2022 ICT Mentorship [No Rant] ep. 3 - Internal Range Liquidity & Market Structure Shifts

Summary

This lecture focuses on identifying market structure shifts in e-mini NASDAQ 100 futures contracts using a 15-minute timeframe. It explains how to spot potential shifts by analyzing old lows and highs, sell and buy stops, and the significance of equal highs. The presenter emphasizes the difference between intraday market structure shifts and breaks, highlighting the importance of high-frequency trading algorithms and how they influence the market. The lecture also covers the concept of internal range liquidity and provides practical tips for identifying and trading market structure shifts during key market sessions.

Takeaways

• 📈 **Market Structure Shifts**: The speaker emphasizes the importance of understanding intraday market structure shifts, which are not necessarily breaks but can indicate a change in market direction.
• 🔄 **Liquidity and Stops**: The concept of sell stops below old lows and buy stops above old highs is introduced as a way to anticipate market movements.
• 📉 **Internal Range Liquidity**: Focusing on short-term highs and lows within a retracing price leg to identify potential areas for market structure shifts.
• 📊 **High-Frequency Trading (HFT)**: The impact of HFT algorithms on market structure is discussed, highlighting how they can influence short-term price movements.
• 🎯 **Identifying Key Levels**: The speaker advises using specific price points, such as old highs and lows, to anticipate market structure shifts.
• 🌐 **Global Market Sessions**: The significance of different global market sessions (London, New York, Asia) and their session highs and lows are highlighted for trading opportunities.
• 📅 **Time Frame Importance**: The speaker suggests specific times of the day to look for key intraday highs and lows that can lead to profitable trades.
• 🚫 **Avoiding Problematic Hours**: It's advised to avoid trading during certain hours, like noon, as they can be problematic and less predictable.
• 📝 **Homework Assignment**: The audience is tasked with analyzing intraday charts to identify stop hunts and market structure shifts, reinforcing the learning through practical application.
• 🔑 **Key to Success**: The ability to identify pools of liquidity and anticipate market movements is presented as a critical skill for successful trading.

Q & A

What is the focus of the lecture?

The lecture focuses on internal range liquidity and market structure shifts within a 15-minute time frame on the e-mini NASDAQ 100 Futures Contract for March delivery, 2022.

What are sell stops and buy stops?

Sell stops are orders placed below a certain price level to sell, and buy stops are orders placed above a certain price level to buy. These are used to identify potential market entry points.

Why are 'relative equal highs' preferred over a single high when identifying potential market shifts?

Relative equal highs are preferred because they provide a more reliable indication of potential market resistance levels, as they represent multiple tests of the same price area.

What is meant by 'Market structure shift' in the context of intraday trading?

A market structure shift refers to a change in the intraday market trend, which may not necessarily lead to a prolonged multi-day movement but indicates a potential change in the direction of the price movement within the day.

How does the讲师 define 'internal range liquidity'?

Internal range liquidity refers to short-term highs or lows within a price leg that the market is retracing back into, which includes stops above or below these levels.

What is the significance of the market trading down and hitting a previous low?

When the market trades down and hits a previous low, it indicates that sell stops have been triggered, potentially leading to a market structure shift.

What is a 'fair value gap' and why is it important?

A fair value gap is a situation where the high of one candle is significantly higher than the low of the next candle, indicating a potential change in market sentiment and a possible entry point for trades.

How does the讲师 suggest traders should react when the market rallies above a certain level?

Traders should anticipate a market structure shift and look for potential trading opportunities, rather than forcing a shift in market structure.

What is the role of high-frequency trading algorithms in creating market structure?

High-frequency trading algorithms contribute to market structure by constantly offering and changing prices, which can lead to the formation of new highs and lows and influence market liquidity.

Why is it beneficial to look at the 3-minute, 2-minute, and 1-minute charts?

Examining these shorter time frame charts helps traders identify high-frequency trading patterns, potential market structure shifts, and areas of liquidity more precisely.

What homework is assigned at the end of the lecture?

The homework involves going through e-mini Futures intraday charts to identify stop hunts leading to market structure shifts, and logging these examples with annotations for a study journal.

Outlines

00:00

📈 Market Structure Shifts and Liquidity Identification

This paragraph discusses the concept of market structure shifts and liquidity identification on a 15-minute timeframe e-mini NASDAQ 100 Futures Contract. The speaker explains the importance of recognizing old lows and equal highs to identify sell and buy stops, respectively. They emphasize the difference between a market structure shift and a break, noting that a shift does not necessarily indicate a prolonged movement but rather an intraday price movement. The speaker also introduces the idea of fake runs and how they can signal a bearish market structure shift. The paragraph concludes with a discussion on how high-frequency trading algorithms use marked structures on various timeframes and the significance of taking out liquidity from the market.

