All language subtitles for Lesson 4 - Liquidity Pools

This is the fourth of eight teachings
from the ICT mentorship or another

December when teaching reinforcing
liquidity pools, when to anticipate rates.

All right.

Liquidity is the open interest of buyers
and sellers in the market, and can

be further defined by those entities
at, or near specific price levels.

Now, if we're looking at this
graphic depiction on the left hand

side, the gray area represents the
current price that you're looking

at for your specific asset class.

And we'll say, for instance,
say this is the dollar index.

If the current price is the market
price, our understanding is that there's

going to always be a participation in
the marketplace by buyers and sellers.

We don't always know why the interest
would be on the form of buying or selling.

We're not really so concerned about
what other traders are trying to

do with their trades, but we are
interested in knowing where their

interests may reside in new pending.

New pending orders are in the form
of buy stops above the marketplace,

or usually more refined, smart money
traders selling above the market price.

Below the market price.

Typically you'll see sellers.

And usually it's the smart money that
usually wants to buy below market price.

Usually it's the retail trader
that is so reactive to price.

They're usually buying
and selling at market.

The liquidity that we seek as a
smart money minded trader is that

we want to sell to the buyers
above us or above the market price.

So we want to be a seller
above market price.

We want to buy below the market
price from sellers that are

willing to sell below the market.

And by having this understood, you're
always going to be selling at a

premium and buying at a discount.

Now this is going to be
diametrically opposed to what

retail is typically taught.

They're usually taught to buy on a break.

Or buy on some continuation pattern, like
a bull flag or, or a wage of some kind.

Uh, what we require is the market
pull back into a level of discount

and that requires a bit of discipline
and most traders, especially in the

retail universe, lack discipline
in terms of patients, when we view.

We look at where the market is
presently, and this is the market.

If we're looking at a bearish market,
if the undertones of the marketplace

suggests that the dollar is bearish,
w we will be willing to do is

we want to sell above old highs.

Whereas the buyer, the buyers that would
view that move above an old high, they

would see that as a bullish breakout.

So there's going to be
willing buyers up there.

So we know with price prints at an
old high, or just above an old high,

there's going to be buyers that want
to accumulate new lungs up there, or

they have shorts on and the market
has repriced above and old high.

And that's exactly where their stop
loss for protective short position

would be residing in Lawrence.

They would have protected
by stop about an Ohio.

We could sell at that moment.

By doing that.

What we're doing is we're actually selling
short in a pool of liquidity of buyers.

Above old highs, there's a pool
or a collection of orders that

traders will build up around now.

90% of retail traders aren't
even aware to other traders

are doing what they're doing.

Okay.

They're just, they're thinking
myopically about themselves.

So, what we do is we, we go into
the marketplace and we role play by

looking at the charts and say, okay,
if I were short right now, where

would my protective buy stop would be?

If I was long right now, where would my
protective cell stop me by doing that?

You can get a good read on where other
traders would have their stop-loss

orders above and below the marketplace.

If we go back to our an example,
and we suppose for a moment that the

dollar index would be bearish, and I'm
not saying that's the case now, but

it just, for example, purposes only,
we're going to say the asset that

we're looking at is the dollar index.

And we believe it's very, we could wait
for a rally to go above and old high.

And look to go short there with the
expectation that that move above an

old high, it would be a false breakout.

And then the market would be price
going lower to some lower level

liquidity reference point in terms of
maybe another old, low that it would

run below or able to shorter block,
or it could close in a fair value gap.

Let's say for instance, if the dollar was.

We could look below the market price
and see that they would be sellers on a

breakout looking for a move lower because
most retail traders are, are incorrect

and that repricing would offer liquidity.

The.

Market price and below
we want to be a buyer.

So we're going to try
to buy it at a discount.

So we are trying to pair our buy
orders with those willing participants

that want to sell on a sell stop.

They're either selling.

In a form of a breakout Mo looking to
make a move lower, or they have a long

on, and they're protecting their long
position with a protective cell stop.

So when the market trades below an
old low, we're going to view that

as an opportunity to buy up the sell
side liquidity, to establish a long

position and wait for a repricing.

For the market to trade
above and old high.

So we can unload that position or trade
up into a bearish order block, take

profits, or trade up into a fair value
gap or a liquidity void by viewing a

marketplace in this market efficiency
paradigm that I've been teaching you.

It allows you to see the internals of the
marketplace and you don't need to see a.

You don't need to see a, uh, supposedly,
uh, ladder or anything like that.

Um, depth of market.

You don't need any of that stuff.

And you can actually see where
the orders would be residing

with common sense and just visual
reference to where the charts are.

Showing old highs and old lows.

The trick is knowing what the
underlying pinnings of the market.

Is the market predisposed to go higher or
is it predisposed to go lower once you do

that higher timeframe work that leads you
to be bullish or bearish on a specific

asset class, then it's not hard to sit in.

Wait.

Well, it shouldn't be
hard to say it like that.

