Internal & External Liquidity (Daily Bias) - ICT Concepts

Understanding the Relationship Between Internal and External Range Liquidity

Defining Key Concepts

• Internal Range Liquidity: Defined as a fair value gap.

• External Range Liquidity: Identified as swing highs or lows, representing buy-side or sell-side liquidity.

Market Dynamics

• The market primarily seeks to either reach old highs/lows or rebalance a fair value gap.

• After targeting external range liquidity, price tends to seek internal range liquidity before returning to external range liquidity.

Chart Analysis Example: S&P Futures

• On the weekly chart, price failed to displace below an old low; potential for retracement towards a fair value gap is discussed.

• Once internal liquidity is established, there’s anticipation for price movement towards external liquidity.

Observations on Price Movement

• Price movements are not always predictable; sometimes it does not retrace as expected but continues higher.

• Understanding the relationship between internal and external liquidity can provide directional bias for trading strategies over longer time frames.

Applying Concepts in Trading Strategies

Top Down Analysis with Gold

• Analyzing gold on a 60-minute chart reveals respect for a fair value gap while anticipating movement towards an old low.

Short Setup Execution

• Transitioning to lower time frames (5-minute and 1-minute charts), traders look for short setups targeting the identified old low.

Confirmation Entries

• A confirmation entry strategy involves waiting for price action within the fair value gap before executing trades based on observed patterns.

Further Examples: GBP/JPY Analysis

Identifying New Liquidity Levels

• In GBP/JPY analysis, after taking out an old high, new external range liquidity is marked alongside existing internal range liquidity from previous lows.

Market Structure and Liquidity Analysis

Understanding Price Movements and Gaps

• The speaker anticipates a price drop to run previous lows, indicating a desire for displacement downwards followed by a retracement into a fair value gap.

• Transitioning from a sell model to a buy model is discussed, focusing on the importance of identifying when price changes its state of delivery over specific highs.

• For swing positions, the speaker emphasizes the need for price retests before entering long positions targeting old highs, highlighting respect for new fair value gaps.

Analyzing Internal and External Range Liquidity

• The concept of internal range liquidity is introduced on the 4-hour chart, with expectations set for movement towards external range liquidity.

• A shift to lower time frames (15-minute chart) reveals consolidation around fair value gaps and subsequent changes in delivery states that signal potential entry points.

Execution of Trading Strategies

• The speaker describes an order block entry strategy with stop-loss placement below swept lows while targeting external range liquidity or old highs.

• An aggressive upward move confirms target achievement; this illustrates how market maker buy models operate within larger time frames using internal to external liquidity frameworks.

Recap of Market Dynamics

• A review highlights transitions between external and internal range liquidity across different time frames, showcasing the shift from sell models to buy models effectively.

Application Across Time Frames

• The discussion shifts to applying these concepts on various time frames, exemplified through NQ on the 5-minute chart where ranges are created and tested.

• Observations are made about price movements transitioning from external back to internal ranges, emphasizing the significance of creating new highs without clear fair value gaps present.