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42-ICT Mentorship Core Content - Month 5 - Defining Open Float Liquidity Pools

Last modified by Drunk Monkey on 2022-09-14 11:56
1 00:00:07,500 --> 00:00:19,020 ICT: Okay folks, welcome back. This is lesson 1.4 Defining open float liquidity pools. Okay, we're gonna be looking at the Canadian dollar for this teaching.
2 00:00:21,810 --> 00:00:36,000 Okay, what you looking at here is a chart of the Canadian dollar futures chart. The March delivery contract for Canadian dollar and this is the dollar CAD pair
3 00:00:36,600 --> 00:00:48,870 daily chart. When we're looking at price, what we'd like to do is identify on a higher timeframe, where are the liquidity pools for the large funds, because the
4 00:00:48,870 --> 00:00:58,950 liquidity pools for the large funds is largely where markets will want to reach for, apart from long term fundamentals on a intermediate term basis. That means
5 00:00:58,950 --> 00:01:10,200 about three or four months, the large funds open float the liquidity that's above old highs, or below old lows that will be generally targeted every
6 00:01:10,200 --> 00:01:23,910 quarter. How do we go about identifying which ones that we should be focusing on right now, we have to incorporate a technique called Open float. Open float is
7 00:01:23,940 --> 00:01:36,480 simply just taking the last three months, or taking the last month and a half to the next month and a half in the future. encapsulating that time and basically
8 00:01:36,480 --> 00:01:48,360 you're looking at three months of data. And by doing that, what we'll do is give you a range to look for the highest high and the lowest low on the daily chart,
9 00:01:48,750 --> 00:02:00,930 which will lead to to where the large funds liquidity pools are above and below the market price. For example, let's assume for a moment, it's August 1. And we
10 00:02:00,930 --> 00:02:14,670 can look back and see where the highest high was in last 60 days over the last 40 days. And over the last 20 days prior to August 1, we can identify also the
11 00:02:15,570 --> 00:02:28,350 lowest low and the highest high in the first 20 trading days to the right of August 1, then 40 days out what's the high and low of that range. And what's the
12 00:02:28,350 --> 00:02:42,060 high and low the range 60 days out from August 1. When you have that range, 60 days look back in 60 days, cast forward, that is open float, you want to find
13 00:02:42,060 --> 00:02:55,590 the highest highs and the lowest low in between those two reference points in time. On a near term basis, you can look back and see what the last 60 days
14 00:02:55,980 --> 00:03:08,460 trading days range was high and low. In this case, we can see the lowest here and the highest here. Going forward because we're looking at the look back
15 00:03:08,460 --> 00:03:20,910 period here. Casting forward those levels, we can see that eventually during the month of September. Those highs that were formed in the latter portion of July
16 00:03:20,910 --> 00:03:38,670 2016. They were in fact rated. So the market was drawn to the buy stops on the fund level at those July highs extending it out. So we have 60 days look back
17 00:03:38,670 --> 00:03:55,740 and then 60 days cast forward, we can see what the total open float is. With the low end seen here in the high end seen here. And see the market did in fact
18 00:03:55,740 --> 00:04:03,750 eventually still dry forward reaching for the buy stops above the October highs in 2016.
