Why you STILL don't UNDERSTAND ICT Market Maker Models

Summary

This video explains the key concept behind Market Maker models, emphasizing the importance of having a clear directional bias before utilizing these models. The speaker clarifies that Market Maker models don’t create liquidity but rather guide traders toward liquidity once it has been identified. By using a higher timeframe to set the bias and focusing on logical narrative-building, traders can avoid pattern-based trading. The video demonstrates a step-by-step process using the 4-hour, 15-minute, and 1-minute timeframes, illustrating how to trade more conservatively and effectively towards the nearest liquidity levels.

Takeaways

• 😀 Establish a clear directional bias before applying a market maker model. Without a defined bias, there’s no reason to trade using the model.
• 😀 A market maker model is only valid when there is a draw on liquidity; it doesn't create liquidity, it helps you trade towards it.
• 😀 Once liquidity is identified, use the market maker model to trade towards that liquidity, rather than relying on the model to find it.
• 😀 You don't need to trade all the way to the full liquidity draw. A portion of the move can be profitable without aiming for the entire distance.
• 😀 Use higher time frames (like 4H, daily, or weekly) to establish bias and liquidity, and then fine-tune entries on smaller time frames (like 15-min, 5-min, or 1-min).
• 😀 The concept of internal and external liquidity is key. External liquidity targets can be used, but it's often more efficient to target closer, internal liquidity.
• 😀 The London Kill Zone (around 2 a.m.) can serve as an optimal time frame to identify price action and patterns, especially when combined with fair value gaps.
• 😀 Logical narrative building is essential before applying the market maker model. Don’t simply rely on patterns; understand the story behind the market movement.
• 😀 Use displacement through fair value gaps as confirmation for entries on smaller time frames (5-min or 1-min), allowing for a more precise trade execution.
• 😀 Traders should focus on taking the easiest, clearest trades, targeting low-hanging fruit liquidity for higher chances of success and a good risk/reward ratio.

Q & A

What is the primary reason for the failure of Market Maker models?

The primary reason for the failure of Market Maker models is the lack of a draw on liquidity. Without liquidity being drawn in, the model is not valid and is less likely to succeed.

How does the speaker suggest we should approach identifying Market Maker models?

The speaker suggests that Market Maker models should not be the starting point. Instead, first, establish a clear market bias using higher time frames, identify liquidity targets, and then apply the Market Maker model framework to trade towards that liquidity.

What time frame does the speaker recommend for establishing a bias?

The speaker recommends using higher time frames such as the 4-hour, daily, or weekly to establish a clear market bias.

What is meant by 'draw on liquidity'?

'Draw on liquidity' refers to a situation where price is attracted to an area with significant liquidity, often represented by levels where there are many stop orders or limit orders. It's an essential concept for identifying valid Market Maker models.

Why does the speaker recommend not targeting the entire range in a trade?

The speaker advises against targeting the entire range because the market is likely to reverse before reaching the furthest point. Instead, traders should target a smaller, more predictable portion of the move, such as relative equal lows, for a safer trade.

How does the speaker suggest identifying valid liquidity targets?

The speaker suggests identifying valid liquidity targets by looking for relative equal lows or highs on smaller time frames, such as the 15-minute or 5-minute charts. These levels represent potential draws on liquidity.

What is a 'Kill Zone' and why is it important?

A Kill Zone refers to a specific time period, like the London open (2 a.m.), when the market shows higher volatility and liquidity, making it an ideal time for traders to focus on potential trades based on the established bias and liquidity draw.

What does the speaker mean by 'logical-based trading'?

Logical-based trading involves building a narrative or story behind the market's price movement, rather than just relying on patterns. Traders need to understand why liquidity is being drawn and how the market is likely to behave, rather than simply identifying patterns without context.

How does the speaker suggest managing risk in trades?

The speaker suggests managing risk by using a stop loss with a reasonable distance and aiming for a minimum of a 2:1 risk-to-reward ratio. The goal is to target liquidity draws that are closer to the entry point, avoiding unnecessary risk.

What is the benefit of using smaller time frames like the 5-minute and 1-minute charts?

Smaller time frames like the 5-minute and 1-minute charts help refine entries by providing more granular details about price movement. These time frames allow traders to pinpoint when the market is likely to reverse or continue moving towards liquidity targets identified on higher time frames.