How to identify directional bias using ICT concepts

Summary

This video script delves into the complexities of determining market directional bias, emphasizing the difficulty of the task and the importance of understanding market narratives. The presenter simplifies the process by focusing on key concepts, including the assessment of past price movements and the identification of buy and sell side imbalances. The script guides viewers on how to establish a bias across different time frames, using the US dollar Index as an example, and discusses the significance of equilibrium levels, fair value gaps, and liquidity areas. It concludes by highlighting the trader's role in gauging market probabilities and waiting for clear directional signals.

Takeaways

• 📊 Understanding market narrative and directional bias is challenging but can be simplified with certain rules.
• 🔍 Importance of assessing what price has previously done to determine directional bias, as it's hard to determine without historical context.
• 📈 Price seeks to move to equilibrium, which is the fair value, and to liquidity zones above old highs and below old lows.
• 💡 Identifying buy and sell side imbalances can provide clues about the market's reluctance to move in a certain direction.
• 🕊️ Sharp price movements with up-close candles can indicate the market is in a hurry to reprice higher.
• 🔄 The concept of equilibrium, premium, and discount ranges helps in understanding market behavior in bullish and bearish scenarios.
• 🎯 Traders should wait for the market to show clear signs of directional bias before entering trades.
• 🔑 Displacement and the formation of fair value gaps are essential for determining the market's next likely direction.
• 🔍 Zooming into different time frames can provide more detailed insights into market movements and potential targets.
• 📉 In a bearish market, wait for the market to reach a premium before shorting, and in a bullish market, wait for a discount before going long.
• 🧭 Constant evaluation of the market's actions and potential next steps is crucial for maintaining an accurate bias.

Q & A

What is the main challenge in determining the directional bias of a market?

Determining the directional bias of a market is challenging because it requires understanding market narratives and biases, which involves analyzing past price movements and assessing the likelihood of revisiting certain price areas.

Why is it important to assess what price has previously done when establishing a directional bias?

Assessing what price has previously done is crucial because it helps to identify areas of past support and resistance, which are key in determining the likelihood of the market revisiting those areas and establishing its directional bias.

What are 'buy side imbalances' and 'sell side imbalances' mentioned in the script?

Buy side imbalances and sell side imbalances refer to areas in the market where there has been a significant accumulation or distribution of a security, indicating potential future price movements as the market seeks to rebalance these inefficiencies.

How does the concept of 'fair value' relate to the market's directional bias?

Fair value is the midpoint between the high and low of a trading range, representing an equilibrium level. The market's directional bias can be inferred from how it moves in relation to this equilibrium, with movements towards the premium or discount ranges indicating potential future direction.

What is the significance of the 'consequent encroachment' in the context of the script?

The consequent encroachment refers to the midpoint of a buy side imbalance. When the market price stops at this point, it suggests that the price doesn't want to go any lower, which could be a clue for a potential long entry.

Why is it important to look for 'displacement' in the market?

Displacement is important because it indicates a strong directional movement in the market. A sharp movement higher or lower with an up-close or down-close candle can suggest that the market is in a hurry to reprice, providing clues about the likely direction of future price movements.

What does the script suggest about the relationship between price and liquidity?

The script suggests that the market will seek liquidity, which is found above old highs and below old lows, or rebalance inefficiencies. This behavior helps traders understand where the market is likely to move next in terms of its directional bias.

How can the concept of 'equilibrium level' be used to determine the market's next move?

The equilibrium level can be used as an initial upside or downside objective. If the market moves to this level, it suggests a return to fair value, which can be a precursor to further movement towards either the premium or discount range.

What is the significance of the 'inverse fair value gap' in the market analysis?

An inverse fair value gap is created when the market consolidates above a previously established fair value gap. This suggests that the market anticipates higher prices and is looking for support at this level, which could act as a magnet for future price movements.

How should traders approach the analysis of the market's directional bias on different time frames?

