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0:00 in this video you are going to learn all the ICT Concepts in a logical order once and for all so you can stop jumping between videos on YouTube and most importantly you are going to learn the truth behind the concept this video provides everything you need to know about the ICT method we are also going to talk about several wrong ideas that ICT Traders were led to believe by watching this course you can save a lot of time and money by learning all of this as quickly as possible possible and also by avoiding many traps in the ICT Method Keep in mind that this video is a description of the method not a prescription there's a lot to talk about so without further Ado let's begin by listing the ICT Concepts understanding
0:45 them and discovering what they actually are let's begin with the concept of Swing points this is a very simple idea a swing High occurs when there is a lower high to the left and a lower high to the right of a candlestick in the same way a swing low occurs when there is a higher low to the left and a higher low to the right of a Candlestick this is just another way of describing highs and lows in the chart notice that all important highs and lows are swing points but not all swing points are important highs and lows for example in this chart we can see an important low right here notice how it is a swing low there's a higher low to the left and a higher low to the right of the candle that forms the low to the right of the chart we can find an
1:32 example of a swing high that doesn't become an important high if you investigate this chart you'll find many examples of Swing points most of which end up being unimportant another detail here is that other Traders have arrived at the same concept so this is not exclusive to the ICT method two of them come to mind immediately lendry pivots and Bill Williams fractals indicator the lry pivot is the same idea of Swing points and it is attributed to a well-known Trader in the technical analysis Community called Dave Landry Landry described the same idea but he used it as a setup to trade gaps Bill Williams fractals indicator was developed in the 90s and is also another
2:19 way of objectively defining highs and lows the fractal indicator basically shows the highest high or the lowest low among five candles the only difference is that LR pivots and the idea of Swing points consider three candles while Williams fractals consider five candles in theory you can use any odd number of candles to determine highs and lows like this in this chart you can see the Williams fractals indicator showing you important highs and lows notice that Williams fractals filter some of the unimportant highs and lows by considering a higher number of periods in summary the idea of Swing points is is not exclusive to the ICT method other Traders have come up with the same idea
3:05 before let's now move on to another concept that spawns from the idea of Swing points which is the idea of buy side and sell-side liquidity in the ICT method the reason ICT Traders care about the concept of Swing points is that Traders usually Place their stop-loss orders right above highs or right below lows this is a common practice in trading traders who go short after a swing High high will place their stop-loss order above the swing high recalling that the stop-loss order of a short trade is a buy stop order many Traders also attempt to place buy stop orders to get in the market right above a high traders who go long after a swing low will place their stop-loss order below the swing low recalling that the
3:50 stop-loss order of a long trade is a sell stop order many Traders also attempt to place sell stop orders to get in the market right below a low according to the ICT method the smart money will maneuver the buy stop orders above swing highs and the sell stop orders below swing lows they call orders above swing highs buy side liquidity and orders below swing lows sell-side liquidity the idea that price continuously takes the so-called buy side and sell-side liquidity is obvious there is no other possibility it's not exactly because price is attracted to these areas it's because it's the only way price can move there are a few clarifications to make here the first one is the idea of liquidity I see many
4:37 ICT Traders throwing the term liquidity around without actually knowing what it means liquidity is not a price level simply put liquidity is the ease with which a market can be traded without causing significant changes in price liquidity is linked to Market depth which is the number of orders in each price level the greater the market depth the greater the liquidity liquidity is indeed higher right above highs and right below lows since those are natural places for stop orders to exist but Market depth varies significantly in other areas of the chart too it's very important that you understand that Concepts like liquidity and Market depth were not invented by ICT these ideas began to be studied more deeply in
5:24 Market micr Structure Theory which is a field that emerged in the 70s and 80s although the concept of liquidity is much older than that if you think learning ICT concept is difficult try reading a serious book about Market micr structure and you'll change your mind very quickly we'll talk more about this later another point of confusion here is the terms buy side and sell side in finance the terms buy side refers to the institutions that trade on behalf of others we're talking about institutions like hedge funds proprietary trading firms Pension funds Sovereign wealth funds and so on the term saleside however refers to the institutions that facilitate trading these are firms like brokerages research
6:09 firms and Market making firms by the way market making is made by prominent institutions such as Citadel group virtual Financial Chain Street Capital and the list goes on notice that there isn't just one market maker notice also that there is competition among market makers well talk about this later in Greater detail too this piece of information alone is enough for you to understand that the claim that there is one algorithm behind price is false we'll take a deep dive into algorithms later going back to the idea of buy side and sell-side liquidity in the ICT method after understanding these other ideas we can see how the terms buy side and sell-side liquidity are used incorrectly by ICT Traders
6:57 these concepts are caricatures of the real thing which is a lot more complicated than what ICT Traders believe but again as we go through the course this is going to become clearer let's move on to another ICT concept called equal highs and lows equal highs and lows are highs or lows that sit in the same price level or at least very close to one another for example in this chart I marked a bunch of lows that happened around the same level creating a cluster of lows this is exactly the same idea of support and resistance lines which is perhaps the most well-known idea in technical analysis this idea of support and resistance can be traced back to Charles da in the late 1800s and early
7:42 1900s gain more popularity throughout the 20th century with the work of Richard shabaker Robert Edwards and John mcke it is self-evident that the idea of equal highs and lows is the same as support and resistance there is no need to change the name of one of the most famous ideas in technical analysis at this only adds confusion the next concept we'll talk about is called discount and premium to understand these we need to measure the range of a price movement which is the distance between two Market extremes we then divide this range in two halves the upper half is called premium and the lower half is called discount the idea here is that long trades should be open in discounts and short trades should be open in premium