05:00

💹 Fair Value Gaps and Trade Execution

The second paragraph delves into the concept of fair value gaps and how they can signal potential trade opportunities. The speaker explains that a fair value gap occurs when a candle's high is not completely overlapped by the next candle's low. They discuss how to identify the earliest point for trading based on these gaps and the importance of monitoring the market's reaction to short-term highs and lows. The paragraph also covers the idea of taking partial positions in a trade and the rationale behind targeting specific price levels for exits. The speaker emphasizes the importance of understanding market liquidity and how it can influence trade execution, including the impact of high-frequency trading algorithms on market movement.

10:01

📉 Order Blocks and State of Delivery

This section explains the concept of order blocks and the state of delivery in the market. The speaker describes an order block as a change in the state of delivery, which can occur when the market moves past a significant opening price, signaling a shift from offering sell-side to buy-side liquidity. They discuss how this change can lead to a market structure shift and the subsequent targeting of buy stops by the market. The paragraph also covers the importance of identifying key support and resistance levels, as well as the significance of 50% levels in market movement. The speaker provides guidance on how to analyze market behavior on different timeframes, such as 3-minute, 2-minute, and 1-minute charts, to identify potential trading opportunities.

15:01

🌐 Global Market Sessions and Homework Assignment

The final paragraph focuses on the importance of understanding global market sessions, specifically the London, New York, and Asia sessions, and their impact on market movement. The speaker highlights the relevance of session highs and lows and how they can lead to significant market activity. They also provide a homework assignment for the listener, which involves analyzing e-mini futures intraday charts to identify stop hunts that lead to market structure shifts. The assignment aims to help the listener practice identifying liquidity pools and market structure shifts by annotating charts and studying market behavior during specific timeframes.

Keywords

💡Market Structure Shift

A 'Market Structure Shift' refers to a change in the pattern of how the market is behaving, particularly in intraday trading. It is not necessarily a break in the overall market structure but signifies a potential change in the direction of price movement within a trading session. In the video, the speaker uses this term to describe moments when the market's direction changes, such as when a bearish market breaks down and then rallies, indicating a shift from selling to buying pressures.

💡Liquidity

Liquidity in the financial markets refers to the ease with which assets can be bought or sold without affecting their price. In the context of the video, the speaker discusses 'buy side liquidity' and 'sell side liquidity', which are areas where buy or sell orders accumulate. The speaker also explains how market movements can be anticipated by observing these pools of liquidity and how they change as the market trades through them.

💡Stop Hunts

A 'Stop Hunt' is a trading strategy where traders attempt to trigger a large number of stop-loss orders to profit from the sudden price movement that results. The video describes how identifying areas of 'stop hunts' can lead to market structure shifts, as these are moments when the market moves past certain price points that trigger a cascade of stop orders, causing a significant price movement.

💡Fair Value Gap

A 'Fair Value Gap' is a term used to describe a situation where the opening price of a new candlestick on a chart does not overlap with the closing price of the previous candlestick. This gap signifies a change in market sentiment and can indicate a potential entry point for trades. The speaker in the video uses this concept to identify moments when the market is likely to move in a particular direction after a significant gap has formed.

💡Swing High/Low

In trading, 'Swing High' and 'Swing Low' refer to temporary peaks and troughs in price within a trend. The video emphasizes the importance of recognizing these points as they can signify potential reversals in the market's direction. When a market breaks through a swing high or low, it can indicate a significant change in market structure, which is a key concept in the video.

💡E-mini NASDAQ 100 Futures Contract

The 'E-mini NASDAQ 100 Futures Contract' is a financial derivative that represents a smaller version of the standard NASDAQ 100 futures contract, which tracks the performance of the 100 largest non-financial companies listed on the NASDAQ stock market. The video specifically discusses trading strategies related to this contract, focusing on how to identify and trade market structure shifts within its price movements.

💡Intraday

Intraday trading refers to the buying and selling of financial instruments within the same trading day. The video focuses on intraday market structure shifts, which are changes in the market's direction that occur within a single trading session. The speaker provides insights on how to identify and trade these shifts effectively.

💡Algorithmic Trading

Algorithmic trading involves using algorithms to determine trade orders, which are then executed automatically. The video mentions how high-frequency trading algorithms can influence market structure by constantly offering prices, creating liquidity, and potentially triggering stop hunts and market structure shifts.

💡Support and Resistance

In technical analysis, 'support' and 'resistance' are levels on a price chart where the price tends to stop falling (support) or stop rising (resistance). The video discusses how these levels can be identified and used to anticipate market movements, particularly in the context of market structure shifts.

