:13:08,340 it is the market maker is providing liquidity. And if you understand how the market seeks liquidity, that's the number one driver in price action, the market
72 00:13:08,370 --> 00:13:21,330 will always seek liquidity. And where is the most recent area of liquidity that's been untapped? With the least of resistance getting to it. And that will
73 00:13:21,330 --> 00:13:30,120 give you the directional bias when you're a trader. But when you see markets go into consolidation, and you have an underlying directional premise, or you
74 00:13:30,210 --> 00:13:41,160 arrive at one based on studying the market like this, you can quickly ascertain trade setups and see signals will jump off the chart at you. By way of looking
75 00:13:41,160 --> 00:13:51,660 at like this, again, we have to look at price. With that market efficiency paradigm. We do not look at it as give me a buy and sell. Okay, think like the
76 00:13:51,660 --> 00:14:00,000 market maker. If you had complete control of price, where would you drive price at to allow other traders to get in and at least facilitate their trades? And
77 00:14:00,000 --> 00:14:07,740 least whether they're right or wrong? That's not the the problem here? Where's the buyers? And where's the sellers at? And if we look at the market in this
78 00:14:07,740 --> 00:14:18,420 scope, in this perspective, we'll know that we'll always have buyers above old highs and we'll always have sellers below old lows. So if we know that that's
79 00:14:18,420 --> 00:14:29,490 where liquidity rests, all we have to do is discern whether or not does the market want to seek the buyers? Or does it want to seek the sellers? And the way
80 00:14:29,490 --> 00:14:38,400 you get that indication is by studying when they go into consolidation, which side of the market they reaching for? And then where's the market going after it
81 00:14:38,400 --> 00:14:46,410 happens? And here you can clearly see every time there's consolidation, the market seeks the liquidity below the marketplace. And once it absorbs it, it
82 00:14:46,410 --> 00:14:54,840 quickly runs the other direction. Why is that happening? Because the market makers are facilitating their long positions and building a buying model in the
83 00:14:54,840 --> 00:15:05,550 price or in this asset. So we can expect to see every time the market goes up. Low, these consolidations, these movements below it are always going to be
84 00:15:05,550 --> 00:15:15,300 viewed in our eyes as a false breakout. So the false breakout that would trip up traders otherwise, or knocked them out of profitable positions, if they would
85 00:15:15,300 --> 00:15:27,420 have been remaining long, we can view the marketplace with the market efficiency paradigm. Seeing it as a provider of liquidity, see it and just in the same
86 00:15:27,420 --> 00:15:34,680 scope or, or perspective as a market maker does. And then we're suddenly in line with the market maker, we're not beating the market maker, we're not trying to
87 00:15:34,680 --> 00:15:42,870 outsmart the market maker. All we're trying to do is get in line with what their motive would be. What's their MO, what how, how are they going to book the
88 00:15:42,870 --> 00:15:51,480 market for this particular day or for this month or this week? Okay, how are they going to do that? And by looking at the models that were shown here with
89 00:15:51,840 --> 00:15:59,490 looking at ranges, and when they break below the ranges, and we see willingness to rally after that, that gives you your first telltale clue, every time the
90 00:15:59,490 --> 00:16:11,310 market goes into consolidation, expect every drop down below an old area of consolidation, expect that to be a false breakout, and anticipate accumulation
91 00:16:11,310 --> 00:16:18,780 of long positions and in the market. Once they can accumulate their long positions. Then they will reprice. The market higher running for the buy stops
92 00:16:18,780 --> 00:16:27,780 above old highs. But what else do you see here? I mean, if you're looking at this, what else if you were to study this for a moment, and I'm going to ask you
93 00:16:27,780 --> 00:16:35,220 to pause the video, study this for a few minutes and see if there's anything else that jumps off the chart at you. And don't be discouraged if once I show
94 00:16:35,220 --> 00:16:42,720 you what it is if it wasn't apparent. This first price swing
95 00:16:42,720 --> 00:16:53,160 from the first initial false breakout below the old lows and consolidation, once that rallied up. And we gave another area where we can buy again at that 108 75
