ICT Forex - Market Maker Series Vol. 2 of 5
Summary
TLDRThis video script delves into the intricacies of institutional order flow in the forex market, focusing on liquidity and market analysis. It examines weekly charts of the British Pound versus the US Dollar, highlighting the importance of identifying 'clean' price levels that indicate potential market movements. The presenter discusses how these levels can trigger sell or buy stops, influencing market direction. They also introduce the concept of 'bullish order blocks' as key support areas, and demonstrate how understanding these patterns can lead to profitable trading opportunities, emphasizing the importance of recognizing and anticipating market liquidity draws.
Takeaways
- đ The script discusses the importance of analyzing weekly charts for the British Pound versus the US Dollar to understand institutional order flow and liquidity in the foreign exchange market.
- đ The presenter emphasizes looking for 'clean' price levels on charts, which are often straight-edged and smooth, indicating potential areas of significant price action due to stop orders.
- đ 'Sell stops' are identified as areas below clean lows where traders have set stop-loss orders to protect their long positions, suggesting a concentration of sell-side liquidity.
- đč Conversely, 'buy stops' are areas above clean highs where traders have set stop-loss orders for their short positions or where resistance has been identified, indicating potential buy-side liquidity.
- đ The script explains that the function of liquidity below clean lows is to sell, and the function of liquidity above clean highs is to buy, creating a draw on liquidity that can act like a magnet for price movement.
- đ The analysis begins with a weekly perspective, anticipating the market's direction for the week based on the previous week's price action and the presence of clean levels.
- đ The presenter shares a personal trade example, demonstrating how the concepts discussed were applied in a real trading scenario involving the British Pound and the US Dollar.
- đ The concept of a 'bullish order block' is introduced, which is a pattern of consecutive down-closed candles that can indicate a high-probability buying opportunity, especially in a bullish context.
- đ The script advises traders to be comfortable with the market reaching below recent lows, as this can often be a sign of the market taking out stop orders and creating buying opportunities for institutional traders.
- đ The importance of 'reading the tape' is highlighted, which involves understanding live market action and anticipating future price movements based on historical patterns and current market conditions.
- đ The script concludes by noting that the market's vested interest in reaching certain price levels is often to trigger buy stops, allowing smart money to exit their positions at a high price.
Q & A
What is the main focus of the 'ICT Market Maker Series' volume two?
-The main focus of volume two is on the foundations of institutional order flow and understanding liquidity in the foreign exchange market.
What does the speaker suggest about the significance of 'clean' price levels on a weekly chart?
-The speaker suggests that 'clean' price levels on a weekly chart are significant because they often indicate areas saturated with willing participants who have placed stop loss orders, making these levels likely to be tested by the market.
Why do traders place sell stops below a 'clean' low level on a chart?
-Traders place sell stops below a 'clean' low level to protect their long positions. If the price goes below this level, it indicates that their long position might be wrong, and they want to exit before incurring more losses.
What is the opposite function of sell stops in terms of liquidity?
-The opposite function of sell stops is related to buy stops. Buy stops are placed above 'clean' high levels, and when the price moves above these levels, it can trigger buy stops, attracting buying pressure and potentially causing the price to rise further.
What does the speaker mean by 'runs on liquidity'?
-The speaker refers to 'runs on liquidity' as price movements that are driven by the absorption of buy or sell orders resting at specific price levels, acting like a magnet that pulls the price towards these levels.
How does the speaker use the concept of 'bullish order block' in their analysis?
-The speaker uses the concept of a 'bullish order block' to identify areas where the market has shown a willingness to go higher, and where consecutive down-closed candles indicate a high probability of buying opportunities, especially in a bullish context.
What is the importance of recognizing 'bullish order blocks' in trading?
-Recognizing 'bullish order blocks' is important because it helps traders identify high-probability entry points where the market is likely to reverse and move higher after absorbing sell orders at a specific price level.
What does the speaker mean by 'pairing of orders' in the context of institutional trading?
-The speaker refers to 'pairing of orders' as the process where smart money buys sell orders that flood the market when stop losses are triggered, allowing the price to rally and creating a profitable opportunity for the institutional traders.
Why is it important for traders to understand the concept of 'reading the tape'?
-Understanding 'reading the tape' is important for traders to interpret live market action and anticipate the market's next moves, which can improve their trading decisions and overall performance.
