ICT Time Based Liquidity Explained

Summary

This video explores the concept of time-based liquidity in trading, emphasizing the importance of using predetermined price levels and structured approaches. The video contrasts reactive trading with a rule-based system, highlighting the need to avoid impulsive decisions. It introduces time-based liquidity pools, such as monthly, weekly, and daily highs and lows, which serve as magnets for price movement due to their high liquidity. By focusing on these significant levels and trading within specific time windows, traders can increase their chances of high-probability setups, making their strategy more mechanical and less subjective.

Takeaways

• 😀 Have a predetermined system when trading; reactive decision-making leads to impulsiveness and lack of edge.
• 😀 The market is constantly seeking liquidity, and understanding time-based liquidity pools can help frame better trades.
• 😀 Trading impulsively based on minor price movements can be highly subjective and lacks statistical backing for long-term success.
• 😀 Using higher time frame liquidity levels (monthly, weekly, daily) offers more forgiving and reliable trade setups.
• 😀 A structured, rule-based approach eliminates the risk of reacting impulsively to price movements.
• 😀 Time-based liquidity pools, like those from monthly or weekly highs and lows, tend to sponsor larger, more meaningful price movements.
• 😀 Avoid trading on minute liquidity pools (e.g., one-minute chart lows) since they offer less substantial market reactions.
• 😀 A mechanical system, like the dealer's approach in blackjack, can guide trades based on predetermined price levels and times.
• 😀 When using time-based liquidity pools, you’re targeting key price levels rather than reacting to random price movements.
• 😀 Combining predetermined time-based levels with fixed time windows (e.g., 8:30-11:00 a.m.) creates high-probability setups and reduces impulsive actions.
• 😀 Retail traders often make decisions based on price crossing old highs and lows, while a structured approach focuses on known price levels and specific times.

Q & A

What does 'time-based liquidity' mean in the context of trading?

Time-based liquidity refers to the concept of using specific time frames and price levels, such as monthly, weekly, daily, and session highs and lows, to identify key liquidity pools. These levels are expected to have higher chances of generating price movement due to the concentration of liquidity around them.

Why is reacting to price in real time considered a bad approach?

Reacting to price in real time is considered a poor approach because it is highly subjective and based on impulse. Traders make on-the-spot decisions without a predetermined strategy, which leads to inconsistency and a lack of statistical edge in the long run.

What is the significance of predetermined actions in trading?

Predetermined actions in trading help eliminate impulsiveness and subjectivity. By knowing in advance what price levels to target and when to trade, a trader can stick to a systematic approach, avoiding the emotional reaction to market movements.

What does the comparison with blackjack in the video explain about trading?

The comparison with blackjack illustrates the difference between a mechanical system (like the dealer's rules) and a reactive approach (like the player's decisions). In trading, just like the blackjack player, reacting impulsively to price movements is disadvantageous, whereas having a structured system leads to better decision-making.

How can time-based liquidity pools offer larger price movements?

Time-based liquidity pools, such as monthly or weekly highs and lows, tend to attract larger price movements because they represent areas of high liquidity. These levels are more forgiving, allowing for retracements or reversals, and generally lead to larger market moves compared to smaller, less significant price levels.

What is the downside of using very minute liquidity pools in trading?

Minute liquidity pools, like those on a one-minute chart, often lack sufficient liquidity to trigger significant market movement. While they may cause brief price fluctuations, these levels generally don't sponsor larger moves and can lead to unreliable trading signals.

What is the benefit of trading based on higher time frame levels like monthly highs and lows?

Higher time frame levels, such as monthly highs and lows, provide a more reliable framework for trading. These levels tend to represent major liquidity pools that attract more market participants, offering greater chances of price movement. They also allow for larger, more predictable price runs.

How does the time-based approach to liquidity avoid impulsive decisions?

By focusing on predefined price levels and specific time windows for trading, the time-based approach removes the possibility of impulsive decisions. Traders act based on a structured plan rather than reacting to current price action, which helps avoid emotional decision-making.

Why does the market tend to gravitate towards certain key liquidity levels?

The market gravitates towards key liquidity levels because they represent areas where large amounts of capital are concentrated. These liquidity pools attract market participants, and price often moves toward them as the market seeks to absorb this liquidity.

How does using time-based liquidity pools allow for better data collection and strategy refinement?

Using time-based liquidity pools enables traders to collect data on specific price levels and market reactions over time. This consistent feedback allows traders to refine their strategies, identify patterns, and adjust their approach based on the effectiveness of trading at these levels under various market conditions.