ICT Market Maker Model - (In-depth Explanation)

Summary

This video delves into Market Maker Models, focusing on understanding their key principles, like order mitigation and the roles of market makers. The presenter highlights the two main types of market making: profitable trading and drawdown strategies, with emphasis on smart money reversals and distribution cycles. ICT’s teachings on navigating these models with a high time frame perspective for better trade setups are explored, explaining the importance of viewing old accumulation as new distribution areas. The video aims to guide traders on how to spot high-probability setups for entering markets effectively.

Takeaways

• 😀 ICT and the MMXM trader are highly recommended for learning about market maker models and trading strategies.
• 😀 Market maker models are considered the most versatile and profitable models, providing consistency for traders who use them.
• 😀 These models involve the mitigation of orders, which is the process where institutions and smart money cancel out positions at certain price levels like accumulation, distribution, and reversal areas.
• 😀 There are two types of market making: one where market makers trade for profit, and the other where they intentionally go into drawdown to manage larger institutional positions.
• 😀 The market algorithm operates in four primary phases: consolidation, expansion, retracement, and reversal. These phases help determine where to enter or exit trades.
• 😀 The algorithm cannot jump from consolidation directly to reversal; instead, it moves from consolidation to expansion, followed by retracement and then reversal.
• 😀 Market makers often sell in areas of accumulation, knowing that prices will rise and institutions will eventually buy at those levels.
• 😀 The 'smart money reversal' typically happens when a high time frame objective is met, such as at price levels aligned with institutional orders.
• 😀 Premium and discount levels are crucial for smart money decisions: anything above 50 is considered a premium for longs, making it less optimal for retail traders to trade at these levels.
• 😀 Effective trading with market maker models requires understanding the high time frame trend or narrative and trading in alignment with it. Without this narrative, the models are less effective.
• 😀 Using old accumulation areas as new distribution zones is a key concept in both buy and sell models, helping traders confirm trade setups and identify the best entry points for higher probability trades.

Q & A

What are Market Maker Models, and why are they important in trading?

Market Maker Models are trading strategies that focus on how market makers manage orders and liquidity in the market. These models are vital because they allow traders to understand the actions of large institutions and the flow of orders, enabling them to make informed decisions and improve their chances of profitability.

What is the significance of ICT's approach to Market Maker Models?

ICT (Inner Circle Trader) has introduced a method of Market Maker Models that focus on understanding order mitigation and smart money movement. This approach helps traders align with market structures at different timeframes, leading to more consistent and profitable trades.

What are the two types of Market Making as explained in the video?

The two types of Market Making are 'profitable' market making, where market makers trade for their advantage, and 'drawdown' market making, where they intentionally go into drawdown to pair orders with large institutions or traders who are positioned for larger moves.

How does the algorithm work according to ICT's explanation?

The algorithm can only perform four functions: consolidation, expansion, retracement, and reversal. A consolidation phase is followed by expansion, then retracement, and ultimately a reversal. Understanding these movements helps traders time their entries better.

What does the term 'premium' and 'discount' mean in the context of these models?

In Market Maker Models, 'premium' refers to prices above the 50% mark, which are considered expensive for long positions. On the other hand, 'discount' refers to prices below 50%, where long positions are more favorable, as they are considered at a discount to fair value.

What is a 'smart money reversal'?

A smart money reversal occurs when price moves from a high timeframe objective, signaling a shift in market direction. It is a key element in these models, helping traders identify potential turning points for profitable trades.

What is the role of the 'Silver Bullet' in Market Maker Models?

The 'Silver Bullet' is a high-probability entry point that occurs during the second distribution phase, where traders can enter a trade with lower risk. This is when market makers offload positions, and new orders are filled at favorable prices.

How can traders use 'old accumulation' as new distribution areas?

Traders can look at past areas of accumulation in the market, which can serve as new distribution points. This means that previously established zones of buying interest can later be used as reference points for selling or redistributing positions.

What is the importance of time in Market Maker Models?

Time plays a crucial role because it helps to confirm whether a market condition is ripe for reversal or expansion. The more time a price spends in a consolidation or accumulation phase, the more likely it is to break out in the direction of the larger trend.

How do you confirm a change in price direction according to ICT’s teaching?

A change in price direction can be confirmed through indicators like down-close candles supporting a bearish trend or up-close candles supporting a bullish trend. These price actions, along with distribution phases, help identify when a market is about to reverse.