33-ICT Mentorship Core Content - Month 4 - ICT Vacuum Block

Last modified by Drunk Monkey on 2022-09-12 06:35
1 00:00:35,100 --> 00:00:51,990 ICT: Okay folks, welcome back. We're looking at teaching 3.6 reinforcing order block theory we're dealing specifically with the vacuum block. Okay, a bullish
2 00:00:52,020 --> 00:01:03,180 vacuum block is a gap that's created in price action as a result of a volatility event. The gap forms by a vacuum of liquidity directly related to an event.
3 00:01:03,570 --> 00:01:17,910 nonfarm payroll can create a vacuum block or in futures a session open Ken J on the left hand side here we have a crude depiction of price action, short term
4 00:01:17,910 --> 00:01:31,050 lows formed. And this can be if we're trading a futures contracts where they have a session opens and closes where there's no trading. Or if we see a stock,
5 00:01:31,710 --> 00:01:44,730 it could be a intraday indicee. It could be like s&p 500. Or it could be just any old forex pair. And there may be a large volatility injection coming in the
6 00:01:44,790 --> 00:01:55,710 form of the economic calendar release, it could be Non Farm Payroll, it could be a FOMC related event, anything along the lines of interest rates, or it could be
7 00:01:55,740 --> 00:02:05,850 a geopolitical event that was not foreseen, maybe not even on the economic calendar, say, a terrorist attack or something like that, something of that
8 00:02:05,850 --> 00:02:20,820 nature. At any rate, we're going to assume that we see the market gap up. Okay, when we see that gap, the the first assumption is on the part of most traders is
9 00:02:21,570 --> 00:02:30,960 it's things like keep going higher right away, and sometimes it will, in but we're gonna be looking at the vacuum block in the scope that we can use it to
10 00:02:30,960 --> 00:02:43,200 get in sync with what may be underlying in the marketplace, the short term low that's formed here in our diagram. If we have traded lower prior to that swing
11 00:02:43,200 --> 00:02:54,240 low. In this case, this outline that I'm giving you here would be a little bit more probable. If the market had been rallying for a number of days or weeks or
12 00:02:54,240 --> 00:03:05,340 it's been in a prolonged uptrend, and then it does this, this could potentially be an exhaustion gap. An exhaustion gap is typically a graphic depiction of
13 00:03:05,370 --> 00:03:21,150 capitulation. And capitulation is basically like the last bit of momentum in an underlying trend or direction. But assuming that we have been in a down word
14 00:03:21,150 --> 00:03:31,950 correction and upward market, or if we've been in a down market, and we expect the market to give some kind of a bullish news, or we're expecting the market to
15 00:03:31,950 --> 00:03:41,160 reach for liquidity above where we're currently trading at, and the news event releases and we get this gap up. What we're essentially saying is, if we gap up
16 00:03:41,160 --> 00:03:51,570 away from a market that's in a discount, we've had some retracement but we are expecting higher prices, nonetheless, we see this gap like this, the first thing
17 00:03:51,570 --> 00:04:01,170 I want you to start thinking about is when we see that, that space in between the two candles is important. Now while on our charts, there's going to be a
18 00:04:01,170 --> 00:04:12,690 vacuum, if you will of trading. There's no trades being made between the previous candles close and the next candles opening. So that gap, it can be
19 00:04:12,720 --> 00:04:23,400 large and sometimes, for instance, non farm payrolls, it can get sometimes 3050 60 pips from where it was trading right before the numbers release. Now
20 00:04:23,400 --> 00:04:33,600 suddenly do a quick repricing at the central bank level. Because that happens, there's absolutely no way for any trader to execute. There's no trade between
21 00:04:33,600 --> 00:04:45,150 those two price points. So what it does, it creates a vacuum of liquidity. Most times and I'm not going to give you a specific percentage because there's no
22 00:04:45,150 --> 00:04:53,310 real accurate way of depicting that because it's just we're gonna classify as a high probability that the market will want to come back and try to close that
23 00:04:53,310 --> 00:05:01,710 in. There are some points that I want you to take special notice of as we go through this, but for the most part, it's we're We're going to anticipate that
24 00:05:01,710 --> 00:05:06,960 move the fill in. But first, we had to identify that gap in a specific manner.
