ICT's 2022 Mentorship Program - Lesson Six Review
Summary
TLDRIn this video, Paul reviews ICT's 2022 mentorship program, focusing on fair value gaps and market structure shifts. He explains the principles behind ICT's trading approach, emphasizing trading against retail sentiment and aligning with institutional strategies. Paul illustrates how to identify bullish and bearish fair value gaps using the three-candle formation and discusses optimal entry points. He also covers market structure shifts, detailing how to spot and capitalize on them for trading opportunities. The video concludes with insights on managing exits, advocating for taking partial profits over rolling stops, and using the range of the day to determine exit points.
Takeaways
- đ The video provides an in-depth review of ICT's 2022 mentorship program, focusing on fair value gaps and market structure shifts.
- đ ICT's trading philosophy is based on internalizing price delivery and understanding the behavior of retail and institutional traders.
- đ The video explains that retail traders often follow patterns or indicators, while institutional traders focus on time and price.
- đ The concept of 'fair value gap' is introduced as a three-candle formation that signals potential market movements.
- đč The 'bullish fair value gap' is identified by a strong upward movement after a dip into sell-side liquidity, typically near previous lows.
- đ The 'bearish fair value gap' is identified by a strong downward movement after a rise into buy-side liquidity, typically near previous highs.
- đ Market structure shifts are highlighted as significant price movements that break previous highs or lows, indicating a change in market direction.
- đ The video uses a NASDAQ example from February 3, 2022, to illustrate how to identify and trade fair value gaps and market structure shifts.
- đ« ICT advises against rolling stops and instead recommends taking partial profits and using the range of the day to manage exits.
- đ The video concludes with the presenter's intention to test and incorporate the new insights from ICT's mentorship into their trading strategy.
Q & A
What is the main focus of Paul's review in the video?
-The main focus of Paul's review is to provide a detailed explanation of the concepts of fair value gaps and market structure shifts as taught in ICT's 2022 mentorship program, lesson six.
What is ICT's approach to trading the markets?
-ICT's approach to trading is based on the principles of entering long positions where retail is selling and short positions where retail is buying, without relying on patterns for patterns' sake or indicator readings.
What is meant by 'retail traders' in the context of the video?
-In the video, 'retail traders' refers to individual traders who are not part of large institutions and are often considered less informed or educated in trading practices, typically leading to a higher rate of losses.
How does the smart money view retail traders according to the video?
-Smart money or institutional traders view retail traders as a source of liquidity, taking advantage of their speculative and uninformed trades to enter and exit positions.
What is a fair value gap according to the video?
-A fair value gap is a three-candle formation where the gap is found across the body of the second candle, between the high of the first candle and the low of the third candle.
What is the optimal entry point for a bullish fair value gap as explained in the video?
-The optimal entry point for a bullish fair value gap is after a run into sell side liquidity at the previous lows, where retail traders have their sell stops.
What is a market structure shift and how is it identified?
-A market structure shift is identified by a price falling below a previous low (bearish) or rallying above a previous high (bullish), followed by a quick and noticeable displacement in the opposite direction.
What is the significance of the displacement candle in the context of a fair value gap?
-The displacement candle is significant as it indicates a powerful move that breaks market structure and is used to define the fair value gap, with the gap being formed between the high and low of this candle.
What is the recommended strategy for managing exits in trading as per the video?
-The recommended strategy for managing exits is to take partial profits and not roll stops, using the range of the day and looking for fair value gaps near the 50% Fibonacci level to take profits, and closing the remainder at the external range liquidity.
Why is the time of day important when engaging with price according to ICT's methodology?
-The time of day is important because it is a key factor for institutional traders, who are looking to anticipate price seeking opposing liquidity at specific times, which can influence trading decisions and strategies.
Outlines
đ Introduction to ICT's 2022 Mentorship Program Review
Paul begins by introducing his review of the sixth lesson from ICT's 2022 mentorship program, focusing on fair value gaps and market structure shifts. He outlines the video's content, which includes an explanation of ICT's approach to price delivery, an in-depth look at both bearish and bullish fair value gaps, and a discussion on market structure shifts. The video also covers a trade example from the NASDAQ and strategies for managing exits. Paul emphasizes the importance of understanding ICT's principles for those who wish to implement his trading strategies.
