How to identify directional bias using ICT concepts
Summary
TLDRThis video script delves into the complexities of determining market directional bias, emphasizing the difficulty of the task and the importance of understanding market narratives. The presenter simplifies the process by focusing on key concepts, including the assessment of past price movements and the identification of buy and sell side imbalances. The script guides viewers on how to establish a bias across different time frames, using the US dollar Index as an example, and discusses the significance of equilibrium levels, fair value gaps, and liquidity areas. It concludes by highlighting the trader's role in gauging market probabilities and waiting for clear directional signals.
Takeaways
- 📊 Understanding market narrative and directional bias is challenging but can be simplified with certain rules.
- 🔍 Importance of assessing what price has previously done to determine directional bias, as it's hard to determine without historical context.
- 📈 Price seeks to move to equilibrium, which is the fair value, and to liquidity zones above old highs and below old lows.
- 💡 Identifying buy and sell side imbalances can provide clues about the market's reluctance to move in a certain direction.
- 🕊️ Sharp price movements with up-close candles can indicate the market is in a hurry to reprice higher.
- 🔄 The concept of equilibrium, premium, and discount ranges helps in understanding market behavior in bullish and bearish scenarios.
- 🎯 Traders should wait for the market to show clear signs of directional bias before entering trades.
- 🔑 Displacement and the formation of fair value gaps are essential for determining the market's next likely direction.
- 🔍 Zooming into different time frames can provide more detailed insights into market movements and potential targets.
- 📉 In a bearish market, wait for the market to reach a premium before shorting, and in a bullish market, wait for a discount before going long.
- 🧭 Constant evaluation of the market's actions and potential next steps is crucial for maintaining an accurate bias.
Q & A
What is the main challenge in determining the directional bias of a market?
-Determining the directional bias of a market is challenging because it requires understanding market narratives and biases, which involves analyzing past price movements and assessing the likelihood of revisiting certain price areas.
Why is it important to assess what price has previously done when establishing a directional bias?
-Assessing what price has previously done is crucial because it helps to identify areas of past support and resistance, which are key in determining the likelihood of the market revisiting those areas and establishing its directional bias.
What are 'buy side imbalances' and 'sell side imbalances' mentioned in the script?
-Buy side imbalances and sell side imbalances refer to areas in the market where there has been a significant accumulation or distribution of a security, indicating potential future price movements as the market seeks to rebalance these inefficiencies.
How does the concept of 'fair value' relate to the market's directional bias?
-Fair value is the midpoint between the high and low of a trading range, representing an equilibrium level. The market's directional bias can be inferred from how it moves in relation to this equilibrium, with movements towards the premium or discount ranges indicating potential future direction.
What is the significance of the 'consequent encroachment' in the context of the script?
-The consequent encroachment refers to the midpoint of a buy side imbalance. When the market price stops at this point, it suggests that the price doesn't want to go any lower, which could be a clue for a potential long entry.
Why is it important to look for 'displacement' in the market?
-Displacement is important because it indicates a strong directional movement in the market. A sharp movement higher or lower with an up-close or down-close candle can suggest that the market is in a hurry to reprice, providing clues about the likely direction of future price movements.
What does the script suggest about the relationship between price and liquidity?
-The script suggests that the market will seek liquidity, which is found above old highs and below old lows, or rebalance inefficiencies. This behavior helps traders understand where the market is likely to move next in terms of its directional bias.
How can the concept of 'equilibrium level' be used to determine the market's next move?
-The equilibrium level can be used as an initial upside or downside objective. If the market moves to this level, it suggests a return to fair value, which can be a precursor to further movement towards either the premium or discount range.
What is the significance of the 'inverse fair value gap' in the market analysis?
-An inverse fair value gap is created when the market consolidates above a previously established fair value gap. This suggests that the market anticipates higher prices and is looking for support at this level, which could act as a magnet for future price movements.
How should traders approach the analysis of the market's directional bias on different time frames?
-Traders should analyze the market's directional bias across different time frames, from weekly to daily to minute charts, because price movements are fractal. This multi-time frame analysis can provide a more comprehensive understanding of the market's likely direction.