💡London Session/ New York Session

The video refers to different trading sessions, such as the 'London Session' and the 'New York Session', which are periods of high trading activity when these financial centers are open. The speaker advises traders to pay attention to the highs and lows of these sessions as they can provide key insights into potential market movements and structure shifts.

Highlights

Introduction to the concept of liquidity and market structure shifts in e-mini NASDAQ 100 Futures Contract trading.

Explanation of sell stops and buy stops in relation to old lows and equal highs.

Importance of using higher equal highs for better market insight.

Market structure shifts versus breaks and their impact on intraday movements.

The significance of anticipating market structure shifts without forcing them.

Identification of areas where market structure shifts are likely to occur.

The concept of fake runs and how they indicate a bearish market structure shift.

Importance of remembering specific price levels during market analysis.

Use of two-minute charts to identify relative equal highs and market structure.

Role of high-frequency trading algorithms in creating market structure on short-term charts.

Explanation of how trading algorithms influence market movement without causing price increases.

The significance of a short-term high being taken out and its impact on market liquidity.

Concept of fair value gaps and their role in market trading strategies.

How to identify potential trading opportunities using fair value gaps.

The process of taking partials in a position and the rationale behind it.

Importance of understanding market structure shifts for short-term trading.

How to use one-minute charts to identify market structure shifts and trading opportunities.

The concept of internal range liquidity and its application in trading.

Homework assignment to practice identifying stop hunts and market structure shifts in historical data.

Guidelines for identifying key times of the day for potential market structure shifts.

Final thoughts on the importance of understanding market structure for trading success.