8:29 once again there is absolutely nothing new about this the idea that a Trader should get in a long position near a low and in a short position near a high in order to have a logical place to put a stop loss was already being talked about in the beginning of the 20th century and not because it's revolutionary it's because it's the obvious thing to do the only alternative is to get in the middle of nowhere in the chart far from a logical Market structure the whole point of technical analysis is to improve the Precision and timing of entries and exits so again there is nothing new about this another problem with this one is similar to what we observe with the buy side and sell-side liquidity concept the misuse of terms that are
9:15 found in other areas of Finance for example a stock is set to be traded at a discount when it's below fair value and in premium when it's above fair value and that involves many other factors beyond observ in the position of price in relation to the previous price movement another example is in forward discount or premium in Forex markets in FX markets the forward exchange rate may differ from the spot rate due to interest rate differentials between two countries judging whether price is in discount or premium is a lot more complicated than seeing where it is in relation to the previous price movement judging that by looking at the price chart only is merely a technical analysis perspective let's now move on to another ICT concept
10:02 called Ot Ot stands for optimal trade entry this is a specific set of retracement ratios that aim to capture a good long Trad entry in discount or a good short trade entry in premium using the ICT jargon in this illustration you can see the OT for a long trade in this other illustration you can see the OT for a short trade the problem with this is that the range of ratios Falls almost exactly in the same place outlined by two of the most common Fibonacci ratios the 0.618 and the 0.786 if you think this is a new concept or a revolutionary one you don't have basic knowledge of technical analysis in
10:48 this chart we can see a standard Fibonacci retracement tool the black lines represent the Fibonacci levels used since the 1930s in the second image you can see that I Mark the ratios proposed by the ict's OT Concept in red it becomes immediately obvious what the problem is when you see price reacting to an OT it's not because ICT said it would it's partly because Fibonacci ratios have been part of the technical analysis culture for almost 100 years so there is a self-fulfilling prophecy effect associated with these levels the ratio in the middle that doesn't fall almost exactly in any Fibonacci ratio is simply the midpoint between the two ratios that do Fibonacci ratios were popularized in
11:34 trading by Ralph Nelson Elliott the creator of the Elliot wave theory during the 1930s Elliot observed that prices tend to move in waves or patterns and that these movements often inine with Fibonacci ratios in other words the idea that price retraces and reacts to specific Fibonacci ratios is almost 100 years old if you want to learn more about Elliot wave in Fibonacci trading I have one free course for each in my channel I will leave the links in the description let's now talk about Market structure under the ICT method the way ICT Traders Define an uptrend is by observing higher highs and higher lows and the way they Define a downtrend is by observing lower highs and lower lows
12:19 that is indeed the best way to identify a trend but this definition doesn't come from ICT this idea originated in the Dow theory in the late 19 century and early 20th century Charles D also talked about the way to identify a change in the trend when a swing low is broken in an uptrend there's a change in Trend when a swing high is broken in a downtrend there is a change in Trend th and other Market technicians that came later also talked about different ways that can happen let's observe the main three possibilities in the case of an uptrend transitioning to a downtrend the first case is what Crow out and others call a failure swing price is making higher highs and higher lows and then it fails to produce a
13:06 higher high after this failure price breaks an established low creating a lower low the lower high just before the lower low is logically called failure swing because it fails to advance the trend the second case is what da called a non-failure swing that happens when a higher high is immediately followed by a lower low in the case of an uptrend it's called non-f failure swing simply because it's the opposite idea of the failure swing this is exactly what ICT Traders call Market structure shift but once again this idea was described by Charles D Richard wof and others in great detail so it's more than 100 years old the third possibility is the formation of a double top which is when a flat high is formed before the lower
13:52 low it's something in between the failure swing and the non-failure swing in a way a double top is part of the classic chart patterns that ICT Traders believe to be used only by unaware retail traders in terms of relevance failure swings non-f failure swings and double tops or bottoms are equal this is the foundational Market structure laid out by Charles D if you want to learn more about the Dow Theory I have a free course here in the channel too we move on now to what ICT Traders call Advanced Market structure according to the ICT me method Advanced Market structure involves the ideas of short-term highs and lows intermediate term highs and lows and long-term highs and lows short-term highs and lows are
14:39 basically the same idea of Swing highs and lows we saw before an intermediate term higher low is the same idea of the short-term higher low but on a larger scale alluding to the fact that price is fractal which we'll talk about later so an intermediate term High happens when there's a lower short-term High High to the right and to the left of it an intermediate term low happens when there is a higher short-term low to the right and to the left of it there's also what IC Traders call a rebalanced intermediate term high or low which is a high or low that forms from a fair value Gap don't worry if you don't understand what a fair value Gap is we're going to talk about it in a moment a long-term high or low is the
15:26 extreme that is formed off of a higher time frame level level as you can see this leads to the idea of multi-time frame analysis and logically the idea that price is fractal the idea that price is fractal is not new once again Charles Dal already had an intuition about this D described price in terms of primary Trends secondary swings and daily fluctuations in the same way that ripples happen within waves and waves happen within Tides Ralph Nelson Elliot expanded the idea of price fractal with the L8 wave theory assuming that the 53 wave pattern happens within itself across multiple scales interestingly these theories were developed a few decades before the
16:11 concept of fractals was formalized in mathematics by Mandel br medob br has one of the greatest Finance books ever written in my opinion called the misbehavior of markets a fractal view of financial turbulence I highly recommend you read it another important point Point here is that ICT Traders don't realize the contradiction in accepting prices fractal while believing that price is delivered by an algorithm the reason price is fractal is precisely because markets are a decentralized mechanism where diverse Market participants with different time Horizons coexist interact and intersect in the same playing field so to speak if markets were delivered by an algorithm they would not be fractal the idea that price is fractal leads traders to think
