ICT Higher Timeframe Bias - Explained

Summary

This video explains the concept of higher time frame bias, crucial for ICT students. It emphasizes the importance of identifying market direction by considering liquidity and fair value gaps. Traders are advised to analyze whether the market is aiming for liquidity (highs/lows) or imbalances (premium/discount). The script covers how to combine higher time frame bias with entry strategies on lower time frames, showing examples from real-time charts. The focus is on understanding market structure and using fair value gaps to predict price movements, avoiding reliance solely on entry patterns.

Takeaways

• 😀 Higher time frame bias is crucial for determining market direction before entering trades.
• 😀 Price is either running towards liquidity (highs and lows) or seeking to fill an imbalance (fair value gap).
• 😀 Fair value gaps are identified by drawing a Fibonacci tool from a high to a low, with key areas like the 50% level marking the threshold for premium and discount zones.
• 😀 A bullish fair value gap is above the 50% Fibonacci level, while a bearish fair value gap is below it.
• 😀 Price action should always be analyzed in the context of where it is likely to expand, either towards liquidity or an imbalance.
• 😀 Liquidity often resides above relative equal highs, where buy stops are likely placed by retail traders, making them important targets for smart money.
• 😀 Smart money traders aim to exploit retail traders’ positioning by targeting their stop losses, creating market moves that run toward liquidity.
• 😀 Understanding where price is likely to expand (towards liquidity or imbalance) is more important than relying solely on entry techniques like order blocks or break patterns.
• 😀 The higher time frame likely expansion is the most important consideration, as it guides the overall market bias before any entry decision on lower time frames.
• 😀 The market can also consolidate before major news events or market openings, with smart money manipulating prices during these periods to engineer liquidity.
• 😀 Once the higher time frame bias is established, traders can then look for lower time frame entries aligned with that bias, where multiple potential entry points can be identified as the market moves.

Q & A

What is the primary concept of higher time frame bias?

Higher time frame bias refers to understanding the general direction the market is likely to expand toward based on higher time frame analysis, before moving to lower time frames for entry. It helps identify whether the market is targeting liquidity or filling an imbalance.

What are the two main components to focus on when determining higher time frame expansion?

The two main components are liquidity (such as highs and lows) and fair value gaps (imbalances). The market generally either runs to capture liquidity or fills an imbalance in the market.

How does a fair value gap (FVG) in a premium differ from one in a discount?

A fair value gap in a premium is when price is above 50% of a price range, indicating a bullish scenario. In a discount, the fair value gap is below 50% of the range, indicating a bearish scenario.

Why is it important to consider liquidity and imbalances when analyzing price action?

Liquidity and imbalances are crucial because they guide where the market is likely to move. Liquidity represents areas where stop orders accumulate, and imbalances indicate where the price needs to return to rebalance the market.

How do relative equal highs impact market movement?

Relative equal highs indicate that liquidity may still be resting above the high, as retail traders often place stop orders just above these levels. This creates a target for price to move toward and capture those stops before expanding further.

What does the concept of ‘seeking liquidity’ mean in a trading context?

Seeking liquidity means the market moves toward areas where stop orders are concentrated, such as above highs or below lows, in order to trigger those orders and generate market movement. This is often a strategy used by smart money or institutional traders.

What role does consolidation play in the market before a major move?

Consolidation periods often occur before significant price movements, such as before a major news event or market open. During consolidation, price fluctuates in a tight range, manipulating retail traders' stop orders before making a larger move.

What is the relationship between liquidity and imbalances in the market?

Liquidity and imbalances are interconnected. Price often first targets liquidity (to trigger stop orders) and then moves toward imbalances to fill them. This behavior ensures that the market rebalances before continuing in the intended direction.

Why is entry technique considered less important than higher time frame bias in ICT trading?

Entry techniques are secondary to understanding higher time frame bias because the market’s general direction (liquidity or imbalance) dictates where it is likely to expand. Once you have a clear idea of this, finding an entry becomes easier and more reliable.

How does the concept of a fair value gap relate to price expansion?

A fair value gap represents an area where price has left an imbalance in the market. When price revisits this gap, it often expands to fill the gap (either seeking liquidity or rebalancing the market) as part of its natural price movement.