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ICT Mentorship | Month 1
Date
@September 12, 2022 → September 18, 2022
Assign
Status
Completed
Elements Of A Trade Setup
There are two primary concerns:
1. Context or framework surrounding the idea: what makes the idea favourable for a
trade
a. Expansion
b. Retracement
c. Reversal
d. Consolidation
2. Reference Points In Institutional Order Flow
a. Order-blocks
b. Fair Value Gaps & Liquidity Voids
c. Liquidity Pools & Stop Runs
d. Equilibrium
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This explains how the Smart Money interprets price and how it influences the Speculative
and Uninformed Money via the Market Efficiency Paradigm.
The Interbank Price Delivery Algorithm (Algo or Interbank Algo):
It’s the actual artificial intelligence algorithm, it’s computer based (which is very
efficient) and highly manipulated (which makes it easy to see the fingerprints of the
Smart Money).
All markets starts in a consolidation (holding pattern) and move into an expansion, that
means there’s a impulse move. After that impulse it goes to a consolidation again or it
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goes into a retracement; when the retracement happens it goes back to another expansion
or reversal. After the reversal, back to retracement, back to consolidation…
This four conditions interchange throughout the ups and downs of the flow of the
marketplace, you only get one of them at a time. So you only need to know where it is
nor where is going to go next.
All the moves of the market start from a consolidation because that’s where the
markets are building orders (the market maker keeps market in a tight range until there
is enough money to be absorbed to the “new” direction).
What is expansion?
Expansion is when price moves quickly from a level of equilibrium
What is the importance?
When price leaves a level quickly this indicates a willingness on the part of the Market
Makers to reveal their intended repricing model. Which means that, if we are in a level of
equilibrium and price moves up quickly → bullish order-block.
What do we look for in price?
The order-block the MM leave at or near the equilibrium.
💡
An order block is a market behavior that refers to an accumulation of orders
(when bullish) and distribution of orders (when bearish) from financial
institutions and banks. It basically points to an area that indicates where
institutional traders would pile up their orders before entering the market.
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There’s a consolidation in the blue shaded area, it’s a clear high and low and the equilibrium
price point is in the middle on that range (drawn with the Fibonacci Retracement Tool), this
line of equilibrium will be touched a lot of times.
What is Retracement?
Retracement is when price moves back in the recently created price range.
What is the importance?
When price returns inside a recent price range, this indicates a willingness on the part of
the market makers to reprice to levels not efficiently traded for fair value.
What do we look for in price?
The Fair Value Gaps and Liquidity Voids.
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When we see run-ups and run-downs very quick in price (real quick rallies), many times that
range that is created will want to come back in and close that (fill it).
A liquidity void is when the markets moves aggressively and a “pocket” is created , the
price moved too quickly and skipped a part of the price. As traders we won’t chase price,
we will wait and get a entry to fill that gap or we will wait until the price comes back to
the original point (liquidity void filled) and continues it’s original direction.
What is Reversal?
Reversal is when price moves to the opposite direction that current direction has taken.
What is the importance?
When price reverses direction it indicates the MM have ran a level of stops and a
significant move should unfold in the new direction.
What do we look for in price?
The Liquidity Pools just above an old price high and just below an old price low.
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Crosses are where the majority of stops (liquidity pools) are set. See how many times of OTE
we can find in this chart.
What is consolidation?
When price moves inside a clear trading range and shows no willingness to move
significantly higher or lower.
What is the importance?
When price consolidates it indicates MM are allowing orders to build on both sides of the
market. Expert a new expansion near term.
What do we look for in price?
The Impulse Swing in price away from the equilibrium price level that is found exactly in
the halfway point of the consolidation range.
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CONTEXT
REFERENCE
Expansion
Order-blocks
Retracement
Fair Value Gaps & Liquidity Voids
Reversal
Liquidity Pools & Stop Runs
Consolidation
Equilibrium
How Market Makers Condition The Market
We as new traders are part of Uninformed Money, whether we acknowledge it or not, we
have to understand that there is a Smart Money (banks) group of traders out there. It’s the
small group of traders (Smart Money) who drive the price and move it around, we just try to
follow and thinks it’s us moving the price, but we are not.
You are not trading against a person anymore, it’s a computer program that delivers price
and knows human behaviour.
CONTEXT
SESSION
REFERENCE
Expansion
Judas Swing
Order-blocks
Retracement
NY Session (3)
Reversal
London Swing (2)
Consolidation
Asian Range (1)
Fair Value Gaps &
Liquidity Voids
Liquidity Pools & Stop
Runs
Equilibrium
The Interbank Price Delivery Algorithm (…):
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Daily Range Structure
1. Price Equilibrium (Asian Range)
2. Manipulation (Judas Swing) - News Driver
3. Expansion (5am NY Time)
4. Reversal (London Open)
5. Expansion (5 AM NY to 8 AM)
6. Retracement (NY Pre-Session from 8 to 8:30 AM)
7. Reversal/Expansion Move (10-11 AM NY Time)
8. Reversal (London Close)
9. Consolidation (Rest Of The Day)
10. Price Equilibrium (Asian Range)
If we are looking at price delivery, this is how it goes:
Consolidation → expansion → retracement → expansion…
Consolidation → expansion → reversal → exp. → cons…
Consolidation → reversal
Consolidation → retracement
Trading Hours:
NY TIME
B.A TIME
BCN TIME
PRICE
RANGE
17:00
18:00
23:00
Price Equilibrium
Asian
23:00
00:00
05:00
Expansion
Asian
01:00
02:00
07:00
Reversal
London
6:00 to 9
7 to 10
12 to 15
Expansion
London
9:00 - 9:30
10 to 10:30
15 to 15:30
Retracem.