19 00:04:07,560 --> 00:04:19,080 So if we're looking at the market like this, we can also identify where significant short term and intermediate term highs and lows are. If we look at
20 00:04:19,080 --> 00:04:29,400 the last range of 20 days behind us and 20 days, casting forward expecting a new high or a new low to form because no one can accurately depict the future and
21 00:04:29,430 --> 00:04:40,140 forecast the future. We have ideal times to look for in terms of intervals 2040 and 60 days intervals. Looking back for the most obvious buy stops and sell
22 00:04:40,140 --> 00:04:50,100 stops. Don't just look for the highest high in the last 60 days and the lowest low in the last 60 days behind us. Or in the look back phase. What we're doing
23 00:04:50,100 --> 00:04:59,970 is we're looking for where's the near term high and low in the last 20 days? Where's the short term high and low in the last 40 days? And where's the int
24 00:05:00,000 --> 00:05:13,860 immediate term high and low in the last 60 days, that same thing can be done casting forward. For looking at August 1 2016, we can cast forward 20 trading
25 00:05:13,860 --> 00:05:25,320 days and expect a range of high and low to form. noting what that high and low is on that particular range will give us the liquidity polls that are on a near
26 00:05:25,320 --> 00:05:38,880 term basis, the easiest ones from the market to reach for. When we're looking at short term trades on day trades, that range is going to be easy and helpful for
27 00:05:38,880 --> 00:05:54,870 you for intraday scalps and day trading. When we look out 40 days, it gives us a little bit more of a short term basis for defining the liquidity pools on a
28 00:05:54,870 --> 00:06:05,490 daily chart looking for the last high in the last low in the last 40 days. That means the highest highs and lows low buy stocks will be above that high and sell
29 00:06:05,490 --> 00:06:18,990 stocks will be below that low. In as you see 60 days cast forward from the first of August would give us the boundary point at which open float ends in terms of
30 00:06:18,990 --> 00:06:30,060 time, not in terms of price, but in terms of time. So we are bracketing the market, if you will 60 days forward in time. And we're looking at back in the
31 00:06:30,180 --> 00:06:41,820 past 60 days. So we have 120 trading days of what we call open float. We're looking for the highest high and the lowest low in that range. But every 20
32 00:06:41,820 --> 00:06:51,360 days, there's a high and a low form. Now you better experience a growth spurt. One of the most powerful patterns I like to trade is the turtle soup, which is a
33 00:06:51,360 --> 00:07:01,980 false break above Ojai and a false break below an old well. The pattern that I learned about that was taught in street smarts book. While I'm not teaching that
34 00:07:01,980 --> 00:07:14,280 pattern here at a respect for the the authors of that book, the idea of a false break above or below based on the turtles trading pattern, which is a long term
35 00:07:14,280 --> 00:07:24,930 trading pattern or system, if you will, did allow long term trends to pay out the turtle traders and turtle traders if you don't, they are Richard Dennis put
36 00:07:24,930 --> 00:07:35,610 together a hodgepodge of different walks of life people all from different walks of life for the purpose of teaching them the concept of trading, and he used the
37 00:07:35,610 --> 00:07:46,350 long term trading model. And he taught that buying a breakout above a 20 day high holding for long term trends, or selling short a 20 day low holding for
38 00:07:46,410 --> 00:07:55,650 long term trends. While they had a lot of losing trades, their winners were monstrous. It's a trend following system, which is what I teach that large funds
39 00:07:55,650 --> 00:08:05,130 are in the foreign exchange market, their long term trend following because these markets are highly linked to interest rate markets, which are under
40 00:08:05,130 --> 00:08:16,740 underlying fundamental drivers for the marketplace. Long term trends are in fact fundamentally driven in currencies. But because the system was based on buying
41 00:08:16,770 --> 00:08:29,460 on a breakout of the 20 period, or selling below 20 period low that breakout many times was false, and in itself gives us an edge. So if we look at every
42 00:08:29,460 --> 00:08:40,800 interval 20 trading days, which is what we have here, 2040 60 you can encapsulate where the next high and the next low is on price, and where the
43 00:08:40,800 --> 00:08:49,950 highest and lowest low on each 20 day interval. Going forward and looking back, you'll know where the buy stops and sell stops are so that we can take
44 00:08:49,950 --> 00:08:59,280 respective trades based on that. Also, if you notice that the buy stops keep getting hit and rarely do the sell stops keep getting hit. By default, it
45 00:08:59,280 --> 00:09:08,070 teaches you to institutional order flow is what bullish is looking for higher prices, it's keeps drawing on the biceps above the marketplace.
46 00:09:09,810 --> 00:09:17,700 Conversely, if we noticed that the sell stops keep getting ran out and very rarely do the buy stops keep getting hit. That tells us why for institution
47 00:09:17,700 --> 00:09:26,070 order flow tells us that the institutional order flow is bearish. So therefore, the banks are making a move on the large funds liquidity below the lows or
48 00:09:26,070 --> 00:09:38,040 running their sell stops. Okay, moving forward one month, this is September 2016. The same thing is done here. We've identified where the range is in terms
49 00:09:38,040 --> 00:09:47,160 of the look back 60 trading days from the beginning of September, and we have 60 trading days cast forward. We're gonna look for the lowest low in the last 60
50 00:09:47,160 --> 00:10:01,890 trading days prior to September 1. And that's this one here. And the highest high in the last 60 days is here. And again we can keep no noticing that the buy
51 00:10:01,890 --> 00:10:08,190 stops above old highs keeps getting taken out. And you see their highs violated also in the month of September.
