ICT Forex - Market Maker Series Vol. 2 of 5

Summary

This video script delves into the intricacies of institutional order flow in the forex market, focusing on liquidity and market analysis. It examines weekly charts of the British Pound versus the US Dollar, highlighting the importance of identifying 'clean' price levels that indicate potential market movements. The presenter discusses how these levels can trigger sell or buy stops, influencing market direction. They also introduce the concept of 'bullish order blocks' as key support areas, and demonstrate how understanding these patterns can lead to profitable trading opportunities, emphasizing the importance of recognizing and anticipating market liquidity draws.

Takeaways

• 📈 The script discusses the importance of analyzing weekly charts for the British Pound versus the US Dollar to understand institutional order flow and liquidity in the foreign exchange market.
• 🔍 The presenter emphasizes looking for 'clean' price levels on charts, which are often straight-edged and smooth, indicating potential areas of significant price action due to stop orders.
• 📉 'Sell stops' are identified as areas below clean lows where traders have set stop-loss orders to protect their long positions, suggesting a concentration of sell-side liquidity.
• 💹 Conversely, 'buy stops' are areas above clean highs where traders have set stop-loss orders for their short positions or where resistance has been identified, indicating potential buy-side liquidity.
• 📊 The script explains that the function of liquidity below clean lows is to sell, and the function of liquidity above clean highs is to buy, creating a draw on liquidity that can act like a magnet for price movement.
• 📅 The analysis begins with a weekly perspective, anticipating the market's direction for the week based on the previous week's price action and the presence of clean levels.
• 📝 The presenter shares a personal trade example, demonstrating how the concepts discussed were applied in a real trading scenario involving the British Pound and the US Dollar.
• 📉 The concept of a 'bullish order block' is introduced, which is a pattern of consecutive down-closed candles that can indicate a high-probability buying opportunity, especially in a bullish context.
• 📈 The script advises traders to be comfortable with the market reaching below recent lows, as this can often be a sign of the market taking out stop orders and creating buying opportunities for institutional traders.
• 📊 The importance of 'reading the tape' is highlighted, which involves understanding live market action and anticipating future price movements based on historical patterns and current market conditions.
• 🚀 The script concludes by noting that the market's vested interest in reaching certain price levels is often to trigger buy stops, allowing smart money to exit their positions at a high price.

Q & A

What is the main focus of the 'ICT Market Maker Series' volume two?

The main focus of volume two is on the foundations of institutional order flow and understanding liquidity in the foreign exchange market.

What does the speaker suggest about the significance of 'clean' price levels on a weekly chart?

The speaker suggests that 'clean' price levels on a weekly chart are significant because they often indicate areas saturated with willing participants who have placed stop loss orders, making these levels likely to be tested by the market.

Why do traders place sell stops below a 'clean' low level on a chart?

Traders place sell stops below a 'clean' low level to protect their long positions. If the price goes below this level, it indicates that their long position might be wrong, and they want to exit before incurring more losses.

What is the opposite function of sell stops in terms of liquidity?

The opposite function of sell stops is related to buy stops. Buy stops are placed above 'clean' high levels, and when the price moves above these levels, it can trigger buy stops, attracting buying pressure and potentially causing the price to rise further.

What does the speaker mean by 'runs on liquidity'?

The speaker refers to 'runs on liquidity' as price movements that are driven by the absorption of buy or sell orders resting at specific price levels, acting like a magnet that pulls the price towards these levels.

How does the speaker use the concept of 'bullish order block' in their analysis?

The speaker uses the concept of a 'bullish order block' to identify areas where the market has shown a willingness to go higher, and where consecutive down-closed candles indicate a high probability of buying opportunities, especially in a bullish context.

What is the importance of recognizing 'bullish order blocks' in trading?

Recognizing 'bullish order blocks' is important because it helps traders identify high-probability entry points where the market is likely to reverse and move higher after absorbing sell orders at a specific price level.

What does the speaker mean by 'pairing of orders' in the context of institutional trading?