16:57 that multi-time frame analysis is a solution but multitime frame analysis is a blasting in the curse so to speak there is no way to clearly establish the limits of how much information you should consider in the analysis when you use multiple time frames and increasing the amount of information you need to consider is also a big problem if you take a look at the name of my channel you can see that I'm an advocate for the fractal Market hypothesis and I have actually studied the science behind it and I have a couple of courses that deal with fractal price action Chaos Theory fractal geometry and nonlinear Dynamics in summary if you believe price is fractal while believing is delivered by an algorithm you have cognitive dissonance which is when you believe to
17:43 contradictory idea simultaneously without realizing it this leads to rationalization which is why you end up needing to trust one person to guide everything you do I'm sure not all ICT Traders believe that price is delivered by an algorithm and I don't know if ICT claims this in this way but many ICT Traders do believe that so we need to address the problem the way to reconcile these ideas is by realizing that the market is composed of diverse Market participants and also diverse types of algorithms with different purposes as we'll see later but this debunks this idea that price is controlled by an algorithm worse yet an algorithm that was coded by ICT like some Traders believe let's move on to what ICT Traders call a market structure
18:29 shift the market structure shift is very simple to observe a bearish market structure shift happens when the market produces a higher high and then a lower low the idea is that when price breaks a previous low like that it will retrace back to give a short trade opportunity a bullish Market structure shift happens when the market produces a lower low and then a higher high the idea is that when price breaks a previous high like that it will retrace back to give a long trade opportunity this pattern is indeed a reliable pattern in the markets but it did not come from ICT as we already saw the same pattern has received different names throughout almost a 100 Years of evolution in Western technical analysis the first one to talk about
19:16 this was Charles da with the idea of non-failure Swing it's the same pattern a little later in the 20th century Richard wof described the same pattern but using a different logic in adaptations of the wov method this pattern is often referred to as jump across the creek in the case of a bullish pattern and fall through the ice in the case of a bearish pattern I have a free wof trading course in my channel if you want to get into it this pattern can also be described under the light of Elliot like we can see here and rather annoyingly to ICT Traders some classic chart patterns also imply the same thing for example falling and Rising wedges also imply ICT Traders called a market structure shift and these patterns were
20:02 outlined long before algorithms in electronic markets existed the trade entry is identified using a simple trend line not a fair value Gap OT or order block if you want to learn the other classic chart patterns I also have a free course here in the Channel Jesse Livermore one of the most famous traders in Wall Street from 1910 to 1930 had the same Trend change rules once in a downtrend the first penetration of stop losses would signal the beginning of an uptrend and the second penetration would confirm the new uptrend in the second half of the 20th century a famous engineer and Market analyst called Arthur marrow pioneered the study of chart patterns and he outlined 16 patterns of Market structure
20:50 which are called M and W patterns what ICT Traders Now call a market structure shift was already outlined in the 16 M&W patterns the point is that this pattern is very old and it has received many different names throughout its history which mainly occurred during the 20th century in a time before algorithms and electronic markets existed notice that the renaming of technical analysis Concepts is also not a new thing it has happened many times young Traders learning how to trade on social media are not aware of the great names of technical analysis for the most part so when someone tells them these ideas are new they believe it once again you can call this pattern whatever you want what matters is the logic behind it
21:35 which was described way before ICT was born we move on now to what ICT Traders called a liquidity grab according to the ICT method a liquidity grab occurs when price pierces a previous structure but fails to break above or below it this is called liquidity grab because just above a previous High there are buy stop orders and just below lows there are sell stop orders the idea that price will poke a previous high or low just to go to the opposite side right after is a very old idea too its most common name is bull trap or bear trap bull trap comes from the idea that buyers think price will go up after the breakout of a high only to find out that price will go down be trap comes from the idea the sellers think
22:22 price will go down only to find out that price will go up this is just another version of the idea that began with Richard wov in the early 20th century another term you hear a lot in the ICT method is displacement displacement is a large move made of one or multiple candles and that breaks Market structure meaning a previous high or low so for example here we can see a large bullish candle breaking the previous high with some violence in the ICT method this is called displacement in the same way on the right we can see a large bearish candle breaking below a previous low with some violence this is displacement according to the ICT method this is just a different name for an increase in volatility leading to a breakout which
23:09 is self-explanatory we move on now to what ICT Traders call low and high resistance liquidity these are Concepts that once again capitalize on very old ideas of technical analysis this time from Charles D which described these patterns in the late 19th century what ICT Traders call low resistance liquidity is what Dow called failure swing in other words a higher high higher low lower high lower low in the case of an uptrend high resistance liquidity is the idea of non-failure swing in the Dow Theory which is a higher high followed by a lower low in the case of an uptrend transitioning to a downtrend using the ICT jargon High Resistance liquidity is the
23:57 same of the market structure shift the point is that this pattern has been described more than a 100 Years Ago by Charles D and it has been used extensively with other names throughout the 20th century as well these terms involving liquidity aim to give the impression that price action follows liquidity which is incorrect price doesn't follow liquidity price follows perceived value liquidity is simply the ease with which a market can be traded without causing significant changes in price the next concept is what ICT calls power of three or AMD which basically stands for accumulation manipulation and distribution so there are a couple of problems with this concept the first