Traders should analyze the market's directional bias across different time frames, from weekly to daily to minute charts, because price movements are fractal. This multi-time frame analysis can provide a more comprehensive understanding of the market's likely direction.

Outlines

00:00

📈 Determining Market Directional Bias

The speaker emphasizes the complexity of understanding market narrative and directional bias, suggesting that it is a challenging task. They propose to simplify the process by focusing on a few key concepts, assuming viewers have seen a previous video on ICT concepts related to time and price. The speaker introduces the idea that price is fractal and the concepts apply across different time frames. The analysis begins with the weekly time frame of the US dollar Index, highlighting the importance of assessing past price actions and identifying buy and sell side imbalances. The speaker explains the significance of price stopping at the midpoint of a buy side imbalance and the implications of a sharp price movement higher, indicating a potential long entry. The concept of equilibrium level as the fair value within a trading range is introduced, with the market expected to move from premium to discount and vice versa.

05:03

🔍 Analyzing Market Behavior for Entry Signals

This paragraph delves deeper into market analysis, focusing on the importance of identifying premium and discount ranges relative to a market's equilibrium level. The speaker discusses the market's tendency to move between these ranges and how to spot entry signals in both bullish and bearish markets. They provide a detailed analysis of the US dollar Index on a daily time frame, pointing out the significance of past sell side imbalances and how they interact with buy side liquidity. The speaker identifies an inverse fair value gap and explains its role as a support level, anticipating higher prices. They also discuss the overlap of fair value gaps across different time frames and the impact of liquidity and inefficiencies on the market's direction. The paragraph concludes with the idea of trading in the direction of the higher time frame draw, emphasizing the importance of entry techniques and market maker models for advanced students.

10:04

🎯 Establishing Trading Bias Based on Market Displacement

The final paragraph focuses on establishing a trading bias by observing market displacement and the subsequent clues provided by the market. The speaker clarifies that a bullish bias does not guarantee a continued upward movement and stresses the need for continuous evaluation of market actions. They discuss the importance of identifying and balancing higher time frame value gaps and the potential for price to move in either direction based on market feedback. The speaker outlines the current status of the market, having moved from a discount to a premium, cleared buy side liquidity, and balanced the higher time frame value gap. They anticipate a potential break lower, looking for a fair value gap and a return to that gap as a signal for further price movement. The speaker concludes by emphasizing the trader's role in determining the probability of market movement in one direction over another, suggesting to wait for clear market signals before trading.

Keywords

💡Directional Bias

Directional bias refers to the overall trend or direction in which a market is moving, either up or down. In the video, it is the primary focus as the speaker discusses how to determine this bias by analyzing market narratives and historical price movements. The concept is crucial for traders to make informed decisions about market entry and exit points.

💡Market Narrative

Market narrative is the story or interpretation that traders and analysts use to understand the market's behavior. It's a qualitative assessment that can influence the directional bias. The video mentions understanding market narrative as a complex task but essential for determining the market's direction.

💡Buy Side Imbalance

A buy side imbalance occurs when there is a concentration of buy orders at a specific price level, indicating potential support. In the script, the speaker uses the example of the US dollar index dropping into a buy side imbalance as a clue that the price may not want to go lower, suggesting a possible long entry opportunity.

💡Sell Side Imbalance

Conversely, a sell side imbalance happens when there is a concentration of sell orders at a specific price level, indicating potential resistance. The video describes a scenario where the market has moved in one direction, creating a sell side imbalance, which could be a sign for the market to rebalance and potentially move higher.

💡Liquidity

Liquidity in the context of the video refers to the levels where there is a significant amount of trading interest, typically around old highs and lows. The market seeks liquidity as it provides opportunities for trades to be executed with minimal price impact. The speaker mentions that the market will either seek liquidity or rebalance inefficiencies.

💡Fair Value

Fair value is the estimated price at which an asset should trade, reflecting its true value. In the video, the concept of fair value is used to determine equilibrium levels within a market range. The speaker explains that the market is based on principles of fair value and that trading should ideally occur around these levels.