52 00:10:13,320 --> 00:10:26,910 Moving forward we have October 2016 look back period of 60 days and the cast forward of 60 days we identified our range or open float the highest high in the
53 00:10:26,910 --> 00:10:37,380 last 60 trading days prior to October 1 2016 Is this high here and the lowest low in our look back period of 60 days is here. So open float on a large fund
54 00:10:37,380 --> 00:10:47,460 level are referenced by these two price points, the higher it's where the buy stops are. And the lower is where the sell stops are. So they're looking for the
55 00:10:47,460 --> 00:10:58,410 buy stops above the marketplace and they keep taking those buy stops out. Notice also in the first 20 trading days to the right or the future from October 2012.
56 00:10:58,770 --> 00:11:10,230 There's a low that forms in the Canadian dollar. It takes the lows out in the form of the bodies of the candles made in the last portion of September. And it
57 00:11:10,230 --> 00:11:23,520 was a rejection that trades higher. So we had one attempt here to clear out the sell side liquidity. Moving forward delineating our open float range for
58 00:11:23,520 --> 00:11:34,470 November 2016. We can see look back period 60 trading days maximum 40 trading days and 20 trading days, the highest high and the lowest low formed in the last
59 00:11:34,470 --> 00:11:47,100 20 and 40 and 60 trading days the lowest lowest seen here high as high as seen here. And again going forward into November, we can see that that high was in
60 00:11:47,100 --> 00:11:57,780 fact taken out on the upside. So they keep taking the buy stops out and institutional order flow is indicated as bullish. Casting forward one more time
61 00:11:57,990 --> 00:12:10,500 into December 2016. Looking back last 60 trading days prior to December 1, the lowest low is seen here. sell stocks will be resting below that and large fun
62 00:12:10,500 --> 00:12:24,030 level. And buy stocks will be resting just above the high seen here. Notice also in the first 20 trading days after December 1 2016. We made it low. And then
63 00:12:24,030 --> 00:12:37,080 price rent eventually up into trading another higher high but blowing up the buy stops above the November high and then ultimately making a run down into a lower
64 00:12:37,080 --> 00:12:55,320 low for January. And it forms in the first 40 trading days after December 1 2016. And going forward in time, at the time of this recording look back
65 00:12:55,320 --> 00:13:07,770 period last 60 trading days. You see the lowest lows seen here highest high seen here we have already violated the lowest low. So we've taken out the cell stops
66 00:13:07,800 --> 00:13:18,870 on a large funds level. And we can look forward in time for a new price like the retrace higher and and see if they want to take it lower because it's all
67 00:13:18,870 --> 00:13:29,820 indicating that they want to take out the sell side liquidity now. Okay, let's take a look at the dollar CAD pair. This is a daily chart. And let's apply some
68 00:13:29,820 --> 00:13:44,070 of these ideas on the daily chart. Okay, you can see the bodies of the candles over here. We did wick down below 130 50 level and retrace a little bit. That's
69 00:13:44,070 --> 00:13:54,330 where the cell stops will be resting on a intermediate term basis because we're looking at the daily timeframe. Price eventually does trade down there and takes
70 00:13:54,330 --> 00:14:03,600 those cell stops out of the marketplace and quickly runs away. Next area up here the bodies of the candles you can see that wicks through it BizStats will be
71 00:14:03,600 --> 00:14:17,790 resting just above that large funds have thereby stops taken out here in the UK quickly rejected. We have a low down here with the bodies of the candles. Sell
72 00:14:17,790 --> 00:14:24,720 starts with the rest of us to below that. And we can see the market does in fact sweep down there and take the sell side liquidity out.