24:43 problem is obvious to anyone who has studied the wov method this is exactly what Richard wov described almost 100 years ago wov proposed that well-informed buyers would deceptively induce sellers to the downside just so that these well informed buyers could get in and then price would create an upper movement leaving sellers frustrated wov called this manipulation before the uptrend a spring some people call this a bear trap because it misleads sellers in the same way wov proposed that price would deceptively induce buyers to the upside just so that more powerful sellers could get in and then price would create a downward movement leaving the buyers frustrated wov called this manipulation
25:28 before the downtrend an up thrust after distribution some people call this a bull trap because it misleads buyers the second problem with the way ICT described the century old idea is that according to wof and Charles DAL to a distribution is a sideways Market not a trending market so accumulation is the sideways Market that happens before an uptrend and a distribution is the sideways Market that happens before a downtrend the terms accumul and distribution are used incorrectly by ICT Traders let's now talk about what ICT Traders call turtle soup turtle soup is yet another concept built on the idea of manipulation of Market structure the
26:13 basic idea is to buy below old lows and sell above old highs the term turtle soup was coined by the Traders Larry Conners and Linda rashki and it was a strategy published in the book Street Smart's high probability short-term Trading strategies it is a play on the famous Turtle trading system that was developed by Richard Dennis and William eart in the 1980s Turtle Traders were basically Trend Traders Turtle soap is a contrarian trading approach that capitalizes on a scenario where Trend Traders are misled once again this idea did not come from ICT it's a very old idea in technical analysis the Connor and rasy turtle soup itself can be seen as the same idea a derived from wov
26:59 decades before because capitalizing on false breakouts was first accomplished and described by Richard wov in the early 20th century and later the same idea received different names the ideas of spring and up thrust after distribution in the wov method are conceptually the same as the turtle soup even though there might be slight variations the core concept is the same you may be starting to notice a pattern in the ICT concept so far most of them are based on the Bull and Bear Trap patterns and the original idea from wov recall once again that the wov method was developed in a time when electronic markets and trading algorithms did not exist let's now move on to order blocks along with fair value gaps the
27:47 order block is one of the most famous Concepts in the ICT method an order block is again a very simple idea camouflaged as a sophisticated one it's the old open of the large candle that sweeps liquidity and then leads to the break of an old structure right after for example a bullish order block is the open of the large candle that sweeps sside liquidity and then leads to a break of structure right after this is a very inefficient way of saying the open of a large candle that breaks a low and then leads to the breakout of a high forming an expanding pivot non-f failure swing or whatever you want to call this the theory is that price will return concerned the order Block Level in reverse a bearish order block is the open of the large candle
28:34 that sweeps buy side liquidity and then leads to a break of structure right after this is again a very inefficient way of saying the open of a large candle that breaks a high and then leads to the breakout of a low forming an expanding pivot I think it's already clear that the ICT method talks about fundamental concepts in technical analysis such as highs and lows in breakouts but with the different language for example highs and lows are called buy side and sell-side liquidity false breakouts and breakouts are called sweep or break of structure and so on however we do see price reacting to the so-called order blocks sometimes and when new Traders see that happening they validate whatever it is that ICT uses to justify the new language for old
29:21 ideas to understand this we must comprehend a few important Concepts in trading the first idea is that price doesn't reverse because of one thing price reversals are always the result of several factors combined and we cannot track them all through a price chart no matter how much you understand the market you cannot have access to all the variables that influence price when you Traders see price reacting to an order block or a fair value Gap or whatever it is they immediately validate the idea while not being aware of the other potential causes behind the movement in this chart we have a good example of of bullish order block under the ICT terminology we see a relatively large candle sweeping sell side liquidity and then a break of structure right after
30:08 when price comes back to the order block it starts a violent movement to the upside when ICT Traders look at this they immediately validate the order block concept simply because that's the information they have they cannot understand the other reasons because they simply don't know them or they have purposefully decided to ignore them in reality though there are multiple reasons why price reversed there some of these reasons can be known through technical analysis and some of these reasons cannot be known at all recall that according to Game Theory trading is a game of incomplete information let's explore some of the reasons we can know if we erase the ICT terminology from the chart and plot a volume profile in that last downward
30:54 price movement we'll see that the VP or volume point of control follows exactly where the order block is we eras the volume profile and plot a Fibonacci retracement in the Upper price movement we'll see that price reacts to the 78.6% level or simply the last low that got broken in fact that U did a better result than the order block another very interesting example that ICT Traders like to ignore or are simply not aware of are the elements of order flow we can find in the footprint chart for examp example if we access the footprint chart of the low where the so-called order block occurred we'll see that there is a very interesting order flow activity in there the most obvious of elements is the massive bid stacked imbalance we can
31:41 find in the candle that ICT Traders incorrectly called order block a little bit later we can find a big ask stacked inbalance as well and these two stacked imbalances intersect with one another if we extend these levels to the right we'll find that price reverses at their inter section as you can see here by the way ICT Traders talk about order flow while just looking at Price which is incorrect order flow refers to the flow of orders behind price action and it is accessed through tools like footprint charts Market profile volume profile cumulative Delta and so on price action is just price action order flow relates to the volume activity behind price formation however the real tools of order flow are not mentioned by ICT
32:28 Traders and their origin is explicit to anyone with basic knowledge over their flow trading they begin with Peter style Meer in the 1980s things like the footprint chart and the volume profile are logical extensions of style Meyer's Market profile method once again ICT traders who believe ICT is the only reliable source of information are simply uneducated about technical analysis they think price reverses because of order blocks or fair value gaps while in reality there's a lot more going on by the way we can find lots of instances where order blocks and fair value gaps don't work just like any other trading technique which is perfectly normal we can spend a lot of time here and find multiple reasons why price reversed there using several ideas from technical