25 00:05:08,309 --> 00:05:16,439 Because they're looking at the gap, we come to the realization again, that there's no trades being made in this range. So if there's no trades in that
26 00:05:16,439 --> 00:05:26,789 range, what's the market actually done? It's gapped up through it, and started trading at a higher price on a new candle when it opened up, and it can trade a
27 00:05:26,789 --> 00:05:34,769 little bit more. And now we have to discern whether or not the market is going to continue and run away from that price level and leave the gap opening, or
28 00:05:34,889 --> 00:05:41,999 will trade back down and close in that range. And if it doesn't close in the range, how much can we reasonably expect for that range to close in and still
29 00:05:41,999 --> 00:05:57,509 look for a potential buyer. Inside that range, we have a vacuum block. And that means we've blocked out a reference point in time. And we have to look at it
30 00:05:57,509 --> 00:06:13,409 like this, because even though there's no candlestick or bar on our chart, price did in fact, have a parameter before and we can look at it as this handle or
31 00:06:13,409 --> 00:06:22,499 range. Okay. And again, we're, we're interpreting it, we're visualizing it, if you will. There's there's an absence of liquidity there, there's an absence of
32 00:06:22,529 --> 00:06:35,639 price being traded there. But we're defining it as the high and the low of the gap. Now, if we looked at it in terms of a candle or a bar, it would be just the
33 00:06:35,639 --> 00:06:47,579 same as anything else, we would expect to see a mean threshold, an opening, and a close. So if we see that, okay, we're just going to treat it just like any
34 00:06:47,579 --> 00:07:01,859 other candle. So let's take a look at it now with the gap in mind. And assume for a moment, we start seeing price trading lower. Our expectations are one of
35 00:07:01,859 --> 00:07:15,359 two scenarios. If we're bullish, we're looking for is there any bullish order block or down candle, that would cause the gap to not want to fill entirely as
36 00:07:15,359 --> 00:07:26,129 price trades down, we see that actually occurring here we have the down candle right before the move, it's two consecutive down candles. So the the bullish
37 00:07:26,129 --> 00:07:36,419 order block will begin at the higher of the two down candles prior to gap up. And as price trades into that candle, we would reasonably expect a potential
38 00:07:36,419 --> 00:07:46,919 bounce there and leave that little gap opening. It's still intact. But this could potentially be a buy. Now, if you're looking for this to occur, you'd have
39 00:07:46,919 --> 00:07:56,519 to see immediate feedback. If you're going to be buying there, can you take the risk that's associated with entering here, and using a stock below that lowest
40 00:07:56,549 --> 00:08:03,599 down candle to your range in terms of managing your risk, and defining the risk would be putting those two reference points.
41 00:08:08,819 --> 00:08:18,449 If price was trading lower, and we get down to that border block area, and we don't want to buy there and say we have a little bit stronger conviction, that
42 00:08:18,479 --> 00:08:29,429 will probably trade back down into the last up candle before the gap. The reasons I would expect to see that is if it was time of day sensitive. In other
43 00:08:29,429 --> 00:08:39,269 words, if we had a lot of to a left in the data where we can trade in other words, if it's just now beginning of New York, New York would probably come down
44 00:08:39,269 --> 00:08:50,999 and close that gap in. If it was gapped up late in the afternoon, chances are it probably would leave the gap open. But it price trades down into this point
45 00:08:50,999 --> 00:09:00,089 here. And Tom day permits more trading. In other words, if it's still early New York session, or it may be even a London session, I think it creates that gap.
46 00:09:00,389 --> 00:09:10,139 Highly unlikely that it does it in London, usually it's trading environment that takes place. But a gap like this usually occurs in the New York session or late
47 00:09:10,139 --> 00:09:20,849 New York with FOMC. But generally, at 830 News embargo lifts, there is usually markets that cause a gap like this to occur. So we're going to assume that it's
48 00:09:20,849 --> 00:09:30,749 still early in New York 830 would be relatively decent in terms of allowing more time for the day to unfold. We could forget the bullet or block level here and
49 00:09:30,749 --> 00:09:42,209 anticipate this small little areas still deform. But if we are later in for instance, say it's the 10 o'clock or 11 o'clock hour, and we get this gap, we
50 00:09:42,209 --> 00:09:51,239 may end up seeing this portion of the gap to remain open and that would present us a fair value gap for a later time. We would look for price to a later time
51 00:09:51,239 --> 00:10:01,709 come back and close that in but leave it open during this specific trading day. Again, that would begin our thought process like that. If The Gap occurs late in
52 00:10:01,709 --> 00:10:13,559 New York opening or after 10 o'clock in the morning till 11 o'clock in the morning, the news events that usually release there. So we have two reference
53 00:10:13,559 --> 00:10:29,519 points here, the opening of the gapped up candle and the close of the candle right before the gap forms. And again, as price trades Lower, lower boom hits
54 00:10:29,519 --> 00:10:40,769 that and we would see a complete closure of the gap, that would be a full return on a vacuum block. In other words, everything has completely been closed in this
55 00:10:40,769 --> 00:10:50,849 whole range here is 100%. filled, this is in effect, perfect delivery of price. Once it's done this, this is completely balanced out now. And if we're expecting
56 00:10:50,849 --> 00:11:01,679 higher prices, if there's liquidity that hasn't been sought out after prior to that highest high net formed on the gap opening and back bullish liquidity above
57 00:11:01,679 --> 00:11:10,799 the marketplace would now allow price to drive higher. So this could be a buy here. And now notice buying here. And using a stop loss below the lowest low,
58 00:11:11,309 --> 00:11:20,879 your risk is more defined for more leverage, but still having the same potential parameters for exposure percentage of your equity.