Transcripts

all right folks welcome back this is the

internal range liquidity and Market

structure shifts lecture again 15-minute

time frame on the e- mini NASDAQ 100

Futures Contract for March delivery

2022 and take your attention over here

okay this old

low and these relative equal highs see

that old low below that is sell

stops and relative equal highs above

that is buy stops now you could have

used this High here there's nothing

inherently wrong about that but whenever

I see equal highs like this might and if

it's higher than an old high over here

I'm going to use that so that way

there's a little bit of insight for you

for your study

journal the sell side liquidity you can

see that the market trades down hits

that runs through

it then rallies all the way back up

clearing equal highs so the buy stops

have been taken here okay so at both of

these price points here and here that's

the I guess the point at which you'll

look for or anticipate a market

structure Shift You Don't Force It okay

I see a lot of people try to teach my

Concepts that'll talk about Market

structure breaks or shifts and we'll use

that term interchangeably but for

intraday I want you to think about

intraday Market structure shifts because

it's not necessarily A break-in Market

structure that leads to prolonged

multi-day movement okay what do I mean

by that if you see a market structure

that's bearish and it's broken to the

downside intraday that may just lead to

an intraday price leg that may

eventually see that high be taken out in

the same day so that's why I'm using the

term Market structure shift not Market

structure

break for our conversation here on this

mentorship just know that when I'm going

to lean on that term Market structure

break it means a little bit more in

context versus an intraday shift in

Market structure just means there's

likely a downside draw or an upside draw

intraday by seeing the term shift okay

so there's a little bit of semantics

there all right so we have both of these

areas here and here where there would be

a likelihood of a market structure shift

up here we look for a fake run above

here so that fake run above how do we

know it's going to be a market structure

shift that's bearish now keep this price

level in mind so it's essentially 14,600

and 14,820 which're is eyeballing it

okay now dropping all the way down into

a two-minute chart this is that same

particular day here's those relative

equal highs and this run down here if

you recall 146 and around that 14860 or

so if you look at this Market structure

without having the levels on your chart

it's easy to get lost when we had this

low form right before this low was

formed there's a swing high right

there now in the first mentorship video

I gave you I mentioned that high

frequency trading algorithms will use

marked structure on a 3 minute 2 minute

1 minute chart many times sub 1 minute

that would be like 45 second 30 second

15c intervals if you look at this

short-term High here right before this

low formed when this high is taken out

right there on that candle that's

significant only if this run down here

has traded into cell stops okay below an

old low of some kind it could be a

double bottom it could be a single low

but it's got to be Trading under some

retail idea that would be viewed as

support up here the same thing when this

run above these relative equal highs

happens right there you're anticipating

a market structure shift let me go back

to this for a second we had this high on

this candle then we had the candle right

after that here the highest one and then

the lower high of this candle here so

that's a swing High very simple little

pattern but it means a lot when it's in

the proper context when this high is

broken with this particular candle right

there that is significant only on the

basis that we have taken liquidity out

of the marketplace that's it so when it

broke this short-term high this is more

meaningful and then the market will

start to seek buy stops okay or buy side

liquidity that would rest above here

here and here so here's those sell stops

so this little area here shaded in

that's a area where sell stops would be

residing below that 14600 level okay on

that 15 minute time frame so the market

dove into that liquidity and you may or

may not know that is a buy you don't

need to anticipate a shift in Market

structure when the market rallies above

when does that happen on this candle

right here see that little light bulb

that's when you're thinking okay now I

have a condition in the marketplace that

I might see an opportunity intraday

let's see if there's further evidence to

that short-term high is taken here we

traded above it it does not need to

close above that okay really important

once that candle closes and this candle

opens you're going to monitor this

candle and you want to see as soon as

this candle closes does it create that

fair value

Gap If it creates a fair value Gap again

that's a candle with a high one single

pass up next candle has a low that

doesn't completely overlap all this

that's fair value Gap real simple okay

this candle is where you would look to

potentially trade at the earliest

because now there's a gap there the

market trades down into that boom takes

off see these down closed candles see

that that's all one continuous order

block

what's it

doing it's inside that pool of liquidity

sell stops where's the open on that

series of down Clos candles right here

that's the price level extending out in

Time Boom so inside this fair value Gap

this opening price on the order block

that's your buy plus three Pips or

whatever for spread and that's what you

would use for a limit order well price

starts to run where above the highs

where buy stops will be here Above This

High here and above this High here so

the buy stops above here that was taken

this swing low forms once this candle

closes so this candle we're watching

does it go below that short-term low it

does so now we have a shift in Market

structure that is now bearish only

because we've taken buy stops fair value

Gap forms the market rallies up into

that you go short there what are you

looking for below here sell stops below

here sell stops below here sell stops

and in this Fair Val

here so if you are in a position that

has multiple contracts you can take

partials below here I really wouldn't do

it there but below here here and some

you saying why wouldn't you take them

below their ICT well if you're trying to

get short here that's not really that

much movement so if you're going to take

something off your trade below that low

why not just try to reach for that one

and you could get it there right here

okay and then below that low is nice as

well this is below the 50 level of this

high and that low okay okay so 50% level

that's what we targeting now this

candle's low was the high end or first

objective inside this Gap so that's your

target you're going to look for that so

you're looking for low hanging fruit the

easiest Target to get to you're not

trying to be perfect and you grow into

eventually holding to see if it will

fill in that Gap okay this Fair B Gap

was going down to this candle's High

that's something that you strive for

over time if you understand what I just

showed you here that's a very simple

process of looking for number one

liquidity gauging what happens without

having to know for certain because you

don't know you're not going to know

until the market shows its hand this is

it showing its

hand now let's go into a one minute

chart and see how that looks a little

bit different but still has the same

characteristics here's that same price

structure just on a one minute chart the

same logic still there right swing High

taken after liquidity has been traded

into this short-term High gets violated

right when this trade down in here

what's actually occurring okay put this

in your notes high frequency algorithms

are hammering they're just throwing

orders in buy buy buy buy buy that is

