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24-ICT Mentorship Core Content - Month 3 - Market Maker Trap Head Shoulders Pattern

Last modified by Drunk Monkey on 2022-09-09 12:49
1 00:00:32,729 --> 00:00:44,609 ICT: For the month of November 2016, ICT mentorship, right talking about false tops and bottom patterns as it relates to classical head and shoulders. Now head
2 00:00:44,609 --> 00:00:55,589 and shoulders pattern is typically seen with a price high that trades in a small little retracement, and then it creates a higher high. And then it retraces back
3 00:00:55,829 --> 00:01:08,729 lower and creates another lower price peak or short term high and then connecting those three successive peaks in price. We classic refer to that as
4 00:01:08,729 --> 00:01:18,359 the neckline. And classical Support Resistance ideas are seen here. Where is that neckline is broken. Many times you'll see it retrace and pull back up to
5 00:01:18,359 --> 00:01:30,629 that neckline and then sell off again. In the form of selecting targets, you can measure the range from the neckline up to the head, or the highest peak and
6 00:01:30,629 --> 00:01:39,509 subtract that range from the neckline once price breaks below it. Now give me a reasonable price objective. Now the problem with this pattern, okay, it's
7 00:01:40,799 --> 00:01:47,759 because it's taught in all of our retail books and such, every trader out there, when you first get into charts, they're always looking for these types of
8 00:01:47,759 --> 00:01:59,999 patterns. But generally price will form these genuinely at intermediate or long term highs only. And due to the low understanding of most retail traders, they
9 00:01:59,999 --> 00:02:14,279 tend to seek these classic topping patterns on lower timeframes. And many times at a significant low in price, but they marry the pattern. The opposite is
10 00:02:14,279 --> 00:02:21,719 referred to as an inverted head and shoulders pattern. This is a false pattern, a false bottom pattern we're going to be teaching in here. So we're not really
11 00:02:21,719 --> 00:02:29,339 teaching these classical patterns, they can be found on the internet, I'm not going to teach that. But what I'm actually going to tell you is how you can
12 00:02:29,339 --> 00:02:38,609 capitalize on these patterns when they appear in charts. And our higher timeframe premise indicates the opposite direction is unfolding. But an inverted
13 00:02:38,609 --> 00:02:49,739 head and shoulders pattern is typically seen with a short term low that's met with a lower low than it makes a higher short term low. And you connect the
14 00:02:50,309 --> 00:03:00,089 highs that form around those three successive lower lows. And we refer to that as the neckline. Eventually, should price trade above that neckline.
15 00:03:00,239 --> 00:03:08,459 Classically, you would expect a pullback in price, or retracement back down to the neckline and then in advance me up to the target and the range from the
16 00:03:08,459 --> 00:03:15,779 neckline down to the lowest low of those three lows added to the neckline once the price breaks through it, that would give you a reasonable upside objective.
17 00:03:16,199 --> 00:03:26,759 Now again, much in the same way, generally price will form these genuinely at intermediate or long term lows. And again, much like we said with the regular
18 00:03:26,759 --> 00:03:34,199 classical insurance pattern, due to the low understanding of most retail traders, they go into the lower timeframes, and they start looking for this
19 00:03:34,199 --> 00:03:44,549 classic bottom pattern on lower timeframe charts. And many times at a significant high in price. But much like you probably done when you first
20 00:03:44,549 --> 00:03:54,479 started as a trader, you get these textbooks and you get these ideas and you go and you force the understanding of what you've learned out of the box into the
21 00:03:54,479 --> 00:04:00,689 charts. So therefore, you learned about head and shoulders pattern. So therefore there must be a head and shoulders pattern right now. So let's go in there and
22 00:04:00,689 --> 00:04:01,109 trade it.