Outlines
📈 Determining Market Directional Bias
The speaker emphasizes the complexity of understanding market narrative and directional bias, suggesting that it is a challenging task. They propose to simplify the process by focusing on a few key concepts, assuming viewers have seen a previous video on ICT concepts related to time and price. The speaker introduces the idea that price is fractal and the concepts apply across different time frames. The analysis begins with the weekly time frame of the US dollar Index, highlighting the importance of assessing past price actions and identifying buy and sell side imbalances. The speaker explains the significance of price stopping at the midpoint of a buy side imbalance and the implications of a sharp price movement higher, indicating a potential long entry. The concept of equilibrium level as the fair value within a trading range is introduced, with the market expected to move from premium to discount and vice versa.
🔍 Analyzing Market Behavior for Entry Signals
This paragraph delves deeper into market analysis, focusing on the importance of identifying premium and discount ranges relative to a market's equilibrium level. The speaker discusses the market's tendency to move between these ranges and how to spot entry signals in both bullish and bearish markets. They provide a detailed analysis of the US dollar Index on a daily time frame, pointing out the significance of past sell side imbalances and how they interact with buy side liquidity. The speaker identifies an inverse fair value gap and explains its role as a support level, anticipating higher prices. They also discuss the overlap of fair value gaps across different time frames and the impact of liquidity and inefficiencies on the market's direction. The paragraph concludes with the idea of trading in the direction of the higher time frame draw, emphasizing the importance of entry techniques and market maker models for advanced students.
🎯 Establishing Trading Bias Based on Market Displacement
The final paragraph focuses on establishing a trading bias by observing market displacement and the subsequent clues provided by the market. The speaker clarifies that a bullish bias does not guarantee a continued upward movement and stresses the need for continuous evaluation of market actions. They discuss the importance of identifying and balancing higher time frame value gaps and the potential for price to move in either direction based on market feedback. The speaker outlines the current status of the market, having moved from a discount to a premium, cleared buy side liquidity, and balanced the higher time frame value gap. They anticipate a potential break lower, looking for a fair value gap and a return to that gap as a signal for further price movement. The speaker concludes by emphasizing the trader's role in determining the probability of market movement in one direction over another, suggesting to wait for clear market signals before trading.
Mindmap
Keywords
💡Directional Bias
💡Market Narrative
💡Buy Side Imbalance
💡Sell Side Imbalance
💡Liquidity
💡Fair Value
💡Dealing Range
💡Equilibrium Level
💡Premium Range
💡Discount Range
💡Displacement
Highlights
Understanding market narrative and bias is identified as a challenging task in trading.
The importance of assessing past price movements to determine market bias is emphasized.
The concept of ICT (Imbalance and Consequent Test) is introduced as a method to analyze market behavior.
Price seeks liquidity above old highs and below old lows or rebalances inefficiencies.
Candlestick analysis provides clues about the market's reluctance to move in a certain direction.
Sharp price movements indicate the market's urgency to reprice.
The concept of equilibrium as fair value within a trading range is discussed.
Markets typically move between premium and discount ranges relative to equilibrium.
The use of daily time frames to identify potential market targets is highlighted.
The overlapping of fair value gaps between different time frames can influence market direction.
Traders should look for market displacement to indicate potential draw to liquidity.
The importance of constantly reevaluating market conditions to adjust trading bias is noted.
The role of a trader is to determine the probability of market movement in one direction over another.
The concept of defining dealing ranges into premium and discount to identify inefficiencies is introduced.
The video concludes with the three primary objectives price seeks: equilibrium, liquidity, and rebalancing of inefficiencies.
The presenter encourages viewers to download the ebook for further insights and a free mentorship video.
