ICT Mentorship Core Content - Month 05 - Defining Open Float Liquidity Pools

Summary

This lesson explores the concept of open float liquidity pools in Forex trading, using the Canadian dollar as a case study. It teaches traders how to identify buy and sell stops within 20-, 40-, and 60-day high/low ranges to track institutional order flow. By analyzing 60 days back and 60 days forward, traders can anticipate where large funds are likely to target, revealing bullish or bearish biases. The video emphasizes the significance of false break patterns, daily chart analysis, and monitoring open interest to capture high-probability trading opportunities. Overall, it provides a systematic framework for understanding market liquidity and predicting price shifts effectively.

Takeaways

• 📊 Open float liquidity pools represent the range of highs and lows over a period of time where large funds place buy and sell stops.
• ⏳ The standard open float analysis uses a 60-day look back and a 60-day cast forward, creating a total 120-day trading range.
• 🕒 Near-term, short-term, and intermediate-term liquidity pools are tracked using 20-day, 40-day, and 60-day intervals, respectively.
• 💹 Buy stops typically rest above recent highs, while sell stops rest below recent lows, and observing which side is being taken out indicates institutional order flow.
• 📈 Continuous triggering of buy stops signals bullish institutional pressure, whereas continuous triggering of sell stops signals bearish pressure.
• 🔄 New highs and lows every 20 trading days create fresh liquidity pools, which can be used to anticipate potential price moves.
• 💡 Analyzing open interest alongside price action provides insight into smart money participation: declining open interest during a drop suggests potential bullish reversal.
• 📉 Low open interest at support levels combined with triggering of sell stops indicates strong upward potential in price movement.
• 📝 Traders can execute trades purely on daily charts using open float, without the need for lower timeframe analysis.
• ⚖️ Monitoring the relationship of current price to the last 60-day high and low helps predict quarterly shifts or market structure changes.
• 📌 Open float analysis helps identify high-probability entry and exit points by revealing where institutional liquidity is concentrated.
• 🚦 Avoid trading against the dominant side of liquidity flow; align trades with the side of the market being actively targeted by institutions.
• 📅 The system is dynamic; ranges must be continuously updated as new price data forms, ensuring accuracy in liquidity pool mapping.
• 🎯 Explosive price moves often occur when markets reach these identified liquidity pools, as evidenced in historical Canadian dollar futures examples.

Q & A

What is the concept of 'open float' in trading?

Open float is a method of analyzing market liquidity by combining the highest highs and lowest lows over the past 60 trading days (look back) and projecting the same over the next 60 trading days (cast forward), creating a 120-day range that highlights where large funds’ buy and sell stops are resting.

How are near-term, short-term, and intermediate-term liquidity pools defined?

Near-term liquidity is identified using a 20-day high/low range, short-term uses a 40-day range, and intermediate-term uses a 60-day range. These intervals help traders understand where buy and sell stops are likely positioned across different time frames.

Why do markets often move to capture buy and sell stops?

Markets are often driven by institutional order flow, where large funds target liquidity pools. Buy stops above highs and sell stops below lows represent easy liquidity for funds, so prices frequently move to trigger these stops.

What does continuous triggering of buy stops indicate?

Continuous triggering of buy stops above highs indicates bullish institutional order flow, meaning large funds are pushing the market higher, and traders should consider aligning long positions with this momentum.

What does continuous triggering of sell stops indicate?

Continuous triggering of sell stops below lows indicates bearish institutional order flow, meaning large funds are pressuring the market lower, and traders should consider short positions.

How can false breakouts (Turtle Soup patterns) be used in trading?

False breakouts occur when price briefly moves above a previous high or below a previous low but then reverses. Traders can use these patterns to trade with institutional liquidity, entering trades in the direction of the reversal after stops are triggered.

Why is it important to monitor open interest along with price levels?

Open interest provides insight into market participation. Declining open interest at a support or resistance level suggests that smart money is not heavily engaged, signaling potential moves. High open interest can indicate large liquidity and risk for buyers or sellers.

How does the 120-day revolving range work in practice?

The 120-day revolving range is calculated by looking back 60 trading days and projecting forward 60 days. This range helps identify where the highest highs and lowest lows exist, showing near-term, short-term, and intermediate-term liquidity pools for informed trading decisions.

What practical steps should traders take to use open float effectively?

Traders should identify the highest high and lowest low for 20, 40, and 60-day intervals, project these levels forward, monitor price interactions with these levels, observe which stops are being triggered, determine market bias based on institutional order flow, and trade in alignment with the dominant flow.

What is the significance of quarterly shifts in the market?

Quarterly shifts often represent periods when large funds reposition, creating manipulative phases that can serve as catalysts for significant price moves. Traders can anticipate these by monitoring open float and liquidity pool activity.

How does one determine the direction of institutional order flow using the daily chart?

By observing which side’s stops are consistently being triggered—if buy stops are frequently hit and sell stops rarely, the order flow is bullish; if sell stops are hit frequently and buy stops rarely, the order flow is bearish. Daily chart analysis is sufficient to monitor this.

Why is it important not to trade against institutional order flow?

Trading against institutional order flow exposes traders to higher risk because large funds control liquidity and can drive price movements. Aligning with the dominant flow increases the probability of successful trades.