59 00:11:27,210 --> 00:11:38,430 If price was to trade down, we hit that level. And we start to see a rally up. We don't want to see price ever come back down below the level that would have
60 00:11:38,520 --> 00:11:50,880 caused it to close the gap. When we see this, we're looking for the up candle that formed at the gap. We want to see that low. We cleanly broke through we
61 00:11:50,880 --> 00:11:59,040 don't want to see hesitate here because otherwise that will be a bearish order block, right. So what we're looking for is we're anticipating the bush ness of
62 00:11:59,040 --> 00:12:06,780 this move to drive right on through that last up candle when it gapped up because now price has already been delivered efficiently. That vacuum of
63 00:12:06,780 --> 00:12:15,630 liquidity, it's been completely balanced out, we traded down with the two down candles to close the gap. Now we've had a bullish move up. So what has happened,
64 00:12:15,990 --> 00:12:24,780 price has been delivered on the downside to close the gap. And now it's trading up, there's no reason for price to come back down, it's closed in and filled in
65 00:12:24,780 --> 00:12:34,560 that vacuum of liquidity. There's no reason for it to crack down and trade below the last point of reference before the gap which would be a closed of the first
66 00:12:34,590 --> 00:12:44,190 up candle. So when that closes in that range, the vacuum block is completely filled in. And now price is permitted to trade bullish Lee higher and once it
67 00:12:44,190 --> 00:12:59,190 takes out that high, we will expect to see price continually upside. So in summary, a vacuum block is nothing more than a breakaway gap. What I teach with
68 00:12:59,190 --> 00:13:08,820 the breakaway gap is because it creates a vacuum of liquidity, you have to understand not all gaps fill completely. And why do we anticipate the gap
69 00:13:08,820 --> 00:13:17,670 sometimes not filling? If there's a bullish order block in this case, if we're bullish, mainly gapped up, the price may only come down to a bullish order block
70 00:13:17,670 --> 00:13:26,940 that will be inside that gap in price just comes to that level and then stops trading lower and then rallies higher leaving a small gap which would be
71 00:13:26,970 --> 00:13:34,950 classified as a fair value gap. And we could use that at a future time when price is now trading lower, and we would look for price to come down and close
72 00:13:34,950 --> 00:13:44,910 that gap in. But if it stays open, we would label that while we're bullish as a breakaway gap. And it would show willingness and strength to get in there and
73 00:13:44,910 --> 00:13:56,460 expect higher prices. So for expecting bullish prices and price closes in that gap. It's filled in that vacuum of liquidity. It gaps up we close in the gap
74 00:13:56,460 --> 00:14:06,840 with price delivery on the downside price trades bullishly up through it. So now we've had both passes in price and delivery. We've had it sold down in rally up.
75 00:14:07,110 --> 00:14:18,240 So there's been no reason after that point to see price go down below that first off candles close. If it does, that shade is probably going to be suspect and
76 00:14:18,240 --> 00:14:26,700 you would want to look to take some profits. If you've seen a move like this, take something off. But if it starts to correct and go lower, you want to take
77 00:14:26,700 --> 00:14:34,410 the complete trade off because there's no reason for it to come back down into that area once it's already closed the gap. So then this is a bullish backing
78 00:14:34,410 --> 00:14:46,350 block. The reverse would be seen if we had gapped lower and we would wait for that gap to fill in on some up candles and then we would go short in the same
79 00:14:46,350 --> 00:14:50,160 venue that we would do here looking for long system in reverse