ICT Mentorship Core Content - Month 04 - ICT Breaker Block

Summary

This video focuses on the concept of 'breakers' in trading, explaining how price movements, particularly false breaks and market structure shifts, can be used to identify bullish and bearish setups. A bullish breaker occurs when sell stops are triggered below a short-term low, and the market retraces to a prior swing high, turning it into support. Conversely, a bearish breaker involves the violation of a prior high, triggering buy stops and leading to a retracement to the swing low. Understanding these formations helps traders anticipate market movements and make informed decisions about potential buy or sell opportunities.

Takeaways

• 😀 A 'breaker' is a trade setup that occurs when price action triggers stop orders, leading to potential reversals once price retraces to key levels.
• 😀 A bullish breaker occurs when the market breaks below an old low, triggering sell stops, then retraces to an old swing high which now acts as support.
• 😀 A bearish breaker occurs when the market breaks above an old high, triggering buy stops, then retraces to an old swing low which now acts as resistance.
• 😀 Market structure shifts are key to confirming a breaker. A shift occurs when price moves above the previous high (for a bullish shift) or below the previous low (for a bearish shift).
• 😀 False breaks, or 'stop runs,' are essential to breaker setups. These occur when price temporarily violates a level, only to reverse quickly, trapping traders.
• 😀 In a bullish breaker, sellers who sold at the previous low are trapped. When price retraces to that level, they look to exit their positions and potentially go long.
• 😀 In a bearish breaker, buyers who bought at the previous high are trapped. When price retraces to that level, they look to exit their positions and potentially go short.
• 😀 Confirm a breaker by waiting for price to break the previous high or low, then retrace to that level, which will act as a new support or resistance zone.
• 😀 The logic behind identifying break setups is more important than simply drawing support and resistance lines. Focus on the story price action tells at key levels.
• 😀 Breaker setups often signal the beginning of a new leg in price movement, with retracements offering opportunities to enter trades aligned with the new market direction.

Q & A

What is a 'breaker' in trading?

A 'breaker' in trading refers to a market structure shift caused by the violation of previous highs or lows, often linked to a significant stop run. It is used to identify potential trade setups where the market may reverse direction after a period of consolidation or price action at key levels.

What is the concept of a 'bullish breaker'?

A bullish breaker occurs when the market breaks below a previous short-term low, runs stops, and then reverses above a swing high that forms between two lows. This setup suggests that the market is likely to continue moving higher as sell orders are mitigated and replaced by new buy orders.

What is a 'bearish breaker'?

A bearish breaker occurs when the market trades higher, violates a previous high, and then breaks below the low that formed that high. This setup indicates a market structure shift to the downside, with trapped buyers potentially exiting their positions and new selling opportunities forming as the market continues lower.

How do you identify a 'bullish breaker' setup?

A bullish breaker setup is identified when the market violates a previous low, running sell stops, and then breaks above a swing high between two lows. This shift in market structure suggests a potential reversal, where retracements back to the swing high are viewed as buying opportunities.

How does a 'bearish breaker' setup occur?

A bearish breaker setup occurs when the market takes out a previous high, running buy stops, and then breaks below the low that formed that high. This indicates a market structure shift to the downside, where retracements to the swing low can be viewed as potential selling opportunities.

What is meant by 'running stops' in the context of breaker's formation?

Running stops refers to triggering the stop-loss orders placed by traders at specific price levels, such as above old highs or below old lows. This action often causes a rapid repricing of the market and signals the potential for a shift in market direction, which is the basis for the formation of a breaker.

Why is the swing high or low between two lows or highs important in identifying a breaker?

The swing high or low between two lows or highs is crucial because it marks a key point where the market structure could shift. When price violates this level, it suggests a potential market reversal, making it a key area for identifying bullish or bearish breaker's setups.

What does it mean when sell orders are 'mitigated' in the context of a bullish breaker?

When sell orders are mitigated in the context of a bullish breaker, it means that traders who had sold at a previous swing high are now closing their positions, likely at a loss. This creates room for new buying orders to enter the market, which pushes the price higher as part of the bullish breakout.

What role does 'repricing' play in confirming a breaker?

Repricing plays a critical role in confirming a breaker because it indicates that the market has shifted after the violation of a key level. Once stops are taken, the market often quickly moves in the opposite direction, signaling the potential for a new trend and confirming the formation of a breaker.

How can traders apply the breaker strategy in live trading?

Traders can apply the breaker strategy by watching for price action that violates key highs or lows, running stops, and then waiting for a retracement back to the swing high or low that was violated. At this point, traders can look for buying or selling opportunities, depending on whether they are trading a bullish or bearish breaker.