33:15 analysis but my point is that price doesn't reverse just because of one thing it reverses because multiple things intersect some of these reasons can come from technical analysis and some can come from completely unknown sources this is partly why technical analysis is an imperfect game it's impossible to differentiate between coincidence and causality in the charts we can only speculate about it this is why there is no trading technique capable of producing only positive results we move on now to another concept called change in state of delivery according to ICT a change in state of delivery is simply when price goes from bearish to bullish or bullish to bearish just like what happens with
34:02 Market structure shift you may ask what's the difference between The Changing State of delivery and the market structure shift then the answer is that market structure shifts relate to the high or low that gets broken and changing state of delivery relates to an order Block in other words the market structure shift is the break of structure while The Changing State of delivery is the break of the order block the expression Changing State of delivery gives the Imp impression that there is an algorithm delivering price action which is one of the claims that ICT Traders make without actually knowing what they're talking about we'll talk about this idea in Greater detail later in the video similarly to the order block there is a concept called breaker block the breaker block is a simple pattern in a bullish breaker
34:48 block we observe a low a high a lower low and then a higher high the breaker block dwells in the bullish candle or series of bullish candles within the low and the high in the bearish breaker block we observe a high a low a higher high and a lower low the breaker block dwells in the bearish candle or series of bearish candles within the high and low according to the ICT method price action will retrace back to the breaker Block in reverse the reason you can see price reacting to the so-called breaker blocks sometimes is that they usually sit in a small consolidation if we recall Peter style Meers auction Market Theory area of consolidation are areas of price acceptance and these areas tend to attract price action notice also the
35:35 presence of expanding pivots or non-failure swings the ICT method also proposes the mitigation block the mitigation block is similar to the breaker block the difference lies in the market structure around it in the same way the breaker block implies a non-failure swing the mitigation block implies a failure swing we Rec calling that these ideas were outlined more than 100 Years Ago by Dao and wov the last kind of block if you will is the propostion block which is a slightly more complex idea the propostion block is basically an order block off of another order Block in the case of a bullish propostion block first way identify the order block which is the open of the bearish candle that
36:21 breaks an important level the confirmation of the order block comes when price returns and closes above the open open that bearish candle which would technically be a change in state of delivery after that price retraces to the order Block Level forming another bearish candle if price then closes above this bearish candle we have a propostion block at the open if price comes back to the propostion block area a long trade can be framed in my opinion this jargon is unnecessarily confusing it's much simpler to observe that a small area of consolidation recalling Statum Myers idea that consolidations are areas of fair value the price might get attracted to and then repelled from you can see the propostion block as the
37:06 first small consolidation after a non-failure swing following the terminology proposed by Charles D let's now clarify the idea of liquidity according to the ICT method liquidity is the price levels where Trader stops are sitting this is why we saw those other Concepts called buy side and sell-side liquid liquidity so basically any high or low in the chart can be considered liquidity in the IC method this is incorrect liquidity is not a price level liquidity is the ease with which a market can be traded without causing significant changes in price liquidity is directly linked to the idea of Market depth which is the number of orders in a price level imagine a range of prices above the
37:52 current price with progressively deeper levels as price goes up in the price levels immediately above the current price where the market depth is shallow it doesn't require a lot of aggression from buyers to make price rise so there's less liquidity as buyers move higher in Market depth increases buyer aggression must increase in order to produce the same movement in price meaning that liquidity is greater it is true that liquidity is higher right above highs and R below lows but not exclusively Market depth and therefore liquidity varies across all price levels and that cannot be assessed through price action Reading Alone we need real order flow tools like the footprint chart Market profile and volume profile ICT Traders
38:39 have the incorrect notion that price follows liquidity in reality price follows the perception of value price is the objective measurement of a market it's a number value is the subjective measurement of a market it's a perception of whether price is low or high the discrepancy between price and value is what drives price not liquidity different Market participants will have different perceptions of price this is why at any given moment what one market participant perceives to be a good long opportunity can be perceived as a good short Opportunity by another Market participant especially when we are talking about Market participants in different time Horizons let's move on now to fair value gaps the fair value
39:26 Gap is perhaps apps the most famous and most used ICT Concept in combination with order blocks these are the ones that draw the most attention the fair value Gap is a very simple idea just like all the other ICT Concepts a bullish fair value Gap is basically a three candle pattern where there is a gap between the upper shadow of the first candle and the lower shadow of the third candle in a bearish fair value Gap the Gap exists between the lower shadow of the first candle and the upper shadow of the third candle the ICT method proposes that price often returns to this Gap area and reverses there are two keys to understand where the idea of fair value gaps come from Peter style Meers auction market theory
40:12 and the idea that price is fractal the auction market theory was developed by a cbot Trader called Peter styom Myers in the 1980s he's also credited with the development of the market profile approach which is essential for the understanding of real order flow analysis if you want to understand a little bit more about order flow analysis I have a free course here in the channel as well stle Meers action market theory proposes that the financial markets work as an auction constantly seeking to find fair value out of this Theory two basic ideas emerge when price is going sideways it is in a state of balance acceptance or fair value the market ranges because buyers and sellers relatively agree about the fair value of the market in
40:58 that moment when price trends it is in a state of imbalance rejection or unfair value it is also said that price is in price Discovery when it Trends that's because buyers and sellers disagree about the fair value of the market and price is now trying to find a new area where Market players agree generally speaking we tend to observe areas of fair and unfair value with broad price movements and this is where the concept of fractals enters the scene a fractal is a pattern that repeats inside itself and it is self-evident that price action behaves like that in any time frame you choose you can see the mechanics of higher and lower time frames without necessarily switching between time
