ICT Mentorship Core Content - Month 05 - Open Float

Summary

This video lesson explores the concept of open float and its role in quarterly market analysis. It explains how buy and sell stops above highs and below lows create liquidity pools that drive market movements. By studying daily charts, traders can identify short-term, intermediate-term, and long-term highs and lows, recognize market structure shifts, and predict directional bias. The lesson highlights how smart money targets these liquidity points to generate significant price moves, providing insights into both short-term volatility and long-term trends. Practical examples, such as Euro/USD moves, illustrate how understanding open float and liquidity can improve trading decisions across various timeframes.

Takeaways

• 📊 Open float represents the total open interest above and below the current market price, including pending buy and sell stops.
• 📈 Buy stops are placed above current or old highs to protect short positions and capture long entries; sell stops are below lows for protective or entry purposes.
• 🗓 Quarterly shifts focus on the highest highs in the last three months, providing significant levels for institutional order targeting.
• 🔻 Market structure shifts occur when price breaks a short-term high or low, signaling potential directional bias and liquidity targeting.
• 💧 Liquidity pools are concentrations of stops above or below price levels that the market often targets before reversing or continuing.
• 📉 Monitoring intermediate-term highs and lows can indicate whether the market is biased to the upside or downside over daily time frames.
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• 🏦 The market is influenced primarily by large funds and institutional players, not retail traders; open float helps reveal smart money behavior.
• ⏱ Daily chart analysis of liquidity and open float allows traders to anticipate trend direction and potential reversals.
• 📌 Failed attempts to make new highs or lows, combined with the clearing of stops, give clues to market momentum and bias.
• 🔄 Observing runs on buy and sell stops over months provides insight into long-term trends and institutional positioning.
• 🧭 Understanding open float, liquidity targeting, and market structure helps traders establish directional bias for day trading, swing trading, or scalping.
• ⚡ Every new violation of short-term lows or highs builds momentum toward one side of the market, helping forecast the next major move.

Q & A

What is 'open float' in trading?

Open float is the total open interest resting above and below the current market price, including pending buy and sell orders such as buy stops, sell stops, and protective stops for long and short positions.

How do buy stops indicate liquidity on the market?

Buy stops indicate liquidity because they represent orders placed above the current price, often to protect short positions or to enter long positions. When price approaches these levels, it may trigger a run on these stops, which large market participants can exploit.

What are the key levels traders should monitor for buy stops?

Key levels include: the last bearish shift, short-term highs (weekly or monthly), the highest high in the last three months (quarterly), 6-month highs, and 12-month highs.

What are the key levels traders should monitor for sell stops?

Key levels include: the last bullish shift, short-term lows (weekly or monthly), the lowest low in the last three months, 6-month lows, and 12-month lows.

What is a market structure shift, and why is it important?

A market structure shift occurs when price breaks a significant short-term high or low, indicating a change in trend. It is important because it identifies liquidity zones and helps traders anticipate directional bias.

How can daily charts help determine market bias?

Daily charts allow traders to observe how price reacts to liquidity zones, noting failed attempts to create higher highs or lower lows. Consistent failure to make new highs signals bearish bias, while failure to make new lows signals bullish bias.

What is the significance of intermediate-term highs and lows?

Intermediate-term highs and lows are key markers formed by short-term highs/lows on either side of a point. They help identify longer-term market structure and potential reversal points, similar to head-and-shoulders patterns.

How do quarterly shifts affect market movements?

Quarterly shifts occur every three months and mark significant highs or lows. These levels often contain clustered buy or sell stops, making them important targets for liquidity runs and major market moves.

What role do large funds or smart money play in open float dynamics?

Large funds typically act as trend-following participants and target liquidity pools formed by buy or sell stops. They execute moves that trigger these stops, which can create significant market shifts that retail traders observe but may not anticipate.

How can traders use open float analysis for trading decisions?

Traders can map liquidity zones, monitor market structure shifts, and observe how price interacts with buy/sell stops. This analysis provides a directional bias, helps predict likely stop runs, and improves trade planning across time frames and asset classes.

Why is failure to make new highs or lows important for predicting price direction?

Failure to make new highs or lows indicates that one side of the market lacks momentum. If rallies fail to surpass previous highs, it suggests bearish bias; if drops fail to breach previous lows, it suggests bullish bias. This helps traders anticipate which liquidity side the market is likely to target.

What is a practical example of using open float and liquidity zones in forex trading?

For example, EUR/USD moved from a low of 1.0534 to a high around 1.1570 over six months. Buy stops above 1.115 were triggered, then rejected, leading to a violation of short-term lows, which ran sell-side liquidity. Observing these interactions confirmed bearish bias on the daily chart.