đ Understanding Fair Value Gaps and Market Structure Shifts
This section delves into the concept of fair value gaps, which are three-candle formations identified by specific price movements. Paul explains the optimal entry points for both bullish and bearish fair value gaps, which are typically found after a run into sell-side liquidity for bullish gaps and buy-side liquidity for bearish gaps. He uses a Bitcoin example from April 15th to illustrate a bullish fair value gap, highlighting the importance of a powerful displacement candle that breaks market structure. The discussion also touches on the flexibility in stop placement and the significance of the displacement high and low in identifying fair value gaps.
đ Analyzing Bullish Market Structure Shifts
Paul continues with an analysis of bullish market structure shifts, which involve a price drop into sell-side liquidity followed by a quick and noticeable upward movement. Using a diagram and a real-world example from the Bitcoin market, he explains how to identify the displacement high and low that form the boundaries of the fair value gap. The discussion underscores the importance of looking for powerful, not weak, candles to signal a genuine market shift.
đ Exploring Bearish Market Structure Shifts
The video then explores the opposite scenario: bearish market structure shifts. Paul describes how these occur when the market rallies above previous highs and then quickly shifts lower. Using a Bitcoin example from April 16th, he demonstrates how to identify the bearish fair value gap and the optimal entry point, which is typically found after a run into buy-side liquidity. The discussion includes the importance of a powerful displacement candle and the flexibility in stop placement strategies.
đ Case Study: NASDAQ Fair Value Gap
Paul presents a case study of a fair value gap setup on the NASDAQ for February 3rd, using a 15-minute chart. He explains ICT's approach to identifying local highs or lows before the market opens and looking for price movements into those zones post-open. The example shows how the market traded into a liquidity zone and then formed a fair value gap, leading to a profitable short trade. The video concludes with a discussion on managing exits, emphasizing the importance of taking partial profits and using the range of the day to determine exit points.
đ Conclusion and Future Outlook
In the final part of the video, Paul summarizes the key takeaways from ICT's lesson, including the value of using swing highs or lows as alternative stop placements and the strategy of taking partial profits over rolling stops. He shares his intention to test these strategies in his own trading and expresses his eagerness to apply the new insights to improve his trading framework. The video ends with a call to action for viewers to like and subscribe for more content, setting the stage for future lessons.
Mindmap
Keywords
đĄFair Value Gap
đĄMarket Structure Shifts
đĄRetail Traders
đĄSmart Money
đĄLiquidity
đĄDisplacement Bar
đĄStop Placement
đĄPartial Profits
đĄInternal and External Range Liquidity
đĄSwing High/Low
Highlights
Deep dive into fair value gaps and market structure shifts in the 2022 ICT mentorship program.
Explanation of how ICT internalizes price delivery, focusing on trading principles that drive market approaches.
Discussion on avoiding pattern trading for patterns' sake and not trading on indicator readings or momentum.
Insight into trading long positions where retail is selling and short positions where retail is buying.
Definition and importance of retail traders and smart money in the context of market behavior.
The role of time in trading and how smart money uses retail traders as a source of liquidity.
Description of the ICT bullish fair value gap, a three-candle formation for optimal entry.
Use of trade examples from the NASDAQ on February 3, 2022, to illustrate fair value gaps.
Importance of the displacement bar in breaking market structure for fair value gaps.
Flexibility in stop placement for fair value gaps and the use of swing lows as an alternative.
Detailed walkthrough of a bullish market structure shift with a focus on price movement and liquidity.
Introduction to the ICT bearish fair value gap, its formation, and optimal entry points.
Analysis of a bearish market structure shift with a focus on powerful downward moves.
Real-world example of a bearish fair value gap setup using Bitcoin data from April 16, 2022.
Discussion on managing exits, emphasizing the importance of taking partial profits over rolling stops.
Recommendation to use the range of the day and 50% Fibonacci level for partial profit taking.
Advice on closing out positions at external range liquidity for optimal exit strategy.