NY Open
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NY TIME
B.A TIME
BCN TIME
PRICE
RANGE
9 to 10
10 to 11
15 to 16
Expansion
NY
10 to 17
11 to 18
17 to 23
Consolidat.
NY
17:00
18:00
23:00
P.E
Asian
What To Focus On Right Now
1. Creating a daily price action logs with price charts
a. Daily Chart - 12 months to no less than 9 months view
b. 4 hour chart - 3 months view
c. 60 minute chart- 3 weeks view
d. 15 minute chart - 3 to 4 days view
2. Resist the urge to forecast price movements right now
a. Where price shown a quick movement from a specific level
b. Recent highs and recent lows that haven’t been retested
c. Areas on the charts where price has left “clean” highs or lows (For example two
lows at the same level → double bottom)
d. What days weekly highs and lows are formed and what during which kill-zone are
they formed in
e. The daily high and daily low every trading day and in what kill-zone are they
formed it
💡
What is a “Kill Zone”?
Certain times of the day, where the market will form valid and high probability
trade setups. These are the times you watch the markets and do your trading. You
want to be finding set ups in these kill zones if you are using ICT trading:
London Open (LO) → 7a.m.
London Close (LC) → 4 p.m.
NY Open (NYO) → 12 p.m.
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Equilibrium Vs. Discount
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Here we can see the market range that’s presently being traded in. If we look at this range, we
have two very impulsive price moves at the beginning at the range → indication that there’s
been displacement.
💡
Displacement is when someone with a lot of money has a strong conviction to
move price.
We want to see impulsive price swings:
Swing High (followed by a retracement down)
Swing Low (followed by a retracement up)
Both in swing highs and swing lows we want to see the 3 candles that form the swing but
also a 4th candle that is going to go lower (in a Swing High) and higher (in a Swing
Low), when that happens we are going to see the price going back equilibrium, 50%
level.
💡
Equilibrium is a midway point of a price move (line set up exactly at the middle
or 50% of the range).
When in a market range the price goes back to the equilibrium level, it is called Fair
Value or Fair Market Value, it is a neutral condition but it can be used as an entry on
the side of the previous direction on the market (bullish or bearish).
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We do NOTHING when price is ranging from the top of the range to equilibrium, only in
equilibrium we can think about entering.
💡
Discount refers to everything going below equilibrium.
When we have a bullish scenario for a market place, we look for impulsive price swings
on the daily chart, we wait until it goes back to equilibrium or discount to get into the
trade.
When a market is at discount, discount prices don’t stay at the market very long. The
market will rally from that place.
The good entry is called OTE (Optimal Trade Entry) and it is located between the 0.62
and the 0.79 of the Fibonacci Retracement, the exact point would be 0.705 (Sweet Spot).
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When price goes to very suppressed levels and below equilibrium to a discount level,
markets will not sustain discount prices very long if the underlying pinning of the
marketplace is bullish. It gives context and a relative strength study. It should be
sensitive, dynamic, moving away from equilibrium.
If the market is going to go higher, it’s bullish, and it comes down below and old low,
that’s going to be a stop-loss run (the market makers want to gather all of the orders that
will be resting below those orders → old lows/highs).
Fair Valuation
Fair Valuations comes in the form of two perspectives:
1. Fair Value in regards to equal distance of a high or a low, what we also call
equilibrium (50% level).
2. Fair Value for the perspective on valuation in regards to market makers.
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When the market returns back to an area of fair value, that is a fair value for the market
maker to either sell or buy.
💡
A liquidity void is when price breaks down (or high) and quickly an away from
the price where it was trading before, it’s a sudden movement, large ranges,
very little wicks.
The price spent very little time trading at these price levels and it was in a hurry to
get down to this area when it starts to trade more efficiently, with then a
retracement.
When price is below the area of Liquidity Void, this is Fair Value which means the price
is going to want to come back because it was very little trading there.
What does this make it fair?
They bought it at a deep discount and they’re liquidating at a premium. It’s fair for them
to accumulate and then liquidate.
When you are trading price action, keep in consideration:
1. Total Range you’re trading in.
2. Equilibrium Price Point relative to the most recent trading range high and low.
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Fair Value in Discount is FV for buy, for market maker buying.
Fair Value in Premium is FV for sell, for market maker selling.
Liquidity Runs
💡
Liquidity refers to the degree to which a market (asset or security) can be quickly
bought or sold in the markets without affecting the asset’s price dramatically.
Liquidity is where existing orders will reside.
Liquidity is where above old highs and below old lows. They will target those
same levels taking those orders out.
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Low Resistance Liquidity Run, there’s little resistance because we saw quick
movement of the price (FVG), meanwhile it is filling that gap there’s not going to be
resistance because there are not old lows and neither old highs it that area, is like a free
way for price to come back to the old level.
High Resistance Liquidity Run, when it gets back to that old high/low. Anything
higher to that line becomes High Resistance.
Impulse Price Swings & Market Protraction
💡
Market Protraction is time sensitive. Is an impulse price swing that is highly
sensitive to a time of the day.
There are 3 sensitive protractionary market moves every 24H:
0 a.m. GMT → Little movement up in the Asian session.
7 a.m. GMT → Impulse trading lower.
12 a.m. GMT → Retracement and then impulse lower.
Market Protraction seeks liquidity. Every retracement is manipulation of the market to
get liquidity.
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There is a time element applied to the small impulse swing:
After Midnight GMT
After 7 a.m GMT
After 12 p.m GMT
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