Uh, it will be hard for you
initially, cause you wanting to get

in there and do something right now.

But when the market is predisposed to
go higher, we wait for the market to

go down below and old, low to knock out
those weak longs or bullish traders.

That trailer stop loss up to tight.

The market will correct and go lower.

Take out an old.

That accumulation of sell side
liquidity or knocking out the

cell stops below the marketplace,
injects the marketplace with willing

participants to sell to marketplace.

So engineer's liquidity into the market.

So if there's a rush to sell the
smartphone, And us, we look to accumulate

debt, rush of selling interest, and we'll
accumulate those orders really quick.

And then we'll look for
a mood to go higher.

And this dabs has said for when the
market's predisposed to go lower, we

wait for the market to trade above and
old high that buy-side liquidity is

injected in the marketplace as a rush out
by orders at the market and smart money

will go and accumulate and selling to.

With the expectation that false
break above and old high, while the

market's underlying bearish, we are
going to sell short in the form of a

run on liquidity or a liquidity pool.

So what does this look like?

Graphically?

Okay, well, we have, here is a
run on a ghoulish liquidity pool.

And by definition, what that is is the low
there's under the current market price.

We'll typically have a trailed sell stock.

For long traders, one cell stops for
traders who wish to trade on a breakout,

lower in price for a short position.

Also reside below.

Validation of this setup or condition
is when the lowest violated or price

moves below the recent low, and
the sell stops become market orders

to sell at market this inject sell
side liquidity in the marketplace.

And typically this is
paired up with smart money.

Entry techniques using this concept
when underlying market is bullish

before price trades under the recent
low, you're going to place a buy limit

order just below or at the recent low
you're buying the sell stops like a bank

trader or any other smart money entity.

Defining the risk with this setup.

This is where your work is going to be.

You're going to need to see the
low identify how far it could

reasonably trade below it.

And that's going to be taught.

A lot of detail was going to be taught
to you across the next coming months,

because there's going to be things
we look at that haven't been taught.

But for exercise purposes now, and
to observe, and in past examples in

hindsight and your, in your charts,
uh, the low that you're trying to buy

under, okay, you're going to expect
or anticipate on a lower timeframe

chart, like a 15 or 30 minute chart.

You can expect a 10 to 20 PIP sweep
below the old lo a 30 to 50 PIP.

Stop is ideal.

If your entry is under
the low and not above it.

Because you generally, if you're
trying to get ahead of the move, trying

to buy above the low or at the low,
you're really probably just fearful.

You're gonna miss the entry.

Uh, it's better to wait for the
market to trade under that low.

And once it trades under there,
10 20 pips, that's a really good

ideal entry point because if, if
you use the 30 to 50 PIP stop while

entering below significantly below
the low by 10 or 20 pips below the.

If you use a 30 or 50 PIP stop at
that point, it's going to take a real

significant move to knock you out.

And here's the thing.

If it starts moving beyond 25,
pips, I think is a fair assessment.

Um, the low, the low it's
probably not just a stop run.

You're probably looking
at a much further decline.

So when do we anticipate these stop rates?

Well, in this case here, this
market was on their line bullish.

Uh, it was the key and just
so you know, to Kiwi dollar.

Sure.

And it was an old low there, and the
market had a liquidity pool resting below

the old low market trades below that old,
low, and accumulates all those self stops.

Now, while it's doing that, okay,
it's going to look to offset those new

longs by smart money above old highs.

And you can see the equal highs
over to the left, where I've

highlighted it and draw that out
to the right side of the chart.

And you can see where profit taken.

With by stops when they're rated and
that's the other contrary liquidity pool

or where the buy stocks would be resting.

So you're, you're accumulating cell
stops and offloading them to buy stops.

You're accumulating the sell
side liquidity for long.

And you're distributing your
longs to the buy-side liquidity.

All you're doing is the same role as a
market maker and a liquidity provider.

Remember it's that market
efficiency paradigm just put

into mechanics and operation.

So let's take a look at the
charts themselves, and we'll

go over a couple of examples.

Okay.

Folks, we're looking at the Canadian
dollar U S CAD pair on the left

hand side, we have a daily chart
and I want you to take a look

at the bodies of these candles.

We're going to look for a suite
below the bodies of those candles.

Okay.

There's south stops below
these lows and we're using

this previous days, candle low.

And that low comes in
at 1 31 0 2, 1 31 0 2.

And that's what that level is.

And we transpose that level that we're
on to our 15 minute timeframe, 3,102.

And we see on this day here,
price trades down below it.

Okay.

And cheers, a willingness to rally away
and news is coming out and there's going

to be a interest rate announcement.

Uh, on this particular day, we're going
to be looking for a run below this low.

Okay.

So now we have a low and we now
have another lower low right

here that we're finding on a
daily time, on an intraday basis.

So we're going to be looking for
a run below 1 30 95, 1 30 95.

So if we see a movement down to 1 30,
85 or 1 30, 75, it could be a buyer.

