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ICT Mentorship Core Content - Month 04 - Liquidity Pools
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ICT Mentorship Core Content - Month 04 - Liquidity Pools

Reinforcing Liquidity Pools

In this section, the speaker discusses liquidity pools and how to anticipate raids.

Understanding Liquidity Pools

  • A liquidity pool is the open interest of buyers and sellers in the market.
  • It can be defined by entities at or near specific price levels.
  • The goal is to sell to buyers above us or above the market price and buy below the market price from sellers that are willing to sell below the market price.

Smart Money Trading

  • Smart money traders will be selling above the market price and buying below it.
  • Retail traders are usually reactive to prices and tend to buy and sell at market prices.
  • By selling short in a pool of liquidity of buyers above old highs, we can sell at a premium.

Buying at a Discount

In this section, the speaker explains why buying at a discount is important for smart money-minded traders.

Buying Below Market Price

  • As smart money-minded traders, we want to buy below the market price from sellers that are willing to sell below it.
  • This requires discipline and patience as most retail traders lack these qualities.
  • By waiting for prices to pull back into a level of discount, we can get a good read on where other traders would have their stop-loss orders above and below the marketplace.

Selling Above Old Highs

In this section, the speaker discusses how to trade when undertones suggest that an asset is bearish or bullish.

Bearish Market

  • If an asset is bearish, we want to sell above old highs as there will be buyers who view that move as a bullish breakout.
  • We can then sell short in a pool of liquidity of buyers above old highs.

Bullish Market

  • If an asset is bullish, we want to look below the market price and see that there would be sellers on a breakout looking for a move lower.
  • By doing this, we can get a good read on where other traders would have their stop-loss orders above and below the marketplace.

Trading Strategies for Market Efficiency

In this section, the speaker discusses how to view the marketplace in a market efficiency paradigm and how to identify opportunities to establish long or short positions.

Establishing Long Positions

  • When the market trades below an old low, it is viewed as an opportunity to buy up sell-side liquidity and establish a long position.
  • Wait for a repricing of the market to trade above an old high before unloading that position.
  • Knowing the underlying paintings of the market is crucial in determining whether it is predisposed to go higher or lower.

Establishing Short Positions

  • When the market trades above an old high, it injects buy-side liquidity into the marketplace. This rush of buy orders at the market allows smart money traders to accumulate and sell into that with expectations of a false break above an old high while the market is underlying bearish.
  • Sell short in the form of a run on liquidity or a liquidity pool.

Defining Risk with Buy Limit Orders

In this section, we learn about placing buy limit orders just below or at recent lows when underlying markets are bullish.

  • Placing a buy limit order just below or at recent lows allows you to buy sell stops like bank traders or any other smart money entity would.
  • Defining risk with this setup requires identifying how far price could reasonably trade below it.
  • Expect a 10 to 20 pip sweep below the old low on a lower time frame chart like 15 or 30 minutes.
  • A 30 to 50 pip stop is ideal if your entry is under the low and not above it because buying above may indicate fear of missing out on entry.

Understanding Liquidity Pools

In this section, the speaker explains how stop runs work and how they can be used to accumulate sell stops and distribute long positions.

Accumulating Sell Stops

  • A market that is on a bullish trend will have a liquidity pool resting below the old low.
  • The market trades below that old low and accumulates all those cell stops.
  • While it's doing that, it looks to offset those new Longs by smart money above old highs.

Distributing Long Positions

  • Smart money offloads long positions to buy stops.
  • This is done by accumulating the sell side liquidity for longs and distributing lungs to the buy side liquidity.
  • This process is similar to what market makers do.

Example of Liquidity Pool in Action

In this section, the speaker provides an example of how a liquidity pool works using the Canadian dollar U.S CAD pair.

Identifying Stop Rates

  • Look for a sweep below the bodies of these candles on a daily chart.
  • Use previous day's candle low as reference point.
  • Transpose that level over onto 15-minute time frame.

Entering Position

  • If price trades down below reference point, look for run below this low.
  • If movement down to certain level occurs, enter position at specific price point .

Exiting Position

  • Look for run up into swing high where there would be contrary liquidity pool where buy stocks would be resting .
  • Unload long position by selling at 133.60.

Another Example of Liquidity Pool in Action

In this section, the speaker provides another example of how a liquidity pool works using Dollar Index.

Identifying Stop Rates

  • Price creates a low intraday.
  • There are buy stops above the high and short term high.

Entering Position

  • If price trades down below reference point, enter position at specific price point (102.85 or 102.80).

Exiting Position

  • Look for buy stops above equal highs and short term high to unload long position that was accumulated below the low.

Understanding Liquidity Pool Runs

In this section, the speaker discusses liquidity pool runs and how to identify them in the market.

Identifying Liquidity Pools

  • The market tends to take something off the table at the end of a trending week, leading to a choppy sideways day.
  • Look for buy stops and sell stops above and below relative equal lows.
  • Layered by stop areas are where profits can be taken.

Examples of Liquidity Pool Runs

  • Example using dollar swissy: look for a run below delineated low to be a buyer and pair orders above high.
  • Example using dollar index: run on buy stops followed by cell stops clearing out 101.30s and 101.45s.
  • Example using cable: sweep below opening price, sweep sell stops below short term low, move up into 125.20 level relative to hourly chart.

Supplementary Teachings

  • Five additional pre-recorded teachings will go into more detail about liquidity pool runs, fair value gaps, liquidity voids, water blocks mitigation blocks, and reclaimed order blocks.
Playlists: 2016 ICT Private Mentorship Core Content Month 04
Video description

2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in December 2016. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN Trading performance displayed herein is hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person’s investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase or sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a “limit move.” The placement of contingent orders by you, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.