Transcripts
so how do you determine the directional
bias of Any Given market now the truth
is this isn't easy understanding Market
narrative and Market bias is one of the
hardest things that you can do so I'm
not going to sugarcoat it when I say
that it is difficult however there are
certain rules you can use which will
help you to determine the directional
bias so I'm going to keep it extremely
simple and only use a few Concepts that
you can get familiar with
now if you haven't seen my previous
video on my explanation of ICT Concepts
in regards to time and price watch that
first because that gives you a whole lot
of insight into what's actually
happening behind the scenes right you're
still going to need to take this
information and back test it yourself
this is not the type of Channel where I
say this is easy but it can be
simplified and it's still going to
require work on your part but I promise
by the end of this lesson you'll have a
better understanding on what to look for
when you are trying to establish a
directional bias and this can work
across any time frame whether it's the
weekly the daily the 1 hour the 1 minute
the concepts are the same because price
is fractal so let's get into this chart
now we are here on the weekly time frame
and this is for the US dollar Index the
first thing you want to do when you are
trying to establish the current
directional bias of the market is you
need to assess what pric has previously
done I cannot stress how important this
is it is very difficult to determine
directional bias without first looking
at what price has already done where has
it been where has it already visited and
what's the likelihood that it needs to
revisit that area so these are the first
things that I'm asking myself when I'm
trying to establish a directional bias
right now what do I mean by that in this
example we can see how the market has
sold off now where has it come to an
inefficiency in the form of this buy
side imbalance again as explained in the
previous video price is only going to
seek two things either liquidity that
rests above old highs and Below old lows
or to rebalance inefficiencies in price
whether it's buy side or sell side in
this case we have seen price drop into
this buy side imbalance but what is
occurring over here there's a few Clues
firstly right we can see the body of the
candle over here it stops dead at the
consequent encroachment which is the
midpoint of this buy side imbalance
again I've explained what buy side
imbalances and sell side imbalances are
in the previous video This is the first
clue it suggests that price doesn't want
to go any lower this could be good
enough for a long entry and there are
several factors why but that's beyond
the scope of this presentation but what
we are waiting for is feedback once this
candle closes the next candle you can
see how we dropped lower again back into
the consequent encroachment of this buy
side imbalance and then what happens is
we have a really sharp movement higher
with an up close candle leaving this
fair value Gap in the form of this buyid
IM balance so from this candle's High to
this candle's low we only have price
moving in One Direction buy side this is
significant this tells us that the
market is in a hurry to reprice higher
now once this candle closed and we had
the formation of this bide imbalance the
next candle opened traveled lower
slightly into this Wick and then closed
back Above This candle's high so we have
broken a swing High over here after
forming a swing low down here with a
displacement after rebalancing this bide
imbalance so when we see this this gives
us an indication that the market is
likely to draw higher now thek Market is
likely to first repic to equilibrium
right so this is our dealing Range High
and this is our dealing range low if we
split this range into half we get our
equilibrium level the midpoint between
the dealing Range High and the dealing
range low so this would give us an
initial upside objective which would be
to repic back to equilibrium equilibrium
is essentially fair value right it's the
mid price point between this high and
this low so inside of this range this is
our highest premium price and this is
our lowest discount price therefore
equilibrium is going to be fair value
and as I explained in the last lesson
the markets are booked based on
principles of fair value anything below
the equilibrium price point this is
referred to as our discount range and
anything above the equilibrium price
point is referred to as our premium
range generally the markets will move
from premium to Discount and discount to
to premium in a bearish market ideally
we want to wait for price to come into a
premium before we sell short and in a
bullish Market we want to ideally wait
for the market to drop into a discount
before looking for a long entry you can
see how this swing low to this swing
High we are obviously below equilibrium
level and into a discount relative to
this dealing range now since we have
seen what the market has previously done
down here and we have conviction that
the Market is giving clues that it wants
to run higher we want to look for areas
that the market would Target above the
equilibrium level now again like I said
there are two things that the market
will reach for it's going to either
reach for liquidity in this case buy
side liquidity above these relative
equal highs and or is going to repic to
rebalance and over here we have this
sell side IM balance where the market
has moved in One Direction only sell
side and this cell side side imbalance
sits inside of the premium range
relative to this high and this low let's
zoom in onto a daily time frame and this
will give us more detail so here you can
see the three candle formation which is
our swing low again I'll do a separate
teaching on this at some point after
that swing low has been created you can
see how we have this displacement higher
now price has retraced back into this
displacement but it hasn't fully
rebalanced this bid imbalance why well
if we look to the left we have this sell
side imbalance here and then back
through that range we have this buy side
imbalance so this area has been
sufficiently balanced with both sells
side delivery and buy side delivery and
this fair value Gap now will act as an
inverse fair value Gap and we anticipate
this level to hold price you can see how
we're consolidating above it and notice