So we can do a buy at 1 30 90.

We're going to say that's our entry point.

And price trades after watching it
a little bit here, trades up higher.

We're waiting.

We're not considering
anything above that level.

We're looking for a move down below it.

Price trades right down below it here.

And this candles low comes in at 1 30 83.

So the stop, I'm sorry, the limit order.

Would've put you in long at 1 30, 90, and.

The actual low comes in at 1 30, 83.

So it's not even seven pips.

It's small.

It is seven pips, a draw down
and price immediately show the

willingness to want to rally.

And we're looking for a run up
into this swing high, where there

would be a contrary liquidity pool
whereby stocks will be resting.

So we're going to be looking for a 1 33 60
as a way to unload and price rallies up.

And there's your run to 1 33 60 there.

Great.

So 1 33 60 occurs right here
on this candle right here.

It still goes a little bit higher,
but you can actually see it

unfold here as well on the daily.

So that's a liquidity pool example on.

The dollar CAD pair, really
nice example of low risk entry.

Very big payout up to here.

So let's go on to another example.

Okay.

We're looking at the dollar index.

You see the dollar has been a bullish move
here and we probably cooled our jets for

the week going into Friday's is Thursdays
trading, and this is Fridays set up here.

So price creates a low in here,
intraday, and we have some buys

stops above this high here, and
we have some stops above this.

Short-term high here as well.

Uh, price trades down, clears out
the cell stops on the marketplace

here, and your entry could have
been at 21 to 2 85 or one or two 80.

Uh, the low.

Comes in at 1 0 2 69.

So you definitely would have had a easy
fill on that in regards to a spread.

So below this low, you'd be long
and we're gonna be looking for

by stops above these equal highs.

And then by stops above here to
unload that long position that would

be accumulated below this low price
rallies up small little retracement

could have been scary for you here, but
you're looking for a rejection away.

Price taps that high
just fell short of it.

Explodes up through takes the buy stops,
smaller trades, and again, runs right up.

It's the buy stops.

And this is what you see on Friday.

And we talked about this in the market
before it actually happened, running up

here and buying, uh, taking out these
buys stops and then seeking the cell

SOPs below these relative equal loads.

And you see that example as well.

So, uh, because the
market was in a trench.

Environment prior to Friday and Friday
being the end of the week, we're going

to be looking for the market to want
to take something off the table and

going to have a choppy sideways day.

And that was why we weren't
expecting a new high, but we were

looking for a run on those bus stops
and running out the cell stops.

So you can see an example again,
here with the dollar index.

Here's another example.

This is using the dollar swizzy,
we're going to end stall a.

Horizontal line delineating this low here.

Okay.

And we could be a buyer at that low
or just below it and going to look

for a run below that to be a buyer.

And we're going to look to pair or is
above this high and this high here.

And we'll see.

And we'll potentially
look for a run up here.

So a 1 0 1, 4, 5.

1 0 1 30 and in 1 0, 1 25 are, are
layered by stop areas where we're going

to leave you looking to take our profits
and take something off the table.

Okay.

So here's that move down
into that, that level.

We identified a low and here
is the sweep down below it.

Price rallies away, surges
up above for the 1 0 1 25.

Look at the reaction after it hits this
to that in itself is a nice other reaction

for a liquidity pool reaction, but we're
looking for a stronger move higher.

And there's your reaction clearing out
the one-to-one thirties and the 1 0 1 45.

Mack here.

It's a good level one.

As you can see it

clear so that, and then
it keeps on rolling.

So another little run
on liquidity pool there.

Let's see another example.

Okay.

This is cable.

We talked about this one also live in.

Session Friday during live market
action said that we would probably

sweep below that one more time.

Get below the opening price, uh, sell
stocks below that short term, low here.

And we talked about price moving
up into the 1 25, the 1 25 20

level relative to the hourly chart

price sweeps down below.

Runs it pool of liquidity out here.

So those stops are now gone
to sell stops are gone.

So they accumulated
those, those positions.

And now they're going to look to offset
above 24 75 and on the alley, we talked

about this and you can look at the
live session recording for December

16th, 2016 for that a bit of business.

Cause we're not going to talk about
fair value gaps there today, but

price runs up and hits that level.

Handsomely to run on liquidity pool here
absorbed the cell stops, accumulating

them as long position entries, take
something off above here and it off,

up here relative to the hourly chart.

So there's a few examples of running his
own liquidity in the form of liquidity.

We're going to build on these ideas
also on us supplementary teachings

during the week of Christmas, because
there will not be any live sessions

that week because of the holiday.

I'll be with my.

I will be providing you a five additional
prerecorded teachings that go into

more detail about these liquidity.

Paul runs a fair value gaps, liquidity
voids, order blocks, mitigation

blocks, and reclaimed order blocks.

So there's your teachings.

There's going to be an amplification
of what you're getting in the regular

eight teachings for December, 2016.

So until the next one, I wish
you good luck and goodbye.