What advice does the speaker give regarding stop loss placement in trading?
-The speaker advises against using very small, ultra-tight stop losses consistently, as the market can easily take traders out with such small margins. Instead, they suggest being less precise initially to avoid being 'sliced and diced' by the market.
How does the speaker describe the process of price movement towards 'clean' highs in the context of institutional order flow?
-The speaker describes the process as the market gravitating towards 'clean' highs to absorb the buy stops resting above these levels, which can trigger a significant price rally as the market attacks this liquidity pool.
Outlines
đ Understanding Institutional Order Flow and Liquidity
This paragraph introduces the concept of institutional order flow and liquidity in the foreign exchange market. The speaker begins by discussing the importance of analyzing weekly charts to predict market movements, focusing on the British Pound versus the US Dollar. They highlight the significance of 'clean' price levels on weekly candles, which indicate areas saturated with sell stops or buy stops, representing potential market reversal points. The speaker uses the example of the market's behavior on July 27, 2021, to illustrate how these levels can be used to identify profitable trading opportunities based on the anticipation of liquidity runs.
đ Analyzing Market Bias and Order Blocks
The speaker continues by explaining how to identify market bias and order blocks on a daily chart. They describe the concept of a bullish order block, which is characterized by consecutive down-closed candles, indicating a high probability of a price rally. The paragraph emphasizes the importance of understanding the market's underlying narrative and how it can influence trading decisions. The speaker also shares a personal trading example from July 26 and 27, 2021, to demonstrate the application of these concepts in real-time trading scenarios.
đ The Dynamics of Sell Stops and Buy Stops
This paragraph delves into the dynamics of sell stops and buy stops, explaining how institutional traders use these levels to their advantage. The speaker discusses how the market can be manipulated to trigger these stops, leading to price movements that favor the smart money. They illustrate this with examples from the hourly chart, showing how price action can rebound from these levels to initiate a rally. The paragraph also touches on the concept of 'pairing of orders' and how it relates to the absorption of liquidity at these critical price points.
đŒ Institutional Trading Strategies and Risk Management
The speaker provides insights into institutional trading strategies, focusing on the importance of identifying and trading around order blocks. They discuss the concept of a bullish order block and how it can be used for entry and risk management in a trade. The paragraph emphasizes the need for a broader stop loss to avoid being stopped out by market noise and the importance of historical price action study to train one's eye to recognize these patterns. The speaker also explains how the market often consolidates and rallies after taking out short-term swing lows, indicating a continuation of the underlying bullish trend.
đ Reading the Market Tape and Anticipating Liquidity Runs
In the final paragraph, the speaker wraps up the discussion by emphasizing the importance of reading the market tape to understand live market actions and anticipate future movements. They highlight the significance of recognizing clean levels and order blocks in historical data to train one's ability to spot these patterns in real-time trading. The speaker also discusses the market's vested interest in reaching certain price levels to trigger buy stops and how this can lead to significant price movements. The paragraph concludes with a reminder to be comfortable with the market reaching below lows in a bullish context, as this often represents an opportunity for smart money to accumulate before a rally.
Mindmap
Keywords
đĄInstitutional Order Flow
đĄLiquidity
đĄWeekly Chart
đĄSell Stops
đĄBuy Stops
đĄClean Levels
đĄBullish
đĄBearish
đĄOrder Block
đĄSwing Low
đĄReading the Tape
Highlights
Introduction to the second volume of the five-part ICT market maker series focusing on institutional order flow and liquidity understanding.
Analysis begins with the weekly chart of the British Pound versus the US Dollar, emphasizing the significance of price action within weekly candlestick ranges.
Identification of 'clean' price levels on charts as potential areas for institutional action due to the concentration of stop orders.
Explanation of sell stops and how they represent a pool of sell-side liquidity that can drive market movement.
Market behavior on July 27, 2021, as an example of how clean candle levels were tested and reacted to by the market.
The concept of liquidity draw and how it can act as a magnet for price movement towards areas of concentrated order flow.
Discussion on buy stops above equal highs as the opposite of sell stops, indicating potential resistance levels and bullish signals.
The importance of understanding the weekly range and its implications for institutional order flow direction.
Use of daily charts to identify bullish order blocks and the potential for market reversals at significant price levels.
The role of the London and New York trading sessions in creating and confirming market lows and continuation patterns.