73 00:14:26,370 --> 00:14:36,360 So what makes these false breaks and impulse breaks higher and lower so lucrative is the fact that we understand that large traders in the form of a fun
74 00:14:36,360 --> 00:14:46,620 trader. They have their biceps above these levels, and they had their cell stops below these levels. Every 20 trading days there's going to be a new liquidity
75 00:14:46,620 --> 00:14:56,370 pool formed. It's going to be in the buy side and on the sell side. You just have to identify where those ranges are in respective terms to where the most
76 00:14:56,400 --> 00:15:04,650 obvious swing high and swing low is formed. And then frame that Going forward, whereas the next 20 days high low, whereas the next 20 days high low key going
77 00:15:04,650 --> 00:15:15,030 out. But looking back in the last 60 days and looking forward into the future 60 days, gives us the range for open float, the highest high and the lowest low in
78 00:15:15,030 --> 00:15:26,610 that range of 120 days. That's what the large fund macro is, in other words, where they're aiming for the large fund, buy stocks or sell stops, they're going
79 00:15:26,610 --> 00:15:37,530 to be derived at looking at worth a range high and low is on the last 120 days, 60 days backwards in time, and with the next high low. If it makes a higher high
80 00:15:37,710 --> 00:15:46,110 in the next new 60 trading days, we don't know where that high is going to be in the future. We don't know if it's going to create a higher high, or if it's
81 00:15:46,110 --> 00:15:55,740 going to make a lower low. We just monitor as price creates new price swings, higher highs and lows. Where are we in relative terms to the last 60 trading
82 00:15:55,740 --> 00:16:07,800 days? Are we making a higher high than the the highest high? Or are we making a lower low and the lowest low in the last 60 days. And we look forward 60 trading
83 00:16:07,800 --> 00:16:18,030 days into the future. And we keep moving that basis forward each new month we're looking for and will eventually arrive at the institution order flow by default,
84 00:16:18,060 --> 00:16:25,350 you can see where they're running the market, they're taken out by stops continuously, rarely, if ever taken out, sell stops. What's telling you today
85 00:16:25,350 --> 00:16:35,700 want to press the market higher. They keep grinding against those large funds. So if it's seen as an opposite, where we keep seeing the cell stops keep getting
86 00:16:35,700 --> 00:16:46,200 ran out. And very real device stocks get taken out. institutional order flow is bearish. So therefore as long as we continuously see the market making new lows,
87 00:16:47,220 --> 00:16:55,320 we keep watching that range of the last 60 days and where are we in relationship to that? Are we above it or below it? If we're above it, we have to continuously
88 00:16:55,320 --> 00:17:04,020 keep seeing buy stops get taken out, if you start seeing cell stops get taken out, we're probably making a quarterly shift. And the reverse is said if we're
89 00:17:04,020 --> 00:17:15,600 below the last 60 days low. And if we're below that last 60 days low, we're really oversold, we're in a deep discount market. And if we start seeing buy
90 00:17:15,600 --> 00:17:25,320 stops getting hit and very rarely new, we now see Sell Stop getting hit, we're probably being forming a market structure shift or quarterly shift for a new
91 00:17:25,320 --> 00:17:36,660 direction in the marketplace. And you can see that, in fact is what happens here with the Canadian dollar. So let's take this information and go back to the
92 00:17:36,810 --> 00:17:47,280 futures market. And take a look at some things. Now obviously, this is going to be the price action of the futures contract which is going to be inverted from
93 00:17:47,280 --> 00:17:55,980 what we see more studying the dollar index versus the Canadian dollar. Because that pair starts with the US dollar first that means when that market is going
94 00:17:55,980 --> 00:18:05,640 higher as a pair, that means the dollar is strong and Canadian dollars weak. If the dollar CAD is going lower, that means the dollar index is weak and the
95 00:18:05,640 --> 00:18:16,080 Canadian dollar is strengthening. Well, in this case, we are looking at the futures contract with Canadian dollar. And I want you to look at the same
96 00:18:16,080 --> 00:18:25,110 reference points we just showed in the previous slide, which is going to do the opposite in the futures market. And you see the bodies of the candles being ran
97 00:18:25,110 --> 00:18:40,260 out here in December. And then quickly rejected. We can see the bodies of the candle, made in November gets raided in December and quickly rejects and it runs
98 00:18:40,260 --> 00:18:50,610 for what the bodies of the candles here. We're running that Oh, hi, our biceps will be resting. And that's where we're at presently. But prior to that big run
99 00:18:50,610 --> 00:19:10,890 up off of that 7350 7365 level. Take a look at this right here. I gave you a teaching with the Australian dollar. And I showed you how we can use these
100 00:19:10,890 --> 00:19:19,170 quarterly shifts to take place and open interest off of Support Resistance ideas on a higher timeframe basis.