41:43 frames the Practical implication of this is that just like we can see highs and lows in Broad price movements we can see highs and lows in the Candlestick level for example on the left we can see areas of consolidation and areas of training movements in a broader scale but the same concept can be seen embedded in candlesticks like so the fair value Gap is nothing more than the empty space between two consolidations in the Candlestick level which represents the empty space between two consolidations between broad price movements in a lower time frame for example in this chart we have a bearish fair value Gap if we look at the Shadows of the candlesticks involved we'll see how they form small consolidations highlighted in yellow in this time frame the consolidations
42:30 are small but if we switch to a lower time frame we will see them as broad price movement if we move to the two-minute time frame we can see that indeed there is a training movement between two consolidations that's what a fair value Gap is notice that the term fair value Gap means the space between two fair value areas the point is that this identification of fair and unfair value areas in price is an idea found in the auction market theory and in the market profile approach developed by Peter Styer in the80s it has nothing to do with the algorithm that ICT Traders keep talking about there are a few problems with this fair value Gap idea though fair value gaps just like any other technique fail often the reason is
43:16 because diverse Market participants from multiple time frames coexist interact and intersect in the final analysis it's impossible to differentiate between coincidence and causality in the price charts we can know some of the reasons price reverses but not all of them this is why trading is speculation this is also why the best that can be done with technical analysis is the integration of techniques for example in this chart we can see many fair value gaps doing a very poor job this doesn't mean this technique doesn't have value it means it also fails like any other it's common for beginner traders to attribute price events to one single variable while being unaware of the other variables involved for example
44:01 in this image we can see a wide fair value Gap and the Traders looking at it will attribute the brief price reversal to it however minimal examination allow us to see that this is not the only variable involved in the reversal right before the fair value Gap we can see a minor high that also contributed in the footprint chart we can see a stacked imbalance that pinpoints the reversal much more accurately than the PR value gap which is too wide in this other chart we can see a linear regression Channel also pointing to the reversal you get the idea there are many reasons why price reversed in there some of which have to do with technical analysis some of which have not fundamental factors news and Etc will of course
44:47 impact price too like it was stated before fair value gaps are born of the intersection between auction market theory and the idea that markets are fractal and you see many ICT Traders accepting price is fractal however this goes in direct collision with the idea that there is one algorithm behind price action the fractal nature of price is a result from multiple Market participants human and algorithmic coexisting interacting and intersecting in multiple time Horizons but in the same playing field so to speak in other words the acceptance that price is fractal means it's impossible for the market to be controlled by one algorithm only price can be fractal while being impacted by multiple types of algorithms but that destroys this illusion of top-
45:34 down control that I Traders believe fair value gaps are often too wide to provide meaningful reversal zones or levels this problem can be solved by looking at real order flow tools like the footprint chart which have nothing to do with ICT ICT Traders talk about reading order Flow by looking at candles only which is misleading order flow relates to to the order placement matching and execution behind candles so to speak and it can only be accessed by tools like the footprint chart order book depth of Market Market profile volume profile cumulative volume Delta and so on none of which have anything to do with ICT all these tools are logical extensions of the work done by Peter styom Meer
46:19 with the auction market theory and the market profile approach for example here we see price reacting to a wide fair value Gap G which is not useful at all because it's too wide if we access the footprint chart which is a real order flow tool we will see that the largest stacked imbalance in that wide range candle provides a much more accurate zone of reversal in comparison to the wide fair value Gap this is of course the very tip of the iceberg of orderflow analysis you can learn the basics in my free course here on YouTube moving on to the next idea we have what is called smt Divergence which stands for smart money trading Divergence this concept is related to the idea that when correlated markets Exhibit price Divergence an opportunity
47:06 might be in place correlated markets will often move in synchrony so when Market a is producing higher highs and higher lows for example Market B will also produce higher highs and higher lows the same is true for downtrends of course Divergence happens when this relationship momentarily ceases to exist for example in two positively correlated markets if Market a produces a higher high while Market B produces a lower high there is Divergence between the two which in this case means a bearish reversal in this chart we can see a very clear example of this on top we have the 1hour S&P 500 futures and on the bottom we have the 1hour NASDAQ futures these two markets are positively correlated
47:52 the black line shows a moment where the S&P produced a lower high while the NASDAQ is producing a higher high both markets were going up so the Divergence ended up signaling a bearish reversal as far as smt Divergence is concerned there are a couple of problems one this idea doesn't come from ICT and two ICT Traders assume that markets are correlated because there is an algorithm behind price movement let's examine these two problems more closely the idea of Divergence between markets is part of something called inter market analysis which was popularized by John Murphy in the 1980s John Murphy is a former technical analyst for CNBC and has over 40 years of market experience in 1992 he was
48:40 given the first award for outstanding contribution to Global technical analysis by the International Federation of technical analysts and was the recipient of the 2002 Market technicians association annual award Murphy's most famous book is called intermarket analys is profiting from Global Market relationships a fair assessment of intermarket analysis requires a separate moment the second problem is that ICT Traders assume that markets are correlated because there is an algorithm behind price movement this is wrong there are several reasons why markets are correlated several markets share main drivers like interest rates inflation and GDP Global Market sentiment makes Traders and investors