23 00:04:02,400 --> 00:04:12,210 And unfortunately, doesn't always equate to profitability. I when I first started as a futures trader, this was one of the patterns that were really
24 00:04:12,570 --> 00:04:21,540 promoted hard, because it's the idea that you want to cut too high and you won't get to bottom and picking tops and bottoms is one of the worst games to play
25 00:04:21,540 --> 00:04:31,440 excesses. A new trick is number one, even seasoned pros don't do that. Okay, we don't we don't pick tops and bottoms. We can trade with rather impressive
26 00:04:31,620 --> 00:04:41,790 accuracy and in catching significant intermediate term lows and short term lows and highs. But as it relates to long term tops and bottoms. I try to avoid that
27 00:04:41,790 --> 00:04:49,170 and I actually promote the idea of doing the same thing in your own trading. Try not to do that. But one of the coolest things I've learned by going through
28 00:04:49,170 --> 00:04:56,580 institutional order flow studies and watching how interbank pricing is delivered. It allows me to go in and see see these patterns when they form in
29 00:04:56,580 --> 00:05:07,020 price charts. If I have a in indications of price is actually going to go higher and I see a head and shoulders pattern, which would be a false top, in my
30 00:05:07,020 --> 00:05:15,570 opinion, but in the charts retail will see that as a top performing. Conversely, looking at it inverted head and shoulders, which would be classically viewed as
31 00:05:15,570 --> 00:05:29,100 a bullish pattern in price. If I see that happening when the market is actually bearish, I would be looking to go short. And where we see the neckline, let's go
32 00:05:29,100 --> 00:05:38,970 back to the standard head and shoulders pattern. When you look at the neckline, what I see there is an opportunity to be long once the neckline is broken on the
33 00:05:38,970 --> 00:05:48,540 downside, especially if we are in a institutionally trained, bullish environment. That means if we're in a long term or intermediate term low, and
34 00:05:48,540 --> 00:05:58,830 that forms a success of three peaks, and price moving higher, which would be classically viewed as a head and shoulders pattern, Chartist pure Chartist would
35 00:05:58,830 --> 00:06:09,240 see that as a bearish indication, especially new newbie traders or less informed traders, I like seeing when price does that because to me, it's a retail trap.
36 00:06:10,110 --> 00:06:18,570 And market makers are actually designing classical chart patterns in price where you can actually get tripped up thinking just because you saw a head and
37 00:06:18,570 --> 00:06:31,230 shoulders formation and neckline is broken. When that neckline is broken. I don't see that pullback as a resuming lower or a new selling scenario, I see
38 00:06:31,230 --> 00:06:42,060 that as a turtle soup long took out two previous lows, where the clean lows were there, I look at that as a buying opportunity. So I'll buy the sell stops below
39 00:06:42,060 --> 00:06:50,970 those equal lows, or where the neckline is and then I'll look for the head or the highest peak to be violated. And I'll try to pair up my long exits with the
40 00:06:50,970 --> 00:07:00,510 buy stocks above the highest high in this pattern. And that would be my first objective, the inverted head and shoulders, I would do the opposite, if I'm
41 00:07:00,510 --> 00:07:11,610 looking for price action to be bearish, as a higher timeframe would indicate. And I see a low with a lower low and a higher low, which would be deemed as a
42 00:07:11,610 --> 00:07:19,770 inverted head and shoulders. I don't see that as a bullish breakout above the neckline, I'm actually looking at that as a run on buy stops. And I'm going to
43 00:07:19,770 --> 00:07:28,890 look to go short there and not expect to see price go higher. But in fact below out those equal highs and then make a run for the sell stocks below what will be
44 00:07:28,890 --> 00:07:38,790 deemed as the head on this panel would be the lowest low and most recent price action, you can actually take your first profit at the right shoulder on both
45 00:07:38,790 --> 00:07:47,700 these patterns, respectively. But let's take a look at a couple of chart examples. And you can see what this pattern looks like in price. Okay, folks,
46 00:07:47,700 --> 00:07:57,030 we're looking at a daily chart of the British pound USD or cable. And I want you to take a look at this down candle right before the move we've consolidated for
47 00:07:57,030 --> 00:08:09,300 a while price came down and hit that same order block right here. Okay, closed in the fair value gap between the high to midway point of the candle and look at
48 00:08:09,300 --> 00:08:30,630 this candle right next to it price came down and respected that range okay, weighed in here didn't go any farther than that. And then on this day here it's
49 00:08:30,660 --> 00:08:40,740 August 10. We traded through the down candle making this a bullish order block right in here. Seven this candle is high down to its opening it becomes
50 00:08:40,740 --> 00:08:42,960 sensitive to be a buyer
51 00:08:50,760 --> 00:09:04,680 right there in the high comes in at 135 46. So on this day here, we trade down into it on the 12th of August 2015 sheet right down into the body that down
52 00:09:04,680 --> 00:09:16,560 candle which is a bullish order block. Now that's bullish on a daily. So let's take a look at a hourly chart that same time on August 12. So here we have the
53 00:09:16,560 --> 00:09:30,570 market making a high, higher high and a lower high and we have two equal lows in here. So we have what we have a head and shoulders pattern. retail traders are
54 00:09:30,570 --> 00:09:34,500 going to see that as a selling scenario.