not okay here's an important thing that

is not causing the market to go higher

it's just volume that's coming in the

algorithms that deliver price that offer

price that are constantly offering price

in the

marketplace that's what's beginning to

spool and go higher okay and regardless

of where you want to trade at your limit

orders they may not get filled where

you're trying to buy with a market order

you may think you're getting in at

14662 but by the time your order is

executed and confirmed you're in

14664 that's slippage okay that's

negative slippage if you were trying to

buy it at

14662 and it filled you at 14661 that's

positive slipage that's better than what

you were expecting

so when price starts to Rally all this

is is a default to the algorithm

constantly offering price at a higher

price so we're looking at the swing low

right here Market breaks down trades

break back up into this back up in this

fair value Gap here and sells off and

there's another fair value Gap right

there trades up into that as well this

is a one minute chart so it's giving you

multiple points of execution that you

could trade on and then Dives see these

two candles here that's one consecutive

bearish order

block the opening price extending out in

time why is this a good bear shoulder

block because it has that

Gap and it's taking

liquidity and there's a market structure

shift there's your high frequency high

power high probability bearish order

block what it is it's a change in the

state of delivery the Market's being

offered higher higher higher higher in

these two up closed candles how did this

series of up closed candles begin with

this candle's opening right there that

opening once this candle trades below it

that changes the state of delivery so

you go back to that point of reference

right there and that's why it's

sensitive the algorithm remembers that

right there okay that's all I'm going to

give you on the Free mentorship level

but that is your answer okay that is

what an order block is it is a change in

the state of delivery much in the same

way all of this movement down here all

these down closed candles the opening on

that candle starts the series of

delivery on the downside when that

opening price gets violated here it

changes its state of delivery now it was

offering sell side when it goes above

that opening now it's offering buy side

what will it be doing after that it'll

be looking for buy stops buy stops buy

stops because it's offering buy side

liquidity same thing here buy side is

being offered until that opening price

is violated right there then the change

of state of delivery occurs now the

Market's going to be doing what offering

sells side liquidity what's that mean

it's going to start going lower and

attacking the sell stops all the sells

side liquidity it's offering it to the

marketplace that's what's happening

that's what the algorithm is doing but

the market goes down to that 50% level

because it's going down to what but I

teach you what did I say in the first

video it's going down from a premium

Market relative to this low in this High

50% is here that's equilibrium so it's

going to go down to a discount and

that's that Gap right here it doesn't

look like a gap so much here but if you

go back up one more time that's that

single opening right there on a

two-minute chart and then on a one

minute chart it's two candles that make

that up but you're going to have to do

is go through a progression of going

from the 3 minute 2 minute and one

minute chart and you'll get your Market

structure and your areas of where it

wants to look for an imbalance or old

low old high and it just makes it easy

and here's the lipstick on it on the one

minute

chart swing high is broken Market

structure is now

bullish rallies taking buy stops taking

buy stops taking by stops this right

here these highs right here is just

staying below that low it's building up

more interest that this is what

resistance that is engineering liquidity

that way when this runs above it those

individuals that know what you're

learning today they know that that's a

pull of liquidity for buyers coming in

at a high price why is that useful

because smart money they bought down

here or here or here or here or here

that's where they sell to high seeking

buyers real nice delivery here as well

filling that fair value Gap change in

the state of delivery now it's offering

sell side what's that mean it's going to

match up sell stops it's going to keep

going below old

lows into an imbalance until we get down

to a discount so with that I want you to

think about how this is useful number

one you're looking at London highs and

lows a session for London open okay for

instance like 2:00 in the morning to

5:00 in the morning New York time every

every time I tell you just always set it

with New York local time 2 o'clock to 5

o'clock in the morning that's your

London session what's the highest in

lows of that session okay that's

important because the Market's going to

probably sweep above those highs or

sweep below those lows and create

situations like this okay and the New

York session is 7:00 in the morning to

10:00 in the morning New York local time

okay what's the session high and low for

that and do the same thing for Asia okay

7:00 p.m. to 9:00 p.m. and that's it

those are the three times of the day

that I'm looking for specific key highs

and key lows and any intraday high and

low forming right before the equities

open at 9:30 pretty easy right the hours

of operation again are generally between

8:30 in the morning to 11:00 but it can

be extended all way to New York lunch

noon I do not tend to take trades after

noon local time New York uh that hour is

usually very problematic and it's just

it's better not to even look for any

kind of setups wait until 1:00

preferably really 1:30 to 4:00 then you

got the afternoon Trend typically you'll

see between 2:00 and 3:00 there's a

setup that usually forms in the

afternoon Trend or setup in the period

of the time of the day that will also

offer opportunities but that's outside

the scope of what I'm going to be

teaching in this mentorship all right so

we talked about internal range liquidity

and internal range liquidity is looking

for short-term lows or short-term highs

inside a price leg that we're retracing

back into okay that's all it means

internal range liquidity is a short-term

higher low with stops above below it or

an imbalance in that same range of price

action and I taught you Market structure

shifts showed you exactly all that's

necessary that is all that you require

and the skill set of identifying pools

of liquidity that is going to be

something you learn rather quickly just

by going through old data and looking at

the times of the day I gave you in this

lecture all right your homework is

you're going to go through your em mini

Futures intraday charts and you're going

be looking for stop hunts that lead to

Market structure shifts intraday you're

going to log your examples with your own

annotations for your study Journal so

what I showed with the break in the

market going higher and lower above old

highs or lower below and old low that's

running for stops that's a stop hunt

then you're looking for that signature

for the market structure shift on the

three two and or one minute charts okay

if you look for that between 8:30 in the

morning to noon New York local time in

the eem mini markets or if you're

watching the micro markets the same

logic exists okay but you're going to

start going back from today and go back

as far as the data will allow you and

you annotate your 15-minute time frame

for your buy side liqu pool and your

cide liquidity pools and then going down

into the 3 minute 2 minute one minute

chart so for every individual day that

you're logging and you're back testing

back testing is just Dressing Your Chart

out like I'm showing you here and then

studying it not just do it until account

done really go into to see how price

moved and how it

[Music]

delivered