2022 ICT Mentorship Episode 12

Summary

This video provides an in-depth exploration of advanced market structure, focusing on the interplay of imbalances, rebalancing, and institutional order flow. ICT teaches a top-down approach, analyzing higher time frames first to identify intermediate term highs and lows, then using lower time frames to refine entries. Key concepts include fair value gaps, fractal patterns, and order blocks, emphasizing that price moves follow algorithmic principles rather than traditional indicators like Fibonacci or Elliott Wave. The lesson highlights patience, discipline, and aligning trades with higher time frame bias, offering traders a precise, methodical framework to anticipate market movements and improve trade accuracy.

Takeaways

• 😀 Institutional order flow is crucial for understanding market movements, particularly focusing on up-close and down-close candles as key resistance or support levels.
• 😀 Imbalances in the market get rebalanced through price action, and these rebalancing levels act as critical points for making trade decisions.
• 😀 Understanding the market structure involves labeling price swings and recognizing intermediate-term highs and lows, which set the stage for potential market moves.
• 😀 When price swings form and are rebalanced, the resulting high or low should not be violated for the trade idea to remain valid; if violated, reassess your position.
• 😀 The market does not follow traditional technical indicators or patterns like Elliott Wave or harmonic patterns; it is driven by liquidity, imbalance, and rebalancing.
• 😀 To succeed as a trader, align your trade ideas with higher timeframe trends, particularly focusing on the daily chart for understanding market direction.
• 😀 Trading against the higher timeframe trend, especially when the daily chart suggests a particular movement, increases the risk of failure.
• 😀 Patience is key: if market conditions are uncertain, it is better to stay neutral rather than force trades in the wrong direction.
• 😀 The concept of liquidity is essential: price seeks to go above old highs for buy stops and below old lows for sell stops, providing trading opportunities.
• 😀 Focus on understanding market behavior and avoid faith-based approaches to trading that rely on predefined patterns or theories that do not align with institutional market mechanics.

Q & A

What is the primary factor driving market movements according to the video?

The market is primarily driven by liquidity, imbalance creation, and rebalancing. Movements occur to trigger buy and sell stops, rebalance previous imbalances, and allow for efficient price delivery, rather than following patterns like Elliott Waves or harmonic patterns.

How does the speaker define an 'intermediate term high' or 'intermediate term low'?

An intermediate term high (or low) is formed when a swing high (or low) occurs during a rebalance of an imbalance and is higher (or lower) than the short-term highs (or lows) immediately to the left and right of it. These levels should not be violated if the market is respecting the order flow.

What is the difference between the classic ICT order block and the advanced interpretation discussed in the video?

The classic ICT order block uses the last up-closed candle before a down move as the block. The advanced interpretation considers the entire series of up-closed candles within a larger imbalance, taking market structure into account to identify aggressive entry points within the block.

Why does the speaker emphasize studying higher timeframes like the daily chart?

Higher timeframes, such as the daily chart, represent where institutions and banks focus their liquidity and order flow. Aligning trades with the likely direction of the daily chart reduces risk and increases the probability of success, as it ensures trading with the broader market trend.

How are bullish and bearish order flows identified on lower timeframes?

In a bullish move, predominantly up-closed candles occur, while down-closed candles act as support if price retraces. In a bearish move, predominantly down-closed candles occur, and up-closed candles act as resistance. These candles show where institutional order flow is maintaining control.

What does it indicate if an intermediate term high or low is violated after forming?

If an intermediate term high or low is violated, it suggests that the trader's initial market bias or trade idea may be flawed. This should signal the trader to pause, reassess, and not force trades until new setups align with the market structure and higher timeframe bias.

Why does the speaker criticize reliance on technical patterns like Fibonacci, Elliott Wave, or harmonic patterns?

These patterns are at odds with each other and do not consistently govern price movements. The market does not decide which pattern to follow each day. Believing in them is considered faith-based and can mislead traders, whereas studying liquidity, imbalance, and rebalancing reflects actual market behavior.

How does the concept of a 'fair value gap' fit into the trading methodology explained?

A fair value gap forms when price moves rapidly, leaving a vacuum of untraded levels. The market often returns to this gap to rebalance liquidity, allowing traders to anticipate potential reversal or continuation points. It helps identify entry points aligned with institutional behavior.

Why does the speaker advise against forcing trades that go against the daily chart’s bias?

Trading against the daily chart’s bias increases risk because it goes against institutional order flow and liquidity direction. Trades aligned with higher timeframe trends have higher probability, while counter-trend trades often fail or result in overtrading and account drawdown.

What is the suggested approach for new traders to learn this advanced market structure methodology?

New traders should study historical price data line by line, classify swings, imbalances, and order blocks, and observe how price respects or violates intermediate term highs and lows. Learning is progressive and requires patience, as understanding institutional order flow and multi-timeframe alignment takes time and practice.

How does the speaker define the purpose of rebalancing in market movements?

Rebalancing occurs after an imbalance is created, allowing price to retrace slightly before continuing in the primary direction. It ensures that liquidity is available for institutional participation and provides more efficient price delivery, which traders can use to identify entries and exits.

What role does institutional order flow play in this methodology?

Institutional order flow dictates where price moves, where it finds resistance or support, and where trades are likely to succeed. It is identified by observing clusters of up-closed and down-closed candles, which reflect where large market participants are influencing price without relying on traditional indicators.