49:26 move collectively between markets global trade links economies and markets together markets are not isolated Islands geopolitical events will impact multiple markets simultaneously there are several examples of how markets are correlated let's observe a few Australia is a major exporter of iron ore and other Commodities the azi often moves in tendem with global commodity prices especially iron ore as export revenues directly impact the economy and currency Norway is a significant oil exporter and its currency the Norwegian Crone often strengthens with Rising oil prices and weakens with falling prices the yen is
50:12 often inversely correlated with global equities during risk off periods investors flock to the Yen as a safe haven currency and it tends to appreciate the Swiss frank often correlates with gold prices as both are considered safe haven assets during periods of economic uncertainty the US dollar typically moves inversely to gold prices when the dollar becomes stronger gold becomes more expensive for foreign buyers reducing demand and vice versa Brazil is a leading Global exporter of soybeans the Brazilian real often shows correlation with soybean prices due to the importance of agricultural exports to the Brazilian economy as one of the world's largest energy exporters the
50:59 Russian Rubble frequently correlates with global oil and natural gas prices New Zealand's economy relies heavily on Dairy exports the New Zealand dollar often tracks Global dairy prices South Africa is a leading producer of gold and platinum so the South African rent often correlates with the prices of these Metals the Euro sometimes correlates with German Bond Utes as Germany's economy is a dominant driver of the Euro Zone's overall economic Outlook markets also impact one another on a cascading effect for example a sharp sell off in the S&P 500 occurs due to negative news such as weak economic data or a geopolitical event this triggers risk of sentiment among
51:46 investors as equities decline investors seek safer assets like US Treasury bonds this increases demand for bonds driving their prices up and Ys now bond prices and udes move inversely falling udes on us treasuries reduced the attractiveness of the US dollar as an interest earning currency this weakens the US dollar which influences Forex markets and potentially boosts the value of safe heaven currencies like the Japanese Yen or Swiss frank a weaker dollar can drive up the prices of dollar denominated Commodities like gold and oil adding further feedback loops to other markets the initial sell off in the S&P 500 can spread to other Equity indices like the
52:31 NASDAQ as investor sentiment moves across the board leading to Global Market declines economies and therefore financial markets are deeply interconnected and interdependent which makes it impossible for Price action to be delivered by one algorithm retail Traders have the problem of being alienated to price charts only which causes them to fail to realize the true complexity of financial markets let's now talk about the concept of kill zones kill zones are specific time periods within the trading day that have higher volatility and that makes it easier to catch certain kinds of Trades I will not bore you with whatever arbitrary periods ICT Traders believed are the best the bottom line about this is that the hours of the day with the
53:17 highest volatility are the hours where trading sessions overlap in the Forex markets for example we have the four main trading sessions Sydney Tokyo London and New York the training hours when these sessions overlap have the highest volatility simply because there are more Traders from different regions actively trading in these same markets there are two major overlaps Sydney Tokyo overlap and the London New York overlap the latter being the most powerful one this happens simply because there are more Traders engaged in the market when sessions overlap here's an illustration of the Forex sessions in their overlap in GMT let's now talk about another theory involved in the ICT method called
54:03 quarterly Theory quarterly Theory suggests that time must be divided into quarters in order to enhance the Precision and remove ambiguity from ICT concept one year is divided into quarters with three months each each month is divided into four weeks each week is divided into four days plus Friday which has its own function this is already weird Let's ignore it each day is divided into quarters 6 hours each each quarter is divided into quarters 90 minutes each the idea is that each quarter dictates what the next one will do the start of the second quarter in each cycle represents what is called a true open which serves as a Time filter for what is called Judah
54:49 swing which we'll talk about in a moment the Frameworks for the quarterly Theory follow the AMD or power R3 structure which is a bit misleading in its nomenclature in this illustration you can see an example of how the quarterly Theory might help in trading sessions the open of the second quarter marks the true open which can be used to frame a trade after a judo swing which is once again the old manipulation maneuver outlined by wov this is just one example of how this might play out I'm not going to explore this further because life is too short if we want to get serious about Cycles it's certainly possible the idea that the financial markets can be narrowed down to quarterly Cycles is incomplete
55:34 in reality there are different kinds of Cycles from various time Horizons impacting the financial markets there are major business cycles that impact the market in the long term such as the kraf wave the juggler cycle the kitchen cycle the Shan Peter cycle different markets are affected by different types of cycles and markets are interconnected for example commodity markets are affected by agricultural Cycles Equity markets are affected by earning cycles and Forex markets are affected by interest rate Cycles in technical analysis the major reference in terms of cycle analysis is JM Hurst which is considered to be the father of psycho analysis which emerged in the 60s and70s
56:20 the sem of work can be found in the book called The Profit magic of stock transaction timing HST psycho analysis follows several principles such as harmonicity synchronicity nominal variation and commonality I will eventually post a psycho analysis course here in the channel we once again see this idea that the financial markets are a decentralized amalgamation of thousands of variables coexisting interacting and intersecting which is precisely the opposite of the algorithmic market hypothesis proposed by the ICT method in terms of the quarterly Theory it's obvious that the cycle analysis of financial markets is more complicated than simply dividing things by four let's now talk about what are
57:06 called daily profile formations ICT talks about the daily profile formations such as London reversal New York continuation Seek and Destroy New York manipulation and so on in order to understand how ICT talks about this you need to understand Candlestick quantization meaning how to compile a series of candles into one single candle there's a useful indicator in trading view for this called HTF power of three let's observe a brief summary of the profiles outlined in the ICT method London reversal the London reversal simply means that the market will reverse at the beginning of the London session in New York session will continue in this
57:52 direction New York reversal in the New York reversal the market will reverse Direction outline in the London session as soon as New York opens New York manipulation the New York manipulation is when London consolidates and then the beginning of the New York session manipulates and reverses once again recalling that this pattern was outlined by wov SE and destroy a Seck and Destroy profile is basically a sideways Market where multiple manipulations occur on both sides without any clear trend Direction this idea of profiling the trading day is not new the market profile approach developed by Peter stomer in the 1980s outlined several daily formations based on the