the bodies of the candles here they're
failing to even dip lower into that
inverse fair value Gap which again
suggests that we are looking for higher
prices on The Daily time frame if we
look above the equilibrium level which
is this green line we can see that we
have this large cell sign IM balance
here as well and this sits inside of a
premium so in this case we have an
overlapping of fair value gaps between
two different time frames and we still
have all of this buy side liquidity
above the market and this is even
stronger since we have two parameters
here in close proximity we have the buy
side liquidity residing above these
relative equal highs and we have this
cell side imbalance that sits above
those relative equal highs so we have
liquidity and an inefficiency in a
premium relative to the dealing Range
High and the dealing range low now this
gives us a range of opportunity between
this inverse fair value Gap and this
cell side imbalance so this is going to
act as a very strong magnet and a very
strong draw in liquidity and this gives
us a range to now work with ideally you
want to trade on your lower time frames
in the direction of the higher time
frame draw we have concluded that the
weekly expansion is likely to run higher
now there are several entry techniques
and a whole lot of other stuff that I'm
going to get into at some point but for
the purposes of this lecture we just
trying to determine where the market is
likely to go right now that we've
arrived at this level we are in a
premium we've completely rebalanced this
gray shaded box which has our higher
time frame weekly cell side balance and
we're currently consolidating around
this area now there are a whole lot of
other Clues over here that can tell us
where the market is likely to go but
again beyond the scope of this
presentation however when we are trying
to establish a draw on liquidity we need
to look at the market in the series of
if and then functions we are inside of a
higher time frame fair value Gap here
and the market could just go into a
consolidation so what are we looking for
we're looking for displacement and this
displacement is going to give us an
indication of where the market is likely
to draw to if we close back above the
weekly sell side imbalance then we can
anticipate price returning back to the
premium end of that Weekly sell side IM
balance and that holding as support
which would then become an inversion
fair value Gap and we can aim for the
complete rebalance of this area or we
are looking at these relative equal
highs up here there's going to be a
large pool of liquidity resting above
this area for the more advanced students
you can see this as a market maker model
now that's a very very long conversation
I have a whole course on that so if you
are interested that course alone is a
game Cher but to keep things simple here
we are looking for one of two things
either we are looking to close above the
sside imbalance and it would act as an
inverse fair value Gap and we would find
support or we're going to close below
that Weekly sell side and balance in
which case this would act as a balanced
price range since we are fully balanced
here and the discount end of that sell
side imbalance would act as resistance
sending price lower If This Were to play
out where would we target well we have
these relative equal lows over here so
there's going to be a pool of sell side
liquidity resting below that and just
below those relative equal lows we have
this Gap so since these two are in close
proximity this would act as a strong
magnet for price if we are to push lower
this is a common misconception that I've
seen with many of my students is that if
you establish a bullish bias then they
think that the bias is going to remain
bullish until we clear the highs up here
that doesn't necessarily mean it's going
to clear the highs up here we could turn
around from where we are this is why you
have to constantly evaluate and assess
what the market has already done and
what it could likely do next if this has
happened then this is likely to occur at
the minute we have completed three of
the objectives we have run above the
equilibrium price point so we've gone
from a discount into a premium we have
cleared buy side liquidity above the
relative equal highs and we have fully
balanced the higher time frame for Value
Gap so what's my bias now going to be
neutral until I see some form of
displacement you have to allow the
market to tip its hand and then you look
for Clues okay if the market has done
this then where's the next likely
Direction and then on the lower time
frames you stick with that bias until
you are proven otherwise from where we
are I'm anticipating price to break
lower that's what I want to see I want
to see a displacement lower and leave a
fair value Gap and then I want to see
price come back into that fair value Gap
and then potentially run lower for the
selli liquidity here and close in this
Gap again I would have to assess what
price is going to do once we get back
down to this level do we run through it
do we displace through it do we close
back below it and how do we close back
below it all of this is going to give me
insight and feedback into what I will
anticipate price to do next in
conclusion price is going to seek to do
three things move to equilibrium since
it's fair value repic to liquidity in
the form of old highs and old lows and
rebalance inefficiencies in the form of
sell-side imbalances and buy side
imbalances your job as a Trader is to
determine the probability of the market
moving in One Direction Over another so
you want to wait until the market looks
extremely one-sided that is obvious it's
going to move in One Direction Over
another before you start looking for
trades so in the words of ICT I hope you
guys have found this one insightful I
will be getting into more detail and
there's a whole lot of videos I have
planned if you haven't downloaded the
ebook already I strongly suggest that
you do there's actually a free gift that
comes with it with one of my actual
mentorship videos and you can see the
level of detail that I really go into in
that but for now try to keep things
simple Define your dealing ranges into
premium and discount and look for the
inefficiencies and the areas of
liquidity inside of that range so thank
you for watching and I will catch you
again in the next video
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