Reflection on the value of the lesson and practical applications for improving trading strategies.
Transcripts
hi everyone i'm paul and welcome to my
review of ict's 2022 mentorship program
lesson six there's been quite a few
people in the comments asking me to go
into more detail on fair value gaps and
on market structure shifts so if that's
you i've got great news for you because
today's video is a deep dive into both
so please like subscribe and let's jump
into the video so today's video is the
review of lesson six of the 2022 ict
mentorship program we'll just start with
a brief outline so the first section is
how ict internalizes price delivery and
then we get to the real meat of the
video which is about the ict fair value
gap
and we go over both the bearish and the
bullish fair value gaps and then we also
talk about market structure shifts and
again look at the bearish and bullish
setups of both
and we use trade example this time from
the nasdaq from the 3rd of february 2022
and then we've also got a section on
managing exit so the first section is
how ict internalizes price delivery so i
guess you could say this is the
underlying principles which i guess
drive ict's approach to trading the
markets and so you know if you're going
to follow his methodologies then it's i
guess good to understand uh how he
thinks about the market these aren't
necessarily my views but this is
obviously what he thinks and i think
it's valuable to have that insight when
you're then implementing some of these
strategies in the marketplace because
this is obviously the ethos if you like
for how he is approaching the market so
the first two points kind of go hand in
hand and that's you know we don't trade
patterns for patterns sake we do not
trade indicator readings or momentum so
you'd know from ict's videos that he
basically trades naked chart he might
draw some lines on there that's
generally for educative purposes but he
doesn't have any indicators on his chart
he just basically has the um
price bars and that's about it and so
fundamentally we're looking to enter
long positions where retail is selling
and conversely we're looking to enter
short positions where retail is longing
and so what do we mean by retail so
retail traders often in you know trading
circles are kind of used as a bit of a
derogatory term and the reality is is
most of us who are trading through a uh
a broker or an exchange depending on
what markets you're trading you know are
retail traders you know myself from a
retail trader obviously don't work for
an institution or anything like that
and you know often people call people
retail traders or dumb money or
uninformed traders and that's probably
not necessarily true of everyone but i
guess as a bucket we know that the
majority of retail traders are are not
very well informed not necessarily well
educated and typically you know they'll
lose you know 80 of traders or some
figure like that will blow up their
accounts and you know either never come
back or come back and block their
accounts again so what we do know is the
majority of retail traders aren't in the
market for a long term and so logically
then we don't want to do what they're
doing we want to pretty much to be doing
the opposite of what they're doing and
so the converse of this is you know we
refer to smart money and so that's often
often seen as a institutional view and
the institutions or smart money don't
look at patterns or indicators
and you know they're primarily concerned
with time and price with time being one
of the most important factors in the way
that they approach their trading and so
it follows then that if retail traders
are going to be losing in the market and
they're not going to last and they're
obviously going to turn over their
accounts
then the smart money or the informed
money is going to be looked to be taking
advantage of
both speculative and uninformed traders
because they're generally going to have
the wrong bias in the market you know
they're not going to be using stops
properly or not be using them at all and
so smart money really looks at this pool
of traders as a source of liquidity so
you know we know with institutional
uh or smart money traders that they need
significant size to get set in their
positions and so they're going to use
this pool of traders as a source of
liquidity so that they can get set and
then they can execute on their specific
bias and so it follows then that you
know part of ict's underpinnings is that
we should be anticipate price seeking
that opposing liquidity and that you
know as we said with smart money the
time of day is vital when engaging with
price so moving on now to our ict
bullish fair value gap so
remember our fair value gap's always a
three candle formation and the fair
value gap is found across the body of
the second candle and that's in between
the first and the third ones obviously
so optimal entry for a bullish fair
value gap is always going to be found
after a run into sell side liquidity at
the previous lows so remember this is
where retail traders are going to be
going along and they'll have their sell
stops there so that's what's generating
that liquidity opportunity fair value
gap is typically found above a single
price low or a multi-price low or a
double bottom so just have a look at an
example now so this is bitcoin on the
15th of april on the four minute chart
so in our example here we can see the
setup of the fair value gap on this four
minute chart for bitcoin on the 15th of
april so you can see at the bottom here
this is our previous low and so this is
where the liquidity is residing this is
where those sell stops are because
retail traders going along here looking
at this as support and they obviously
have their stops down here so being long
they'll be sell stops which would