101 00:19:20,700 --> 00:19:30,870 When we're looking at higher timeframe charts, we are identifying clues and seeking evidences that we can see that they are about to make a move on one side
102 00:19:30,870 --> 00:19:39,540 of the marketplace. We understand what's making that short term fluctuation could be largely attributed to just running the stops on funds. Large fund
103 00:19:39,540 --> 00:19:48,720 traders buy stocks and sell stops. But it's not always that the markets are moving based on very very long term fundamentals and as it relates to higher
104 00:19:48,720 --> 00:19:58,110 timeframe charts. But every three months there can be a manipulative phase in the marketplace that still can be a catalyst for us to be a trader taking high
105 00:19:58,110 --> 00:20:08,310 probability entries in Looking for high probability exit points. And by looking at where the logical fund level traders buy stocks and sell stocks would be and
106 00:20:08,670 --> 00:20:20,370 looking for evidences that the market is showing participation by smart money. Ie thanks. If the markets trading down to a support level at 7380 to 7360, in
107 00:20:20,370 --> 00:20:37,710 that range, we have a clue here that once the market started trading lower from the 7500 to 7460 7440, level to 7400. And then once we got below 7380 level, by
108 00:20:37,710 --> 00:20:49,110 that point, open interest had already tanked. You can see clearly here, that's a huge drop, it's a massive drop, you only need a 15% decrease to have a massive
109 00:20:50,250 --> 00:20:59,220 indication that there's big huge institutional sponsorship behind the move that you're expecting. If open interest is declining, what they're saying to us is
110 00:20:59,460 --> 00:21:09,030 they are not willing to be offering sell side liquidity to buyers, they don't want that. So they're scaring those individual base dropping the market really
111 00:21:09,030 --> 00:21:21,420 quickly and open interest declines rapidly. Open Interest only declines as an evidence that the smart money are not wanting to be heavily short, high open
112 00:21:21,420 --> 00:21:33,120 interest is a indication that there's a big massive liquidity program that's been offered for buyers, the bank is offering that as risk, they're holding the
113 00:21:33,120 --> 00:21:40,560 risk on that. But if open interest declines, while the market drops off precipitously, and it goes into a support level, because look at what's
114 00:21:40,560 --> 00:21:52,620 happening in November 2016. The Canadian dollars futures contract it rallied from around 7380 up to 7640, which is a very respectable range. Price comes back
115 00:21:52,620 --> 00:22:03,420 down runs the bodies of the candles that was formed as a low in November 2016. price comes down again, looking for another shift in the marketplace. It runs
116 00:22:03,420 --> 00:22:16,380 out the sell stocks below the 7380 level with an old Well remember, we look back in higher timeframe institution or flow reference points, liquidity pools
117 00:22:16,980 --> 00:22:28,230 waterblocks, fair value gaps equilibrium. All those price points we used and learned in September, we look for those in our higher timeframe charts. We're
118 00:22:28,230 --> 00:22:38,340 seeing a liquidity pool in the form of a sell stop resting around 7380. They make that run and on low open interest. At a support level, they're indicating
119 00:22:38,340 --> 00:22:47,220 that this is going to go up higher. If the futures contract for the Canadian dollar March contract delivery is indicating that there's very low open interest
120 00:22:47,220 --> 00:22:58,110 at a support level at a time when it stops had been ringing up a little marketplace. That's indicating what potential strength and you can see the price
121 00:22:58,110 --> 00:23:12,780 action that transpired after that rather explosive price move. Looking for a move from 7380 all the way up to 7680. So 300 pips move up from one specific
122 00:23:12,780 --> 00:23:24,630 level that can be easily derived by looking at the evidences that we've shown here in this teaching. Using open float, casting forward 60 days, casting
123 00:23:24,630 --> 00:23:35,520 forward 40 days casting forward 20 days. Notice also every 20 trading days, the high in the low becomes very obvious, you can start circling these as you create
124 00:23:35,520 --> 00:23:47,730 new highs. Every time it's a new higher high note there, and then wait for the price to come back down to an old 20 Day low. Study that every 20 day highs
125 00:23:47,760 --> 00:23:57,300 every 20 day low is going to have buy stocks and sell sauce resting above the highs and below the lows. If you do this as an exercise going forward, you'll
126 00:23:57,300 --> 00:24:06,510 see clearly what side of the marketplace it's seeking. If it keeps taking out the buy stops or the highs. The market is doing what it's moving higher. That
127 00:24:06,510 --> 00:24:13,680 means institutional order flow is on the buy side. You don't want to be selling short and there's conditions. If the market is taking out the sell side
128 00:24:13,680 --> 00:24:19,080 liquidity continuously and rarely ever taking out the highs of the price action.