96 00:16:53,160 --> 00:17:04,410 level that that red area, if you will, I guess it's red. It's a measured move from that same buy. And it gives you an approximation of where the algorithm
97 00:17:04,590 --> 00:17:17,340 will reach for to offer price. And we see it reached up into that 109 25 level from 108 75, which is the measured move from the initial low that it ran up and
98 00:17:17,340 --> 00:17:34,290 create that first red box and the first impulse price swing. The second lag in price higher is equal to that first one. Also, the larger price swing from that
99 00:17:34,290 --> 00:17:43,020 first initial buy all the way up to the intermediate term high or the midpoint of the overall price swing. Once we had that larger consolidation, and it went
100 00:17:43,020 --> 00:17:56,730 down and traded into 108 85. When that happened, that same measured move from 108 50 up to 109 45 or thereabouts. That same measured move from the stock run
101 00:17:56,730 --> 00:18:10,170 at 185. That gives us a projected run up to that 109 ad level. And you can see that was handsomely hit. And ultimately that one a 990 as we spoke in real time
102 00:18:10,230 --> 00:18:20,040 at the time of this recording in the mentorship, which we spoke about that one a 990 level being directly linked to the bearish order block on a daily chart. And
103 00:18:20,040 --> 00:18:29,100 all these things coalesced, they start to come together they dovetail beautifully. But understanding each individual component will help us bridge
104 00:18:29,430 --> 00:18:42,600 that dead vast chasm, if you will, of what goes on past the right edge of your chart. You see a lot of times where I'll talk about things and and I'll give you
105 00:18:42,600 --> 00:18:50,670 a scenario of what I think is going to happen. But specific levels that I think is going to go and be hit. The reason I'm able to do that is because I'm looking
106 00:18:50,670 --> 00:18:58,680 at the market just like I'm showing you here. I'm looking at how the market maker is booking, how is the market maker manipulating price? What side of the
107 00:18:58,680 --> 00:19:06,510 marketplace are they working on? Where are they punishing those that are less informed, okay, and if they're seeking once out of the marketplace over and over
108 00:19:06,510 --> 00:19:13,950 and over again, and they keep expanding price away from it. In this case, it's been the sell stops being ran. Every time to sell stocks would be ran below a
109 00:19:13,950 --> 00:19:21,990 consolidation it runs higher and it goes to the buy stops. It just that's the easiest way to see if we're really in a bullish market or bullish market
110 00:19:21,990 --> 00:19:31,050 profile. It's not as easy as everyone says with the textbooks where you draw a trendline it's sloping up and just every time it touches a trendline you buy now
111 00:19:31,260 --> 00:19:38,970 you got to look at where the orders are going to be residing. And it gets back to that market efficiency paradigm. By having that model and focus when you look
112 00:19:38,970 --> 00:19:47,970 at price. And when you see market consolidations. When it breaks below that and you start seeing the market trade higher. Every time the market goes in
113 00:19:47,970 --> 00:19:57,570 consolidation, there priming the marketplace to allow sell stops below, build up below those consolidations. And obviously what we shown here was just we're a
114 00:19:57,570 --> 00:20:06,030 buy side if everything was reversed And we were seeing consolidations in the market rally up, taking the buy stops out and then quickly running lower and
115 00:20:06,030 --> 00:20:12,960 then moving into a new consolidation and in market running higher running, the buy stops and accelerating going lower again, everything would just reverse
116 00:20:12,960 --> 00:20:22,470 itself in terms of everything we've explained here. So hope this has been insightful to you look forward to our third month in the mentorship. So get your
117 00:20:22,470 --> 00:20:32,910 notebooks ready because there's going to be a lot more information by way of price action. And we're going to be focusing in on detailed concepts that has
118 00:20:32,910 --> 00:20:45,060 been shown in the free mentorship meant or free members area, on my website and on the videos, but all the gaps that I left in that free area of teaching, I'm
119 00:20:45,060 --> 00:20:50,130 going to I'm going to fill that in as we go forward. So with that, guys, I wish you good luck and good trading