flatten their positions so you can see
we run down into these previous lows so
that's our optimal setup for a fair
value gap and we can see just above that
we have our three candle pattern
formation so our first candles this down
candle here and you can see the second
candle is that displacement bar we're
looking for so that's that single candle
which has a powerful move and you can
see that this breaks marker structure so
we have this swing high here so that's a
three candle pattern where we have the
middle candle with the higher high of
the other two highs of the candles each
side of it and this candle breaks market
structure so it breaks above the high of
that candle
and then the third candle which is this
one is like obviously quite a large one
is that that forms then the top of the
fair value gap so our fair value gap is
formed across the body of that second
candle and it starts from the high of
the first candle and the low of that
third candle
and so you can see in this particular
trade you know the market traded down
into that liquidity came back up again
formed this fair value gap now one of
the other points that ict mentioned in
that lesson six video is that the stop
placement does have some flexibility so
in some of my previous videos where i
talked about my experiences trading the
fair value gap in bitcoin is that i
often found that the market would
overshoot just slightly i would take out
my stop down here at either the first or
the second candle which is where i've
been placing my stops and so in that
video ict mentions that you can actually
put your stop at the swing low so you
can see i've done that here and that
obviously just gives you a little bit
more room
for that trade to breathe in case it
overshoots now in this example that
doesn't happen the market trades up and
you can see here the market trades into
this fair value gap so if you'd gotten
set by having your limit order at the
low of that third candle you obviously
would have entered this trade here now i
think just for
interest
i just marked out sort of what kind of
return you would have got on this and it
would have been easily a two hour return
i think it was actually
a little bit more than that so again
that's a great setup and this is a good
example of what that fair value gap
looks like in practice and so in that
example we touched about the market
structure shift and so going into a bit
more detail on that now what we're
looking for is for price to fall below a
previous lower lows
so that's pushing down into that
liquidity
from where those retail sell stops are
and then quickly shift higher and so
that's what that move in the fair value
gap is all about so this move should be
quick with noticeable displacement so
you saw in that example that candle you
know is quite powerful uh and it's not a
small move it doesn't have a weak you
know it's not a weak candle with a
little wick or anything like that it's
very noticeable on the chart it really
stands out and so the fair bay gap is
going to be found between the
displacement high and the displacement
layer so let's just take a little quick
look at what that would look like and
just reference that back to the example
we just went through so this is just a
little diagram describing that bullish
market structure shift and so what we're
looking for is we have price come down
and obviously it creates that previous
low so that's this previous low up here
before the market trades higher and that
creates your displacement high so we
then have the market trade down past
that previous load into that liquidity
and then we have this powerful move
upwards so this is the displacement
candle that we're looking for and this
is where our fair value gap will be
formed so if we look at that in the
actual
uh example that we looked at we would
have you know this push down and then
this push up and so this is obviously
where we have our displacement low and
high and the fair value gap is formed in
between there so this is just a
you know generic diagram showing the
push down into liquidity at these
previous lows and then we have our big
move upward with a displacement high and
then our fair value gap is going to be
found in between that so
the most important thing really is this
push down into the liquidity and then
the fair value gap being formed on a
displacement candle on the way up and
the form of that displacement candle is
important as i mentioned before in the
video you know we don't want this to be
a weak or tepid candle we want it to be
a powerful one so if we zoom in you know
as i said you can clearly see the
strength of this candle is obviously
another strong one here and there's you
know they get formed there as well but
this is the one we're really looking at
we have this powerful candle it breaks
the swing high here so this candle
breaks the high of that and that's our
indication that we have a bullish market
structure shift our fair value gap set
up and then all we need is for price to
trade back into that zone to get set
which is what happened in this example
so our ict bearish fair value gap is
just the opposite of our bullish fair
value gap as you'd expect so again it's
a three candle formation and that third
value gap is found across the body of
the second candle and is formed by
the first and third candles our optimal
entry for a bearish fair value gap is
going to be a run into buy side
liquidity which is at the previous highs
or above those previous highs and this
is where retail traders are going to be
going short and so their buy stops
reside there that's where our liquidity
is our fair value gaps typically found
below a single price high or a
multi-price high or a double top and so
the example we're going to be looking at
is bitcoin on the 16th of april 2022.