How to identify and trade with bullish order blocks using the high and opening price as key entry and stop-loss points.
The risk management aspect of trading with order blocks, including the setting of stop-losses and the potential for adverse price movements.
The importance of recognizing and trading with the underlying market bias to increase the probability of successful trades.
The concept of 'pairing of orders' where smart money buys at market prices when sell orders flood the market due to stop losses.
How to read the tape and understand live market actions or predict next moves by recognizing patterns and order flow dynamics.
The significance of historical study in training the eye to recognize clean levels and anticipate market movements.
Final thoughts on the importance of understanding institutional order flow for effective trading strategies and market analysis.
Transcripts
foreign
all right folks welcome back this is
volume two of the continuing series of
five parts for the ict
market maker series this installment
will be focusing primarily on
foundations to institutional order flow
and understanding liquidity
alright so when we're considering what
the
large institutions are doing and how to
operate and engage in
the foreign exchange market the premise
i want to begin my trading with
and my analysis with on the weekend is
what i think the weekly charts going to
do
and that's what we're showing here is a
weekly chart of the british pound versus
us dollar
every candle in this chart represents
the highest and lowest
price for an individual weekly range
and i sit down on my weekly chart and
look for areas that are
obvious okay what i mean by obvious
years ago i taught that if you find a
level that's too clean
okay and it's just too straight edge
chances are it's probably going to get
swept
what do i mean by that well if you look
at this
area right here
notice how this candle goes to that low
the body stops here the body stops here
it doesn't really have any kind of
jagged end or bottom to it
just real smooth and clean just like
this high
and this high has a relatively clean
level up there and these two candles
here have a really nice clean
level to it and these right here
pretty much the same thing but
my eye jumps to these levels the
significance about these levels
is that below this level here
is sell stops traders that went along
here
they had stop loss orders to protect
that long in the form of cell stops
so this level in here
is saturated with willing participants
that want to sell
at the market because their belief is if
it goes below this
level here they're probably wrong in
their long
idea and they want to get out before it
causes them to lose more money
conversely there are traders that will
see this level as support and if it
breaks
their idea is well support's broken so
it's probably bearish and they want to
go short
so how do you go short you sell so
the function of the liquidity that rests
below these
smooth or clean equal lows
is cell side in nature so it's
sell stops or sell side liquidity
the market last week at the time of this
recording it is
july 27 2021
and the market trades down last week
and sweeps below these clean
candles okay so this area here
gets attacked and notice it comes off
that
low and closes here on the week
the week at present of this recording
we opened here has small little movement
below the opening of
the week and then we had this movement
higher
now prior to this candle closing
up here we didn't really know
if it's going to go down there and
continue
going lower or if it's going to reverse
that's not necessary
to find profitability and consistent
setups all we're looking for
is runs on liquidity okay so
you have to know where the draw on
liquidity is and that's what i'm showing
you here this is what you're looking for
areas that are too clean that may
draw price up into them or down into
them
so just the opposite of what we saw down
here
what would be resting above these
relative equal highs
buy stops anyone that was short how well
trader
protect his bearish position with a buy
stop
so any movement above here that would
trigger buy stops on shorts and or
some traders that see this as resistance
if it breaks that they would see it as
what
resistance broke and therefore bullish
so this is the closest draw on liquidity
that's opposing
this so when we started the week here
we opened traded down just a little bit
and started the trade higher
where is it likely to go right above
these highs
doesn't mean it will absolutely do it
but this is what we do
we look for areas where the draw on
liquidity acts like a magnet
okay imagine how this
candle is gravitating towards this level
here
to attack and absorb the liquidity
which rests in the form of buy stops
which is opposite of what we saw down
here
so the buy stops here are the near-term
draw on liquidity so
institutional order flow for the week
should be bullish until we get up into
this area
at that moment we have to reassess
everything continuation if it's
likely or reversal if it's likely or
just consolidation
but we don't need to know that right now
that
starts the week here with the likelihood
of running up into this area
so the inability for a price to make a
significant price run lower is the tip
off that we're going to see
institutional overflow or bias
or trend or momentum to the upside until
we get into this area right here
for the purpose of attacking this buy
side
liquidity pool for the buy stops
so if you zoom in here i want you to
think about the weekly range
in the context that the open