💡Dealing Range

A dealing range is a price range within which a market is expected to trade. The video script discusses how to split this range into halves to find an equilibrium level, which serves as an initial upside objective for the market's movement.

💡Equilibrium Level

The equilibrium level is the midpoint between the high and low of a dealing range, representing the fair value or balance point. The speaker uses this concept to identify the initial target for the market's upward movement after a buy side imbalance has been identified.

💡Premium Range

The premium range is the area above the equilibrium price point, where the market is considered to be overvalued or at a higher risk. The video explains that in a bearish market, traders would wait for the price to come into the premium range before selling short.

💡Discount Range

The discount range is the area below the equilibrium price point, indicating that the market is undervalued or a potential buying opportunity. According to the video, in a bullish market, traders would look for the market to drop into the discount range before considering a long entry.

💡Displacement

Displacement in the video refers to a significant price movement that indicates the market's urgency or intent to move in a particular direction. The speaker mentions looking for displacement as a clue to where the market is likely to draw to, suggesting a potential change in the directional bias.

Highlights

Understanding market narrative and bias is identified as a challenging task in trading.

The importance of assessing past price movements to determine market bias is emphasized.

The concept of ICT (Imbalance and Consequent Test) is introduced as a method to analyze market behavior.

Price seeks liquidity above old highs and below old lows or rebalances inefficiencies.

Candlestick analysis provides clues about the market's reluctance to move in a certain direction.

Sharp price movements indicate the market's urgency to reprice.

The concept of equilibrium as fair value within a trading range is discussed.

Markets typically move between premium and discount ranges relative to equilibrium.

The use of daily time frames to identify potential market targets is highlighted.

The overlapping of fair value gaps between different time frames can influence market direction.

Traders should look for market displacement to indicate potential draw to liquidity.

The importance of constantly reevaluating market conditions to adjust trading bias is noted.

The role of a trader is to determine the probability of market movement in one direction over another.

The concept of defining dealing ranges into premium and discount to identify inefficiencies is introduced.

The video concludes with the three primary objectives price seeks: equilibrium, liquidity, and rebalancing of inefficiencies.

The presenter encourages viewers to download the ebook for further insights and a free mentorship video.