The speaker refers to 'pairing of orders' as the process where smart money buys sell orders that flood the market when stop losses are triggered, allowing the price to rally and creating a profitable opportunity for the institutional traders.

Why is it important for traders to understand the concept of 'reading the tape'?

Understanding 'reading the tape' is important for traders to interpret live market action and anticipate the market's next moves, which can improve their trading decisions and overall performance.

What advice does the speaker give regarding stop loss placement in trading?

The speaker advises against using very small, ultra-tight stop losses consistently, as the market can easily take traders out with such small margins. Instead, they suggest being less precise initially to avoid being 'sliced and diced' by the market.

How does the speaker describe the process of price movement towards 'clean' highs in the context of institutional order flow?

The speaker describes the process as the market gravitating towards 'clean' highs to absorb the buy stops resting above these levels, which can trigger a significant price rally as the market attacks this liquidity pool.

Outlines

00:00

📈 Understanding Institutional Order Flow and Liquidity

This paragraph introduces the concept of institutional order flow and liquidity in the foreign exchange market. The speaker begins by discussing the importance of analyzing weekly charts to predict market movements, focusing on the British Pound versus the US Dollar. They highlight the significance of 'clean' price levels on weekly candles, which indicate areas saturated with sell stops or buy stops, representing potential market reversal points. The speaker uses the example of the market's behavior on July 27, 2021, to illustrate how these levels can be used to identify profitable trading opportunities based on the anticipation of liquidity runs.

05:03

📊 Analyzing Market Bias and Order Blocks

The speaker continues by explaining how to identify market bias and order blocks on a daily chart. They describe the concept of a bullish order block, which is characterized by consecutive down-closed candles, indicating a high probability of a price rally. The paragraph emphasizes the importance of understanding the market's underlying narrative and how it can influence trading decisions. The speaker also shares a personal trading example from July 26 and 27, 2021, to demonstrate the application of these concepts in real-time trading scenarios.

10:04

📉 The Dynamics of Sell Stops and Buy Stops

This paragraph delves into the dynamics of sell stops and buy stops, explaining how institutional traders use these levels to their advantage. The speaker discusses how the market can be manipulated to trigger these stops, leading to price movements that favor the smart money. They illustrate this with examples from the hourly chart, showing how price action can rebound from these levels to initiate a rally. The paragraph also touches on the concept of 'pairing of orders' and how it relates to the absorption of liquidity at these critical price points.

15:05

💼 Institutional Trading Strategies and Risk Management

The speaker provides insights into institutional trading strategies, focusing on the importance of identifying and trading around order blocks. They discuss the concept of a bullish order block and how it can be used for entry and risk management in a trade. The paragraph emphasizes the need for a broader stop loss to avoid being stopped out by market noise and the importance of historical price action study to train one's eye to recognize these patterns. The speaker also explains how the market often consolidates and rallies after taking out short-term swing lows, indicating a continuation of the underlying bullish trend.

20:07

📚 Reading the Market Tape and Anticipating Liquidity Runs

In the final paragraph, the speaker wraps up the discussion by emphasizing the importance of reading the market tape to understand live market actions and anticipate future movements. They highlight the significance of recognizing clean levels and order blocks in historical data to train one's ability to spot these patterns in real-time trading. The speaker also discusses the market's vested interest in reaching certain price levels to trigger buy stops and how this can lead to significant price movements. The paragraph concludes with a reminder to be comfortable with the market reaching below lows in a bullish context, as this often represents an opportunity for smart money to accumulate before a rally.

Keywords

💡Institutional Order Flow

Institutional Order Flow refers to the trading activities of large financial institutions, which can significantly influence market movements. In the video, the speaker discusses how to understand and predict market trends by analyzing the behavior of institutional traders. This concept is central to the video's theme as it helps in identifying potential market movements based on the actions of these influential players.

💡Liquidity

Liquidity in the financial markets refers to the ease with which assets can be bought or sold without affecting their price. The video emphasizes the importance of understanding liquidity, especially in relation to institutional trading, as it can indicate areas where large volumes of trades might occur, affecting price movements.