55 00:09:39,510 --> 00:09:46,740 So they're going to look for a break of this neckline and then take the range from the high down to that neckline and subtract that and that'll give them
56 00:09:46,740 --> 00:09:48,120 their objective for going short.
57 00:09:53,520 --> 00:10:02,970 Okay, so we have that range here. And we can duplicate that and give ourselves our downside objective. For the retail minded crowd, so retail is gonna think
58 00:10:02,970 --> 00:10:17,460 this break down here, he's gonna lead them down to 155 or there abouts in this range here. So, retail is going to expect a range expansion down to a low of
59 00:10:18,660 --> 00:10:29,190 154 95. We do not expect that because on a daily chart we're expecting the bulls are about to send prices higher. So while we see a in a regular head and
60 00:10:29,190 --> 00:10:37,560 shoulders pattern, which would be classical bearishness in a part of price action study. As it relates to institutional order flow, we're looking at the
61 00:10:37,560 --> 00:10:50,220 run below these lows in here as a run, sell stops. So we're looking at the market to go below here to pair up orders to go long. For those individuals that
62 00:10:50,220 --> 00:10:57,720 want to have a sell stop down here, that's already long, your trailing stop loss is going to be in the form of a sell stop. Because the market move most recently
63 00:10:57,720 --> 00:11:07,350 has been higher. We see this move below these equal lows as an opportunity to buy those sell stops, those willing sell stops or flood the market when the
64 00:11:07,350 --> 00:11:15,990 market trades below here. So now we have a lot of liquidity. Remember that market efficiency paradigm we see liquidity here in the form of gone long, and
65 00:11:15,990 --> 00:11:33,750 we're gonna be looking for objective up here to take profits, so we could be a buyer at 155 50 and look for 5620 A move above this high 3620 as our objective
66 00:11:33,750 --> 00:11:48,480 or 70 pips the market runs 1234 More times below that low gathering up the sell stops and then expansion, two pairs up the buy stops above 5620. And ultimately
67 00:11:48,480 --> 00:12:00,870 you can see a nice little little pullback here. Okay, so that's an objective of using the head and shoulders pattern against what retail would expect. And using
68 00:12:00,870 --> 00:12:08,010 higher timeframe institutional order flow on a daily chart, reading it as the banks would. Let's go back to that daily chart you can see what it did as a
69 00:12:08,010 --> 00:12:15,060 result. And here's that expansion is not much of a move because that you don't need much of a move we understand what you're looking for. Okay, we have another
70 00:12:15,060 --> 00:12:25,410 example here this is the daily of the British pound USD. The down candle break before this big move up equal highs in here they would have been buy stops above
71 00:12:25,410 --> 00:12:35,310 these highs. This rally up takes out those buy stops and it comes out and closes in its range all up here. So this liquidity voids closed in last up candle
72 00:12:36,450 --> 00:12:46,710 closes it in. But more importantly the stops were targeted with this down candle. That means that this down candle was a bullish order block which is used
73 00:12:46,710 --> 00:12:55,200 to break the buy stuff so we're in the marketplace here. So when price trades below it here when price comes back up to it here, we're inside of a breaker,
74 00:12:55,290 --> 00:13:10,620 that's a bearish environment 153 45 to 153 50 in that area, we're looking for a reason to expect some kind of bearishness but there's going to be on a lower
75 00:13:10,620 --> 00:13:23,910 timeframe. Retail we'll see patterns like this we have a low a lower low, higher low. This is an inverted head and shoulders pattern. You draw your neckline on