Transcripts

so how do you determine the directional

bias of Any Given market now the truth

is this isn't easy understanding Market

narrative and Market bias is one of the

hardest things that you can do so I'm

not going to sugarcoat it when I say

that it is difficult however there are

certain rules you can use which will

help you to determine the directional

bias so I'm going to keep it extremely

simple and only use a few Concepts that

you can get familiar with

now if you haven't seen my previous

video on my explanation of ICT Concepts

in regards to time and price watch that

first because that gives you a whole lot

of insight into what's actually

happening behind the scenes right you're

still going to need to take this

information and back test it yourself

this is not the type of Channel where I

say this is easy but it can be

simplified and it's still going to

require work on your part but I promise

by the end of this lesson you'll have a

better understanding on what to look for

when you are trying to establish a

directional bias and this can work

across any time frame whether it's the

weekly the daily the 1 hour the 1 minute

the concepts are the same because price

is fractal so let's get into this chart

now we are here on the weekly time frame

and this is for the US dollar Index the

first thing you want to do when you are

trying to establish the current

directional bias of the market is you

need to assess what pric has previously

done I cannot stress how important this

is it is very difficult to determine

directional bias without first looking

at what price has already done where has

it been where has it already visited and

what's the likelihood that it needs to

revisit that area so these are the first

things that I'm asking myself when I'm

trying to establish a directional bias

right now what do I mean by that in this

example we can see how the market has

sold off now where has it come to an

inefficiency in the form of this buy

side imbalance again as explained in the

previous video price is only going to

seek two things either liquidity that

rests above old highs and Below old lows

or to rebalance inefficiencies in price

whether it's buy side or sell side in

this case we have seen price drop into

this buy side imbalance but what is

occurring over here there's a few Clues

firstly right we can see the body of the

candle over here it stops dead at the

consequent encroachment which is the

midpoint of this buy side imbalance

again I've explained what buy side

imbalances and sell side imbalances are

in the previous video This is the first

clue it suggests that price doesn't want

to go any lower this could be good

enough for a long entry and there are

several factors why but that's beyond

the scope of this presentation but what

we are waiting for is feedback once this

candle closes the next candle you can

see how we dropped lower again back into

the consequent encroachment of this buy

side imbalance and then what happens is

we have a really sharp movement higher

with an up close candle leaving this

fair value Gap in the form of this buyid

IM balance so from this candle's High to

this candle's low we only have price

moving in One Direction buy side this is

significant this tells us that the

market is in a hurry to reprice higher

now once this candle closed and we had

the formation of this bide imbalance the

next candle opened traveled lower

slightly into this Wick and then closed

back Above This candle's high so we have

broken a swing High over here after

forming a swing low down here with a

displacement after rebalancing this bide

imbalance so when we see this this gives

us an indication that the market is

likely to draw higher now thek Market is

likely to first repic to equilibrium

right so this is our dealing Range High

and this is our dealing range low if we

split this range into half we get our

equilibrium level the midpoint between

the dealing Range High and the dealing

range low so this would give us an

initial upside objective which would be

to repic back to equilibrium equilibrium

is essentially fair value right it's the

mid price point between this high and

this low so inside of this range this is

our highest premium price and this is

our lowest discount price therefore

equilibrium is going to be fair value

and as I explained in the last lesson

the markets are booked based on

principles of fair value anything below

the equilibrium price point this is

referred to as our discount range and

anything above the equilibrium price

point is referred to as our premium

range generally the markets will move

from premium to Discount and discount to

to premium in a bearish market ideally

we want to wait for price to come into a

premium before we sell short and in a

bullish Market we want to ideally wait

for the market to drop into a discount

before looking for a long entry you can

see how this swing low to this swing

High we are obviously below equilibrium

level and into a discount relative to

this dealing range now since we have

seen what the market has previously done

down here and we have conviction that

the Market is giving clues that it wants

to run higher we want to look for areas

that the market would Target above the

equilibrium level now again like I said

there are two things that the market

will reach for it's going to either

reach for liquidity in this case buy

side liquidity above these relative

equal highs and or is going to repic to

rebalance and over here we have this

sell side IM balance where the market

has moved in One Direction only sell

side and this cell side side imbalance

sits inside of the premium range

relative to this high and this low let's

zoom in onto a daily time frame and this

will give us more detail so here you can

see the three candle formation which is

our swing low again I'll do a separate

teaching on this at some point after

that swing low has been created you can

see how we have this displacement higher

now price has retraced back into this

displacement but it hasn't fully

rebalanced this bid imbalance why well

if we look to the left we have this sell

side imbalance here and then back

through that range we have this buy side

imbalance so this area has been

sufficiently balanced with both sells

side delivery and buy side delivery and

this fair value Gap now will act as an

inverse fair value Gap and we anticipate

this level to hold price you can see how

we're consolidating above it and notice