💡Weekly Chart

A Weekly Chart is a type of financial chart that displays the price movements of an asset over a week, showing the highest and lowest prices for each trading week. In the script, the speaker uses the weekly chart of the British Pound versus the US Dollar to illustrate how to analyze market trends and identify key levels of support and resistance.

💡Sell Stops

Sell Stops are orders placed by traders to sell an asset once the market price falls to a certain level. These orders act as a protective measure for long positions. In the video, the concept of sell stops is used to explain how market prices can be influenced when a significant number of these orders are triggered, leading to a sell-side liquidity.

💡Buy Stops

Buy Stops are orders placed by traders to buy an asset once the market price rises to a certain level. They are used to enter a market or protect a short position. The video discusses how buy stops can create a draw on liquidity, attracting the market price towards these levels, which can be a signal for potential bullish movements.

💡Clean Levels

Clean Levels refer to price points on a chart that appear smooth and distinct, often indicating significant support or resistance levels. The speaker mentions that these levels are 'too clean' and are likely to be targeted by traders, as they represent areas where stop orders are concentrated, potentially leading to price movements.

💡Bullish

Bullish is a term used to describe a market condition where prices are expected to rise. In the video, the speaker uses the term to describe the market's underlying trend and to predict potential upward movements based on the analysis of institutional order flow and liquidity.

💡Bearish

Bearish is a term used to describe a market condition where prices are expected to fall. The video discusses how certain price levels can be seen as bearish, especially when support levels are broken, leading to potential short positions or further selling pressure.

💡Order Block

An Order Block in trading refers to a specific price range where a significant number of orders are concentrated. The video uses the concept of a bullish order block to illustrate how the market might react when it reaches these levels, often leading to a reversal or continuation of the trend.

💡Swing Low

A Swing Low is a temporary low point in the price of an asset during a trading session. The speaker discusses how swing lows can be used to identify potential areas of support and to predict future price movements, especially when combined with other indicators like order blocks.

💡Reading the Tape

Reading the Tape is a term used to describe the process of analyzing real-time market data to understand current market sentiment and predict future price movements. The video emphasizes the importance of this skill in identifying opportunities based on the actions of institutional traders and the dynamics of liquidity.

Highlights

Introduction to the second volume of the five-part ICT market maker series focusing on institutional order flow and liquidity understanding.

Analysis begins with the weekly chart of the British Pound versus the US Dollar, emphasizing the significance of price action within weekly candlestick ranges.

Identification of 'clean' price levels on charts as potential areas for institutional action due to the concentration of stop orders.

Explanation of sell stops and how they represent a pool of sell-side liquidity that can drive market movement.

Market behavior on July 27, 2021, as an example of how clean candle levels were tested and reacted to by the market.

The concept of liquidity draw and how it can act as a magnet for price movement towards areas of concentrated order flow.

Discussion on buy stops above equal highs as the opposite of sell stops, indicating potential resistance levels and bullish signals.

The importance of understanding the weekly range and its implications for institutional order flow direction.

Use of daily charts to identify bullish order blocks and the potential for market reversals at significant price levels.

The role of the London and New York trading sessions in creating and confirming market lows and continuation patterns.

How to identify and trade with bullish order blocks using the high and opening price as key entry and stop-loss points.

The risk management aspect of trading with order blocks, including the setting of stop-losses and the potential for adverse price movements.

The importance of recognizing and trading with the underlying market bias to increase the probability of successful trades.

The concept of 'pairing of orders' where smart money buys at market prices when sell orders flood the market due to stop losses.

How to read the tape and understand live market actions or predict next moves by recognizing patterns and order flow dynamics.

The significance of historical study in training the eye to recognize clean levels and anticipate market movements.

Final thoughts on the importance of understanding institutional order flow for effective trading strategies and market analysis.