129 00:24:19,350 --> 00:24:28,530 That means that institutional order flow is indicated lower and you want to focus primarily on being short. Until we get an obvious change in direction. How
130 00:24:28,530 --> 00:24:37,830 would that happen? Well, if you go and start trading to the lowest low and the last 60 days won't we're probably going to be very, very deeply oversold and
131 00:24:37,830 --> 00:24:45,450 we're going to be in deep discount even if the price only bounces a little bit on a higher time frame like this. It can bounce a great deal could be over
132 00:24:45,450 --> 00:24:54,660 150 200 pips sometimes and then eventually roll over in continuous fashion keep going lower. You don't want to be caught on the wrong side of the marketplace
133 00:24:54,690 --> 00:25:04,170 trading on a hard timeframe chart and not see the evidence is that it's given you in Trade accordingly, you have to have all these things in mind looking for
134 00:25:04,170 --> 00:25:12,390 where the liquidity is. And the easiest way to do it. And to make all this very simple because it can be very easily complicated. And I'm sure it probably
135 00:25:12,390 --> 00:25:26,250 complicated in many your minds, what you're looking for is a revolving continuous range of 120 days. And you, whatever day you're looking at, you look
136 00:25:26,250 --> 00:25:35,130 back 60 And you look forward 60. So there's 120 days there, and you're constantly monitoring where's the highest high and the lowest low in those in
137 00:25:35,130 --> 00:25:47,310 that range. And that's where the buy stops and the sell stocks are going to be on the large one level. The look back phase is where the hard stops are going to
138 00:25:47,310 --> 00:25:58,170 be. That means where the actual buys and sell stops are going to be above and behind below an old low. But if we're looking forward studying new price action
139 00:25:58,170 --> 00:26:09,000 as it occurs, you need to be mindful of where you are in the last 60 days range, Are we near high, or are we near low. And that's also going to be indicative of
140 00:26:09,000 --> 00:26:18,780 where we see the next quarterly shift, if it's going to be continuously moving higher and higher and higher and keeps taken out by stops. Eventually, unless
141 00:26:18,780 --> 00:26:27,030 you're on a one sided parabolic price move, which we'll teach about. Generally, you don't see too many of those, the market generally moves from range to range.
142 00:26:27,420 --> 00:26:36,690 And using this concept, it will be very beneficial to you because you can see where the near term that means to 20 period high and low in terms of trading
143 00:26:36,690 --> 00:26:46,710 days. And I'll say that again, the next near term move is going to run on near term buy stocks or sell stops. That means the last 20 days range what's the
144 00:26:46,710 --> 00:26:55,770 highest high and lowest low, that's the near term, open float. The short term open float is what's the highest high and the lowest low in the last 40 trading
145 00:26:55,770 --> 00:27:05,010 days. And the intermediate term open float is going to be the highest high and lowest low in the last 60 days. Knowing where you are in that range, and what
146 00:27:05,010 --> 00:27:13,110 side of the marketplace keeps getting taken out will give you clues as to what the next shift in price is going to be. Once it starts to break down, you know
147 00:27:13,110 --> 00:27:19,110 you're gonna have a significant price move and you can trade that accordingly. Even on a daily timeframe where you don't have to go down to a lower timeframe
148 00:27:19,110 --> 00:27:27,900 for entry, you can execute purely off of the daily chart. So we're gonna build on these ideas as we go through the rest of January till next time. This
149 00:27:27,900 --> 00:27:30,420 concludes this teaching wish good luck and good trading