and decline from the opening price
anywhere in this area close to the
opening price
or below it is ideal for going
long this is the cheapest it's likely to
get
and the closest you can buy around that
opening price
the better as we get closer and closer
to this area up here
the idea of probability or low risk
starts to dissipate because we have the
likelihood that this could retrace back
in
this range now the time this recording
it's only
tuesday evening in my local time on the
east coast of
the united states but
it could very easily continue and trade
well beyond
these levels here into wednesday and
thursday
maybe even friday i don't need to know
that
the premise starts with we're down here
we came off the low after taking stops
it's probably going to make a run for
this area up here for liquidity
so the ideal scenario is if i'm thinking
that that means the weekly range
is likely to be bullish or at least i'm
outlining it as that so for my
qualitative analysis
this is what i'm doing remember in the
first volume we did quantitative
analysis where there were
measures that were data oriented
this is a little bit more subjective so
that's why it's qualitative
and the idea is if i'm bullish for the
week
i'm expecting monday and tuesday and
early parts of wednesday
to be bullish until we get to an area
where the draw on liquidity
is reached
we're going to drop down to a daily
chart here you can see
monday's trading this is the candle for
the entire range of trading on monday
july 26 2021
and then tuesday's trading daily range
for july 27
2021 and notice how monday we had a nice
little
rally higher and on tuesday we opened
here
and then we traded down into this candle
right there
this candle is what i teach as a bullish
order block
the market's already bullish or the
underlying narrative
is bullish and we had a confirmation to
market wants to go higher
on monday it trades higher on tuesday we
trade
down into that level the opening price
hits it trades off of that
rallies back through and makes a higher
high
than that of on monday remember the
candle opens here
and then trades down this is a judas
swing
retail traders get caught up in that on
a lower time frame they think it's
bearish and they start selling short
and then when it hits a higher time
frame level like this that's key
or significant it'll reverse and start
to trade higher and it catches them off
guard
some of you have probably noticed that i
posted a trade
or result of a trade that i did today in
british pound
versus us dollar this very market
i'm showing you the framework in context
because i knew i was teaching this today
in the second volume of this teaching
series so i'm teaching you
on the level of my youtube content and
everyone's familiar with my
concept of the order block through this
youtube channel
using the bias that
suggests that this is likely to reach up
into
these buy stops
so anticipating its continuation into
wednesday
to attack this now does it need to do it
no because i've already been profitable
on the entry and management of tuesday's
trading
dropping down to an hourly chart that
blue line
i used on the daily chart to identify
the bullish order block level
is now green here okay so i don't want
to trip you up i just want to have a
contrast because of the time frame this
level is that same
bullish order block level on the daily
just transposed to the hourly chart
notice how the hourly chart trades down
hits it and rebounds
and starts to trade higher this is that
area where the buy stops are this level
and higher
is where those buy stops reside
so it's drawing price up there
zooming in here you can see again this
is the
daily bullish order block level and i
want you to look closer
think about what i was showing you on
the weekly chart there's clean levels
well there's singular candle lows and
highs
or swing point highs and swing point
lows or swing lows and swing highs
depending on how you want to say it they
have stops
of and below those as well
this candle right here is a case in
point
we have a swing low a single candle that
has a higher
low to the right and a higher low to the
left one single candle there that swing
low
is going to be seen as a short term
swing low where sell stops are sitting
right below that
because the markets rallied up it
consolidated rallied again
and when it's up in here all in this
consolidation those that bought down
here or even over here
they have their stop loss trail right
below that low
and the market drops down to take those
participants out
and then rallies why is it going down
there to accumulate
sell stops why are they attacking the
sales dots because this is attacking
participants that are willing to sell at
a lower price
lower than what when it was up here
institutional traders will not buy up
here they're going to wait for it to
drop down
to attack a very deep discounted price
and pool of liquidity of sellers that
want to sell at a cheap
price because they trade their stop loss
up there
so these sell stops flood the market
with sell orders
and smart money buys them at the market
so it goes right in here and buys them
so this is called pairing of orders the
market hits this
and then price rallies
now this is that same swing low zoomed
in
but i'm drawing your attention to these
consecutive down closed candles because
this is a bullish order block
the high to the opening price now why
not the entire range
like a supply and demand zone would be
well this is not supply and demand
so it's the high down to the opening
price
extend it out in time and the market
drops down into that that's a bullish
order block