Transcripts

foreign

all right folks welcome back this is

volume two of the continuing series of

five parts for the ict

market maker series this installment

will be focusing primarily on

foundations to institutional order flow

and understanding liquidity

alright so when we're considering what

the

large institutions are doing and how to

operate and engage in

the foreign exchange market the premise

i want to begin my trading with

and my analysis with on the weekend is

what i think the weekly charts going to

do

and that's what we're showing here is a

weekly chart of the british pound versus

us dollar

every candle in this chart represents

the highest and lowest

price for an individual weekly range

and i sit down on my weekly chart and

look for areas that are

obvious okay what i mean by obvious

years ago i taught that if you find a

level that's too clean

okay and it's just too straight edge

chances are it's probably going to get

swept

what do i mean by that well if you look

at this

area right here

notice how this candle goes to that low

the body stops here the body stops here

it doesn't really have any kind of

jagged end or bottom to it

just real smooth and clean just like

this high

and this high has a relatively clean

level up there and these two candles

here have a really nice clean

level to it and these right here

pretty much the same thing but

my eye jumps to these levels the

significance about these levels

is that below this level here

is sell stops traders that went along

here

they had stop loss orders to protect

that long in the form of cell stops

so this level in here

is saturated with willing participants

that want to sell

at the market because their belief is if

it goes below this

level here they're probably wrong in

their long

idea and they want to get out before it

causes them to lose more money

conversely there are traders that will

see this level as support and if it

breaks

their idea is well support's broken so

it's probably bearish and they want to

go short

so how do you go short you sell so

the function of the liquidity that rests

below these

smooth or clean equal lows

is cell side in nature so it's

sell stops or sell side liquidity

the market last week at the time of this

recording it is

july 27 2021

and the market trades down last week

and sweeps below these clean

candles okay so this area here

gets attacked and notice it comes off

that

low and closes here on the week

the week at present of this recording

we opened here has small little movement

below the opening of

the week and then we had this movement

higher

now prior to this candle closing

up here we didn't really know

if it's going to go down there and

continue

going lower or if it's going to reverse

that's not necessary

to find profitability and consistent

setups all we're looking for

is runs on liquidity okay so

you have to know where the draw on

liquidity is and that's what i'm showing

you here this is what you're looking for

areas that are too clean that may

draw price up into them or down into

them

so just the opposite of what we saw down

here

what would be resting above these

relative equal highs

buy stops anyone that was short how well

trader

protect his bearish position with a buy

stop

so any movement above here that would

trigger buy stops on shorts and or

some traders that see this as resistance

if it breaks that they would see it as

what

resistance broke and therefore bullish

so this is the closest draw on liquidity

that's opposing

this so when we started the week here

we opened traded down just a little bit

and started the trade higher

where is it likely to go right above

these highs

doesn't mean it will absolutely do it

but this is what we do

we look for areas where the draw on

liquidity acts like a magnet

okay imagine how this

candle is gravitating towards this level

here

to attack and absorb the liquidity

which rests in the form of buy stops

which is opposite of what we saw down

here

so the buy stops here are the near-term

draw on liquidity so

institutional order flow for the week

should be bullish until we get up into

this area

at that moment we have to reassess

everything continuation if it's

likely or reversal if it's likely or

just consolidation

but we don't need to know that right now

that

starts the week here with the likelihood

of running up into this area

so the inability for a price to make a

significant price run lower is the tip

off that we're going to see

institutional overflow or bias

or trend or momentum to the upside until

we get into this area right here

for the purpose of attacking this buy

side

liquidity pool for the buy stops

so if you zoom in here i want you to

think about the weekly range

in the context that the open

and decline from the opening price

anywhere in this area close to the

opening price

or below it is ideal for going

long this is the cheapest it's likely to

get

and the closest you can buy around that

opening price

the better as we get closer and closer

to this area up here

the idea of probability or low risk

starts to dissipate because we have the

likelihood that this could retrace back

in

this range now the time this recording

it's only

tuesday evening in my local time on the

east coast of

the united states but

it could very easily continue and trade

well beyond

these levels here into wednesday and