76 00:13:24,570 --> 00:13:43,620 the chart Okay, that's the high up here. And we're going to draw what would be considered the inverted Head and Shoulders neckline. connecting these two levels
77 00:13:43,620 --> 00:13:48,750 here and a difference would be from the low up to this neckline. And once we break above it
78 00:13:55,140 --> 00:14:10,980 price trades above it here neckline is broken. The stock below here's would be would be targeted. So selling up here on a break above the neckline. Not looking
79 00:14:10,980 --> 00:14:21,030 at that as bullishness and return for higher prices. But looking forward to sell off getting above there so we would look for that run to sell into the buy stops
80 00:14:21,030 --> 00:14:29,070 above this high here and above this high here. That's why we expect to see some bearishness here and then we wait for a run below these lows here. It does give
81 00:14:29,070 --> 00:14:41,460 a lot more than that here but nonetheless it's not a bad little trade 1020 3040 5060 7080 pips or more running a low over here. Let's go back out to
82 00:14:41,460 --> 00:14:56,340 the daily. Okay, we're going to look up at this high up here. Price trades up into it here. Around us the low on the last candle right here and the body of
83 00:14:56,340 --> 00:15:14,970 the candle. You can see that it trades up into that as well. And we'll look at Look at the 18th On October, okay, so we have, here's the 50s, creating a head
84 00:15:14,970 --> 00:15:20,640 and shoulders inverted. So that would be viewed as bullishness. So if we get above
85 00:15:25,770 --> 00:15:34,740 that high, we can be a seller. Because we wouldn't expect those bind stops to be viewed as breakout artists on inverted head and shoulders, you're going to see
86 00:15:34,740 --> 00:15:42,390 that as a bullish pattern, we're gonna look at it as a bearish pattern, we're gonna be completely opposite of that. Now you can do two things, you can use
87 00:15:42,390 --> 00:15:50,520 this here, or you can use the bodies of the candles like I teach where the most volume is. So this is the highest body of the candle. So 5502 would be a sell.
88 00:15:50,940 --> 00:16:05,940 If we get above it. Price trades to adhere. So you can be a seller Above 50 5022 5502 is your area of being bearish. We do not look at that as a breakout
89 00:16:05,940 --> 00:16:18,330 and then wait for a pullback for new higher prices. We're looking to see it sell off. And here's your entry on the buy stocks at 5502. And the neckline, I'm
90 00:16:18,330 --> 00:16:33,000 sorry, the head down here, your objective would be to cover below that low right here. And that happens right there. And then again, all through here gives you
91 00:16:33,000 --> 00:16:45,090 another opportunity to cover and ultimately runs one more time above that 5502 level for buy stops. And again below what would be the head playing opportunity
92 00:16:45,090 --> 00:16:57,030 and get me handsome profits. So again, it's you look for the pattern, because retail will look for the pattern, but you're going to fade that pattern based on
93 00:16:57,030 --> 00:17:04,770 what you see on the higher timeframes. We look for institutional order flow to justify why this should be bearish. And here we should be looking for reasons to
94 00:17:04,770 --> 00:17:12,990 be selling, not buying. And if we see inverted Head and Shoulders patterns on the lower timeframes, retail can be a little bit out looking for bullish upside
95 00:17:12,990 --> 00:17:22,440 moves. And that's not what you see here at all. So hopefully you found this one insightful as well. We're going to be attacking a lot of the retail minded
96 00:17:22,440 --> 00:17:31,890 classical chart patterns throughout this ICT mentorship. So this is just the beginning of two that will fall victim to institutional order flow. Until next
97 00:17:31,890 --> 00:17:33,300 time, I wish you good luck and good trading