this is our example for the bearish fair
value gap setup and i'm using the one
minute chart for bitcoin on the 16th of
april 2022 so you can see i've marked
out the previous high here so this is
where our liquidity is going to be
residing so remember we'll have retail
traders trying to go short here because
they'll see this as resistance and
they'll have their buy stops you know
sitting in the background here and
that's the liquidity source that we're
going to be looking to take advantage of
so we have a run into that liquidity and
then as the market trades back down
remember we're looking for that powerful
move down so we're looking at a powerful
displacement down and our fair value gap
setup is that three candle formation so
in this example we have the first candle
here the second candle
and then this third candle here and our
fair value gap is formed between the low
of the first candle and the higher the
third candle and in this example given
it's a one minute chart you can see
that's the whole body of that second
candle so a fair value gap is formed
right there and this moved down this
three candle fair value gap formation
move down you can see that then breaks
market structure because it
the low of this move is lower than the
low of the swing low
and so we then have our market structure
shift and all we need is for price to
trade back into that zone which is
exactly what happens here so that allows
us to get set and then the market trails
away after that so again in this example
i chose to
place the stop or illustrate where the
stop would be at the swing high so in
this case that's we've got a swing high
here but
according to the other rules you can put
your stop at the first candle and
depending on what the formation of that
second candle looks like because
sometimes you do get a in this example
like a higher high of that second candle
and so you might want to place your stop
there so there is that variability now
ict's
elaborated on that so you can place your
stop at the local swing
high or low depending on which setup
you're looking for and so again you can
see this particular trade would have
been you know really quite a lucrative
one if we'd set our entry at the
high of this candle so we would have
been had a limit order to go short here
at the high of this candle you can see
if we've been able to capture you know
all of this particular move this would
have been a really great trade over a
five hour return so you know again
demonstrates the value of this setup if
it's executed well and so our bearish
market structure shift to go into a bit
more detail on that so we'll see price
rally above a previous high or highs and
then quickly shift lower so again just
with our bullish market structure shift
that move should be quick and there
should be noticeable displacement so
again it can't be a little tepid weak
candle it needs to be a powerful move it
should be a candle that's quite obvious
on the chart with the backdrop of the
moves prior to that and so a fair value
gap will be found between the
displacement high and the displacement
low and so again just a diagram to
illustrate that market structure shift
so what we have is price moving up and
this is those previous highs that we're
talking about that we have up here so
this is where our liquidity is is where
our buy stops are going to reside the
market trades back down and then it
trades up into that source of liquidity
so it pierces that liquidity and trades
higher and this is our displacement
higher so as the market trades down this
is that displacement we're looking for
so they should be obvious candles so if
we look at this example here again you
can see this move is quite clear this is
a powerful candle it's not a small weak
one
and so that's what we're looking for in
this zone between the displacement high
and the displacement low there should be
a powerful candle here and our fair
value gap is going to reside in that
zone
and so next we're going to run through
the example that ict used in his video
which was on the nasdaq for the 3rd of
february
and so we'll start on the 15-minute
chart and what i've done is i've already
marked it all out here and so what you
can see is we've got the beginning of
the session here
and we've got 8 30 marked here so
remember what ict is looking for in his
setups is the
local high or low prior to 8 30 and he's
looking for a move post that 8 30 part
of the session so in that morning
session either up into a previous high
or down into a previous low so he's just
really looking to the left of that 8 30
open for his you know
marker i guess you could call it and
then look into the market to trade into
those zones after that 8 30 period so in
this example
ict said he had a bearish bias going
into the session so he'd obviously be
looking for
bearish setups and remember we'll often
see the market trade in the opposite
direction prior to that sort of bias
that we're looking for so you can see
that happens in this example so you can
see prior to 8 30 we have these equal
highs so this is where our liquidity or
buy stops will be residing so i've just
drawn a line across so you can see as
that morning session has started to
unwind the markets traded lower and then
immediately traded higher back into this