thursday

maybe even friday i don't need to know

that

the premise starts with we're down here

we came off the low after taking stops

it's probably going to make a run for

this area up here for liquidity

so the ideal scenario is if i'm thinking

that that means the weekly range

is likely to be bullish or at least i'm

outlining it as that so for my

qualitative analysis

this is what i'm doing remember in the

first volume we did quantitative

analysis where there were

measures that were data oriented

this is a little bit more subjective so

that's why it's qualitative

and the idea is if i'm bullish for the

week

i'm expecting monday and tuesday and

early parts of wednesday

to be bullish until we get to an area

where the draw on liquidity

is reached

we're going to drop down to a daily

chart here you can see

monday's trading this is the candle for

the entire range of trading on monday

july 26 2021

and then tuesday's trading daily range

for july 27

2021 and notice how monday we had a nice

little

rally higher and on tuesday we opened

here

and then we traded down into this candle

right there

this candle is what i teach as a bullish

order block

the market's already bullish or the

underlying narrative

is bullish and we had a confirmation to

market wants to go higher

on monday it trades higher on tuesday we

trade

down into that level the opening price

hits it trades off of that

rallies back through and makes a higher

high

than that of on monday remember the

candle opens here

and then trades down this is a judas

swing

retail traders get caught up in that on

a lower time frame they think it's

bearish and they start selling short

and then when it hits a higher time

frame level like this that's key

or significant it'll reverse and start

to trade higher and it catches them off

guard

some of you have probably noticed that i

posted a trade

or result of a trade that i did today in

british pound

versus us dollar this very market

i'm showing you the framework in context

because i knew i was teaching this today

in the second volume of this teaching

series so i'm teaching you

on the level of my youtube content and

everyone's familiar with my

concept of the order block through this

youtube channel

using the bias that

suggests that this is likely to reach up

into

these buy stops

so anticipating its continuation into

wednesday

to attack this now does it need to do it

no because i've already been profitable

on the entry and management of tuesday's

trading

dropping down to an hourly chart that

blue line

i used on the daily chart to identify

the bullish order block level

is now green here okay so i don't want

to trip you up i just want to have a

contrast because of the time frame this

level is that same

bullish order block level on the daily

just transposed to the hourly chart

notice how the hourly chart trades down

hits it and rebounds

and starts to trade higher this is that

area where the buy stops are this level

and higher

is where those buy stops reside

so it's drawing price up there

zooming in here you can see again this

is the

daily bullish order block level and i

want you to look closer

think about what i was showing you on

the weekly chart there's clean levels

well there's singular candle lows and

highs

or swing point highs and swing point

lows or swing lows and swing highs

depending on how you want to say it they

have stops

of and below those as well

this candle right here is a case in

point

we have a swing low a single candle that

has a higher

low to the right and a higher low to the

left one single candle there that swing

low

is going to be seen as a short term

swing low where sell stops are sitting

right below that

because the markets rallied up it

consolidated rallied again

and when it's up in here all in this

consolidation those that bought down

here or even over here

they have their stop loss trail right

below that low

and the market drops down to take those

participants out

and then rallies why is it going down

there to accumulate

sell stops why are they attacking the

sales dots because this is attacking

participants that are willing to sell at

a lower price

lower than what when it was up here

institutional traders will not buy up

here they're going to wait for it to

drop down

to attack a very deep discounted price

and pool of liquidity of sellers that

want to sell at a cheap

price because they trade their stop loss

up there

so these sell stops flood the market

with sell orders

and smart money buys them at the market

so it goes right in here and buys them

so this is called pairing of orders the

market hits this

and then price rallies

now this is that same swing low zoomed

in

but i'm drawing your attention to these

consecutive down closed candles because

this is a bullish order block

the high to the opening price now why

not the entire range

like a supply and demand zone would be

well this is not supply and demand

so it's the high down to the opening

price

extend it out in time and the market

drops down into that that's a bullish

order block

and it's taking out cell stops

so a high probability order block is

when it takes out stops and returns down

to

the order block itself not every down

closed candle is a bull shoulder block

and not

every up close candle is a bare shoulder

block but if you are in a context