and it's taking out cell stops
so a high probability order block is
when it takes out stops and returns down
to
the order block itself not every down
closed candle is a bull shoulder block
and not
every up close candle is a bare shoulder
block but if you are in a context
that is bullish as i've outlined here
and clearly proven i was trading
with this bias today
the underlying pinnings of the market is
it's bullish
so therefore down close candles to have
a market move away from it
and has a swing low just above it like
we do here
that's a confluence of specific things
that make it high probability for the
other block
the order block is the consecutive down
closed candles
all three of them make up the order
block but the sensitive price point is
the high
and the opening so you can be a buyer at
this high
or at the opening price the easiest one
is using the high and allowing your
stock to absorb
any adverse price movement against you
that would if it was going to go back
into
say the opening price you have to
consider
that when you're placing your stop so
how how does that affect your trade well
when you're starting out without
lowering any
time frame beyond the 15 time frame here
you can be buying at the high and use
the
low of all the consecutive down closed
candles your stop loss needs to be just
below that
now you may look at this and say oh no
that's too much of a stop well
that's all relative in the beginning
it's good for you to try to trade like
that
because you don't want to be trying to
be too precise because many times
the market will slice and dice you if
you're trying to be too finicky about
your
entries and your stops it can be very
easy for the marketplace to take your
two pip stop loss three pip stop loss
it can do it okay because the broker has
the
right and freedom to do that and
they will i'm not saying you can't use a
very small ultra
tight stop loss but doing it as
consistently
over and over and over again uh the
broker will just widen the spread and
take you out
and there's nothing you can do about it
so
to repeat a bullish order block that's
high probability is when the market's
already predisposed to go higher
it's shown a willingness to go higher
and leave this area here
and we have a short term low so it has
stops
in a bullish market and it trades down
below that level here and into
consecutive down closed candles so you
would be buying at the high
plus the spread and your stop will be
below this
low right there and that would be your
underlying
risk does the market stay there very
long once it trades into it no
leaves it consolidates rallies again
comes back down into another order block
here trades lower
accumulates and rallies again trades one
more time retracement and then blasts
off
and attacks all the buy stops that were
resting above these
clean highs
notice also before the market starts to
rally
it generally takes out some short-term
swing low
this low took out this swing low
this low took out this swing low
this low took out this swing low
each time there's a dynamic rally higher
this swing low was taken out by this
swing low and it rallies higher
this swing low is taken out by that
swing low not by much but it's all it
takes
and then it starts to move higher so
when there's a run on liquidity
that's opposed to the underlying
direction in other words
if we're bullish on a market like this
get comfortable with the market reaching
underneath lows and stop
thinking that it's going to be breaking
down entirely or reversing
most of the time you're going to find
that it's taking those cell stops out
and absorbing them to offer smart money
buying opportunities at deep discount
prices
finally we're looking at price on monday
and today
tuesday and i want you to notice how the
market does what
it creates the low in london which is
exactly what i teach on my youtube
channel
and then a continuation in new york
session
on tuesday it creates the low of the day
and a continuation in new york and it
rallies up
it's consolidating in here and where
does the liquidity reside
again this blue line is that weekly
line i drew out that was a clean level
where the buy stops are
so the market's most likely going to
draw up into that 139 big figure
139 10 and the institutional level 139
20
could potentially be traded too as well
to make sure it really sweeps out
all those buy stops now what's the
vested interest for the market to
send price that high because smart money
has bought
down here they bought down here
and they bought down here where do they
want to get out
at a high price who's willing to buy it
from them at a high price the buy stops
resting just above
that level here i noted on the weekly
chart
so we covered several things in here
foundations to institutional order flow
how do we frame that we look for the
weekly range we look for clean levels
very clean levels your eyes need to be
trained to look for them and the easiest
way to do that is go through back
logging and look at old historical price
moves
and mark them up on your chart that
historical study will train your eye and
activate your reticular activating
system
and that means when you see something
over and over again it makes you
sensitive to it so that way
you will start to anticipate it when you
see familiar patterns in live price
action
and it makes you better at reading the
tape reading the tape is to simply
understand what the market's doing live
or what's about to do next okay so
hopefully you found something
in this that was helpful and insightful
and i'll talk to you in the next
installment
be safe
5.0 / 5 (0 votes)