the bodies of the candles here they're

failing to even dip lower into that

inverse fair value Gap which again

suggests that we are looking for higher

prices on The Daily time frame if we

look above the equilibrium level which

is this green line we can see that we

have this large cell sign IM balance

here as well and this sits inside of a

premium so in this case we have an

overlapping of fair value gaps between

two different time frames and we still

have all of this buy side liquidity

above the market and this is even

stronger since we have two parameters

here in close proximity we have the buy

side liquidity residing above these

relative equal highs and we have this

cell side imbalance that sits above

those relative equal highs so we have

liquidity and an inefficiency in a

premium relative to the dealing Range

High and the dealing range low now this

gives us a range of opportunity between

this inverse fair value Gap and this

cell side imbalance so this is going to

act as a very strong magnet and a very

strong draw in liquidity and this gives

us a range to now work with ideally you

want to trade on your lower time frames

in the direction of the higher time

frame draw we have concluded that the

weekly expansion is likely to run higher

now there are several entry techniques

and a whole lot of other stuff that I'm

going to get into at some point but for

the purposes of this lecture we just

trying to determine where the market is

likely to go right now that we've

arrived at this level we are in a

premium we've completely rebalanced this

gray shaded box which has our higher

time frame weekly cell side balance and

we're currently consolidating around

this area now there are a whole lot of

other Clues over here that can tell us

where the market is likely to go but

again beyond the scope of this

presentation however when we are trying

to establish a draw on liquidity we need

to look at the market in the series of

if and then functions we are inside of a

higher time frame fair value Gap here

and the market could just go into a

consolidation so what are we looking for

we're looking for displacement and this

displacement is going to give us an

indication of where the market is likely

to draw to if we close back above the

weekly sell side imbalance then we can

anticipate price returning back to the

premium end of that Weekly sell side IM

balance and that holding as support

which would then become an inversion

fair value Gap and we can aim for the

complete rebalance of this area or we

are looking at these relative equal

highs up here there's going to be a

large pool of liquidity resting above

this area for the more advanced students

you can see this as a market maker model

now that's a very very long conversation

I have a whole course on that so if you

are interested that course alone is a

game Cher but to keep things simple here

we are looking for one of two things

either we are looking to close above the

sside imbalance and it would act as an

inverse fair value Gap and we would find

support or we're going to close below

that Weekly sell side and balance in

which case this would act as a balanced

price range since we are fully balanced

here and the discount end of that sell

side imbalance would act as resistance

sending price lower If This Were to play

out where would we target well we have

these relative equal lows over here so

there's going to be a pool of sell side

liquidity resting below that and just

below those relative equal lows we have

this Gap so since these two are in close

proximity this would act as a strong

magnet for price if we are to push lower

this is a common misconception that I've

seen with many of my students is that if

you establish a bullish bias then they

think that the bias is going to remain

bullish until we clear the highs up here

that doesn't necessarily mean it's going

to clear the highs up here we could turn

around from where we are this is why you

have to constantly evaluate and assess

what the market has already done and

what it could likely do next if this has

happened then this is likely to occur at

the minute we have completed three of

the objectives we have run above the

equilibrium price point so we've gone

from a discount into a premium we have

cleared buy side liquidity above the

relative equal highs and we have fully

balanced the higher time frame for Value

Gap so what's my bias now going to be

neutral until I see some form of

displacement you have to allow the

market to tip its hand and then you look

for Clues okay if the market has done

this then where's the next likely

Direction and then on the lower time

frames you stick with that bias until

you are proven otherwise from where we

are I'm anticipating price to break

lower that's what I want to see I want

to see a displacement lower and leave a

fair value Gap and then I want to see

price come back into that fair value Gap

and then potentially run lower for the

selli liquidity here and close in this

Gap again I would have to assess what

price is going to do once we get back

down to this level do we run through it

do we displace through it do we close

back below it and how do we close back

below it all of this is going to give me

insight and feedback into what I will

anticipate price to do next in

conclusion price is going to seek to do

three things move to equilibrium since

it's fair value repic to liquidity in

the form of old highs and old lows and

rebalance inefficiencies in the form of

sell-side imbalances and buy side

imbalances your job as a Trader is to

determine the probability of the market

moving in One Direction Over another so

you want to wait until the market looks

extremely one-sided that is obvious it's

going to move in One Direction Over

another before you start looking for

trades so in the words of ICT I hope you

guys have found this one insightful I

will be getting into more detail and

there's a whole lot of videos I have

planned if you haven't downloaded the

ebook already I strongly suggest that

you do there's actually a free gift that

comes with it with one of my actual

mentorship videos and you can see the

level of detail that I really go into in

that but for now try to keep things

simple Define your dealing ranges into

premium and discount and look for the

inefficiencies and the areas of

liquidity inside of that range so thank

you for watching and I will catch you

again in the next video