that is bullish as i've outlined here

and clearly proven i was trading

with this bias today

the underlying pinnings of the market is

it's bullish

so therefore down close candles to have

a market move away from it

and has a swing low just above it like

we do here

that's a confluence of specific things

that make it high probability for the

other block

the order block is the consecutive down

closed candles

all three of them make up the order

block but the sensitive price point is

the high

and the opening so you can be a buyer at

this high

or at the opening price the easiest one

is using the high and allowing your

stock to absorb

any adverse price movement against you

that would if it was going to go back

into

say the opening price you have to

consider

that when you're placing your stop so

how how does that affect your trade well

when you're starting out without

lowering any

time frame beyond the 15 time frame here

you can be buying at the high and use

the

low of all the consecutive down closed

candles your stop loss needs to be just

below that

now you may look at this and say oh no

that's too much of a stop well

that's all relative in the beginning

it's good for you to try to trade like

that

because you don't want to be trying to

be too precise because many times

the market will slice and dice you if

you're trying to be too finicky about

your

entries and your stops it can be very

easy for the marketplace to take your

two pip stop loss three pip stop loss

it can do it okay because the broker has

the

right and freedom to do that and

they will i'm not saying you can't use a

very small ultra

tight stop loss but doing it as

consistently

over and over and over again uh the

broker will just widen the spread and

take you out

and there's nothing you can do about it

so

to repeat a bullish order block that's

high probability is when the market's

already predisposed to go higher

it's shown a willingness to go higher

and leave this area here

and we have a short term low so it has

stops

in a bullish market and it trades down

below that level here and into

consecutive down closed candles so you

would be buying at the high

plus the spread and your stop will be

below this

low right there and that would be your

underlying

risk does the market stay there very

long once it trades into it no

leaves it consolidates rallies again

comes back down into another order block

here trades lower

accumulates and rallies again trades one

more time retracement and then blasts

off

and attacks all the buy stops that were

resting above these

clean highs

notice also before the market starts to

rally

it generally takes out some short-term

swing low

this low took out this swing low

this low took out this swing low

this low took out this swing low

each time there's a dynamic rally higher

this swing low was taken out by this

swing low and it rallies higher

this swing low is taken out by that

swing low not by much but it's all it

takes

and then it starts to move higher so

when there's a run on liquidity

that's opposed to the underlying

direction in other words

if we're bullish on a market like this

get comfortable with the market reaching

underneath lows and stop

thinking that it's going to be breaking

down entirely or reversing

most of the time you're going to find

that it's taking those cell stops out

and absorbing them to offer smart money

buying opportunities at deep discount

prices

finally we're looking at price on monday

and today

tuesday and i want you to notice how the

market does what

it creates the low in london which is

exactly what i teach on my youtube

channel

and then a continuation in new york

session

on tuesday it creates the low of the day

and a continuation in new york and it

rallies up

it's consolidating in here and where

does the liquidity reside

again this blue line is that weekly

line i drew out that was a clean level

where the buy stops are

so the market's most likely going to

draw up into that 139 big figure

139 10 and the institutional level 139

20

could potentially be traded too as well

to make sure it really sweeps out

all those buy stops now what's the

vested interest for the market to

send price that high because smart money

has bought

down here they bought down here

and they bought down here where do they

want to get out

at a high price who's willing to buy it

from them at a high price the buy stops

resting just above

that level here i noted on the weekly

chart

so we covered several things in here

foundations to institutional order flow

how do we frame that we look for the

weekly range we look for clean levels

very clean levels your eyes need to be

trained to look for them and the easiest

way to do that is go through back

logging and look at old historical price

moves

and mark them up on your chart that

historical study will train your eye and

activate your reticular activating

system

and that means when you see something

over and over again it makes you

sensitive to it so that way

you will start to anticipate it when you

see familiar patterns in live price

action

and it makes you better at reading the

tape reading the tape is to simply

understand what the market's doing live

or what's about to do next okay so

hopefully you found something

in this that was helpful and insightful

and i'll talk to you in the next

installment

be safe