source of liquidity up here so this is
our area of interest and this is where
our fair value gap setup is going to be
found so zooming in now to the three
minute chart on the nasdaq now i've had
to switch over to the ndx because my
data doesn't go back
far enough to use the nq but this is
pretty similar so you'll be able to see
this set up so you can see this is a
zoom in of that area of interest on the
15-minute chart so we have this previous
highest this is liquidity where those
buy stops residing we can see the market
trades up into that liquidity zone and
then starts to immediately trade lower
so what you can see happens here is we
don't have the fair value gap form up
here at the highs it sort of trades down
lower so we get this swing low here this
three candle formation here so this is
the lowest low of these two candles here
on each side
then we have our fair value gap form
immediately after so our first candle is
here
and then the second candle you can see
the fair value gap is formed between our
third candle and our first candle so at
the low of the first candle and at the
high of that third candle and you can
see this move this second candle breaks
market structure so the low of this
candle is lower than the swing low here
so we have that breaking market
structure the market then trades down
you can see takes a little bit of time
but eventually trades back up into that
fair value gap you can see it trades
quite close
to the to the stop here before trending
lower so i've just marked this up so if
you'd actually taken this trade and
you'd gone short at the high of that
third candle you can see you would have
got over a 4r return on this particular
trade so this isn't even extracting the
full move you can see the market trades
lower throughout the session
significantly lower but even if you've
just taken the first sort of line share
of that move that would have been over a
4r probably a five hour return so yeah
that's obviously a great result for this
particular setup and so that last
section provides a great segue into our
last part of the video which is managing
exits
now probably one of the most important
things i took out of lesson six from
ict's video
was the importance of taking partial
profits and that you shouldn't roll your
stops now i generally roll my stops and
i don't particularly like doing exits
that way and so it's not that i didn't
know that
taking partial profits was the thing
obviously i did but i just always been
sort of trained to to roll my stops and
to sort of protect my risk as you'd like
and so
when he started describing the principle
i guess of leaving your stop at its
original placement and then using
partial profits as your mechanism to
control your risk that sounded much
better to me and obviously because i
trade crypto too that's also actually
from a fee perspective a much more
economic way of doing it so i'm going to
start doing that in my trading and you
know i'll relay back to anyone who's
interested how that goes so the other
thing he recommended was to take the
range of the day so using your 50 fib
and then you should be looking to take
partial profits at the internal range
liquidity
the internal range is just basically the
middle of that you know around that 50
level of the fib so between the the
range of the day between the high and
the low that's formed so far in the
session and there should be a fair value
gap near that 50 level and i'd actually
never noticed that before and now since
i've started doing this on all my charts
i see it all the time so it's uh it's
quite interesting the things that are in
plain sight that you just don't notice
and so you should then look to close out
the remainder of your position at the
external range liquidity so that's
either at the the range highs or at the
at the range lows so there you go
there's my review of lesson six of ict's
2022 mentorship program i hope you
enjoyed that and if you were looking for
a video with more information on fair
value gaps and market structure shifts i
hope that helped you out and i think
there was a number of really valuable
insights into developing the framework
and the setup better that ict shared in
that video so i think the one about how
do you stop so using either the swing
high or swing low as an alternate place
to put your stop rather than on the
first or second candle at that fair
value gap that's something that's really
helpful because that's something that i
know in my testing wasn't really working
as well as i would have liked it so it's
definitely something that i'm going to
be testing going forward and the other
thing that i also thought was really
helpful was just to illuminate taking
partial profits rather than rolling
stops as an alternative for exit so
that's another thing that i'll
definitely be using and so all these
little tidbits are really helpful just
to layer on the i guess the existing
body of knowledge that we have about
fair value gaps and market structure
shifts from what ict is taught so fast
so if you enjoyed this video it'd be
great if you could like it and if you'd
like to see more videos like this please
subscribe to my channel really looking
forward to the next lesson and i'll see
you in the next video
you
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