The 3 Types of ICT MSS/CHoCH Everyone Should Know [High Probability]

Summary

In this video, Mam explains how to identify and trade market structure shifts with a focus on liquidity sweeps and fair value gaps. He discusses different types of shifts, including lower and higher probability setups, and emphasizes the importance of higher time frame context for confirming a valid change of character. Mam stresses that key factors like liquidity inducement, points of interest, and displacement should align for high-probability trades. By mastering these concepts, traders can increase their chances of success in identifying reliable market reversals and breakouts.

Takeaways

• 😀 A valid market structure shift (change of character) only occurs after a liquidity sweep or price trading into a higher time frame point of interest.
• 😀 A change of character (CoC) happens when the price creates a higher high or lower low, but only after a liquidity sweep or fair value gap has been tested.
• 😀 Type 1 market structure shifts are characterized by a liquidity sweep and a valid pullback, which is more likely to happen near a higher time frame liquidity zone.
• 😀 Type 2 market structure shifts occur when price breaks a significant level without the requirement of a higher time frame liquidity sweep but can still signal a valid shift.
• 😀 Type 3 market structure shifts happen when price reacts from a fair value gap after a liquidity sweep, representing an early sign of a market structure change.
• 😀 A liquidity sweep and drawn liquidity on a higher time frame increase the probability of a market structure shift.
• 😀 A major liquidity level should not be taken before price reaches the point of interest to ensure a higher probability market structure shift.
• 😀 Inducement is crucial: It must be present for a valid market structure shift to occur; price must show an inducement to the liquidity levels.
• 😀 A point of interest (such as a fair value gap) needs to be respected by the price to maintain high probability conditions for market structure shifts.
• 😀 A clear drawn liquidity target on the higher time frame confirms the direction of the market and supports the likelihood of a change in character.

Q & A

What is a liquidity sweep, and how does it impact price movement?

A liquidity sweep occurs when price moves through a specific liquidity level, often triggering orders and market reactions. It typically happens when the price goes past a low or high, creating a shift in market sentiment. After a liquidity sweep, the price often moves in the opposite direction, as there is less resistance and more support for the price to rise.

What is the significance of a point of interest below a liquidity sweep?

A point of interest below a liquidity sweep serves as an additional support level for price movement. If a liquidity sweep occurs and there is a point of interest below that level, it can be a strong indication that the price will rise, as both factors align to create a high-probability scenario.

What is a 'draw in liquidity,' and how does it affect price movement?

A draw in liquidity refers to a situation where the price is attracted to a specific liquidity level due to market conditions. This is often identified on higher time frames and indicates a target area where price may move toward. A draw in liquidity can guide traders in identifying potential areas for price reversal or continuation.

Why is a change of character (COC) important in this analysis?

A change of character (COC) is important because it marks a shift in market structure, indicating potential reversal or continuation of the price. If a COC occurs near a draw in liquidity, it becomes a high-probability setup, signaling that the market is likely to move toward the liquidity draw in the near future.

How does the fair value gap (FVG) relate to the market structure and liquidity?

A fair value gap (FVG) is an area where price has moved too quickly, creating a void in the market structure. This gap can indicate an imbalance, and price may revisit this area to fill the gap. The FVG can align with a draw in liquidity, making it a key factor in identifying potential trade opportunities.

What happens if a major liquidity level is taken before reaching the point of interest?

If a major liquidity level is taken before price reaches the point of interest, the probability of a successful trade decreases. The liquidity level being taken indicates that the market has already absorbed significant orders, which can result in a lower likelihood of price moving in the expected direction once it reaches the point of interest.

What is the ideal order of events in a high-probability trade setup?

In a high-probability trade setup, the ideal sequence is as follows: first, price sweeps through a liquidity level; then, a point of interest is identified below the sweep as additional support. Following this, a change of character occurs, and the market structure suggests a move toward a draw in liquidity, with no major liquidity level taken before price reaches the point of interest.

Why is it important to avoid major liquidity levels being taken before a trade?

Avoiding major liquidity levels being taken before a trade is important because once a major liquidity level is cleared, the market may already have absorbed the majority of orders, reducing the likelihood of further movement in the expected direction. It indicates a potential shift in market conditions, making the setup less reliable.

How can a Discord community enhance the trading experience for learners?

A Discord community can enhance the trading experience by providing a space for traders to share insights, discuss strategies, and receive live trading guidance. It allows for interactive learning, seminars, and direct feedback from experienced traders, helping learners deepen their understanding of market concepts and improve their trading skills.

What are the key elements that contribute to a high-probability trading setup in this strategy?

The key elements of a high-probability trading setup in this strategy include a liquidity sweep, a point of interest below the sweep, a change of character, and a draw in liquidity on a higher time frame. Additionally, avoiding the clearing of major liquidity levels before price reaches the point of interest is essential for maintaining a high-probability trade.