58:38 distribution of time at Price this notion has been developed later by James Dalton stle Meers Market profile method outlines six main daily profiles based on the distribution of time at Price meaning how much time price spends across different price levels the non- trend day the normal day the normal variation day the trend day the double distribution day in the neutral day the careful study of these market profiles goes outside the scope of this video I just want to show you that the study of daily profiles began with Peter stle you can see the distribution of time at price in trading view by choosing the chart type called time price opportunity also referred to as
59:24 TPO this is the chart type used if you want to follow the market profile approach we move on now to the concept called daily bias the daily bias is one of the most famous ICT Concepts and it's also a very simple idea to determine the bias for the next day the trader must observe the position of the close of the current candle in relation to the previous candle range let's observe the possibilities of the bullish daily bias if price closes above the previous day's range we have a bullish bias for the next day if price pierces the previous day's low without closing below it we also have a bullish bias for the next day that aims to reach at least the current day's high price closes below
1:00:10 the previous day's range we have a bearish bias for the next day price preces the previous day's range high without closing above it we also have a bearish bias for the next day that aims to reach at least the current day's low price doesn't react to the previous days extremes there is a neutral bias if you really want to go deeper into the knowledge of what the bias is for the next day or week you need to use something like intraday seasonal. comom which is based on an Insight Larry Williams had in the '90s intraday seals.com shows the cumulative sum of intra-week average variances and that helps to determine bias based trading strategies two famous Traders claim to use this website to trade
1:00:56 Larry Williams like already mentioned and Andrea anger a Trader who won the World Trading Championship four times with systematic training strategies so obviously this is worth looking into the next concept is called internal and external liquidity the concepts of internal and external liquidity sound complicated but they are not internal liquidity is just a fair value Gap external liquidity is an old high or low or buy side sell-side liquidity levels under the ICT jargon which are just different name for highs and lows According to some ICT Traders price action only does two things it oscillates from internal to external liquidity so if price reacts to a fair value Gap it goes to a buy side
1:01:42 sell-side liquidity level or old high or low and then it moves to a fair value Gap again in an endless cycle this assumes that there is no diversity of maret players and time Horizons it's self-evident that things are much more complicated than that in reality price action and Order flow are the result of diverse Market players of different time Horizons coexisting interacting and intersecting so the road laid out by the real Market is a much bumpier road so to speak for example in this image we see price going from sell-side liquidity to buy side liquidity without reacting at the fair value Gap in between which renders this concept as Incorrect and once again liquidity is not price level is the ease with which a
1:02:28 market can be traded without causing significant changes in price liquidity varies across price levels in a way that is not perfectly correlated with the geometry of candlesticks so to speak let's now talk about the Box setup this is once again a setup based on the old wof manipulation idea the concept here is that price will manipulate an extreme and then go back to the level that got manipulated to give an entry opportunity the manipulation maneuver in the wov method is called Spring on the downside and up thrust after Distribution on the upside let's now move on to another famous idea called the Silver Bullet in the ICT method the Silver Bullet refers to a specific time of the trading day
1:03:15 where a manipulation maneuver will occur followed by a movement on the other direction using EST the manipulation is set up using the high and low of the N a.m hourly candle then on a lower time frame like the 5 minute or 1 minute the trader will look for the manipulation during the Silver Bullet window which is from 10: a.m. to 11:00 a.m. the trader can frame the trade using the other Concepts such as order blocks fair value gaps and so on and use the other side of the range as a Target needless to say at this point this is once again the old wof manipulation pattern the only difference is that you will be looking for it in specific time of day which is not really helpful because this pattern happens all
1:04:00 the time we move on now to the concept of the Balan price range the Balan price range or BPR for shorts is basically the intersection between two opposing fair value gaps when the market is going fast in One Direction and reverses sharply let's observe an example where this idea works and then investigated a little further on the 1H hour S&P we can see price transitioning from an aggressive movement down to an aggressive movement up this is called a vbottom by the way which is a classic chart pattern that ICT Traders believe to be used only by retail Traders on the way down we can see a bearish fair value Gap and on the way up a bullish one and we can also see how they intersect later we do see price
1:04:46 returning to the intersection or what ICT Traders call the balance price range and then going to the upside we already talked about fair value gaps and the truth behind them fair value gaps refer to orderflow Concepts without actually using the order flow tools which can be a bit misleading if we move on to a real order flow tool like the footprint which is not used by ICT Traders we'll see the actual reason why price reversed there or at least one of the main reasons notice that in the candle that forms the low of the V bottom we can find two stacked imbalances price reverses as soon as it encounters the first stacked imbalance in the as column and it does so with a much greater Precision in comparison to the fair value gaps forming the Balan
1:05:31 price range this is one of the reasons you cannot really read order flow through price action alone like ICT Traders think you need order tools to assess what's happening behind price action and all of these tools have a well-known origin which is the auction market theory and the market profile approach both of which were developed by Peter styom in the 1980s reading order flow with actual order flow tools also increases the number and precision of opportunities you see in the market ict's balance price range is easier to see but this ease has a high opportunity cost let's now talk about what ICT Traders referred to as inducement you probably guessed it at this point this is yet another variation
1:06:18 of the wov manipulation pattern the definition of inducement is a move that induces buyers or sellers into the market but only as a form to increase liquidity for the opposite and more powerful market player exactly the same idea outlined by wov for example in an uptrend we see price forming a resistance and then sellers assume price will break to the downside but price ends up forming a be trap and continues up in the same way in
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