Algorithmic Price Delivery Explained - ICT Concepts

Understanding Algorithmic Signatures in Financial Markets

Introduction to Market Manipulation

• The lecture begins with a discussion on the common belief that financial markets are rigged and manipulated daily.

• The speaker aims to teach algorithmic signatures within price delivery, focusing on price action analysis.

Bearish Market Dynamics

• In bearish markets, the market typically expands downwards, forms a low, retraces upwards, and then continues downward.

• A specific signature can be identified on lower time frames (e.g., 5-minute charts) during these retracements.

Market Maker Sell Model

• The speaker introduces the market maker sell model schematic for understanding market behavior.

• It is emphasized that higher time frame order flow is bearish, anticipating lower prices while the market consolidates sideways.

Engineering Liquidity

• The consolidation phase serves to engineer liquidity below relative highs, trapping traders into believing higher prices will follow.

• Traders often place stop losses below perceived support levels; this creates opportunities for algorithms to manipulate price movements.

Smart Money Reversal

• As the market reaches key price levels during significant time windows, signs of a shift from buy programs to sell programs emerge.

• This transition is referred to as a smart money reversal where initial buyers start losing profits as sellers gain control.

Analyzing Market Correlation

• A deeper examination of reversals reveals correlations between highly correlated markets at critical points of interest (POI).

Understanding Market Correlation and Reversal Patterns

The Significance of Market Correlation

• The correlation between highly correlated markets indicates underlying dynamics; when these markets form swing highs and lows simultaneously, it signals stability. A divergence serves as a warning sign.

Transitioning Between Buy and Sell Programs

• Noting the formation of a swing high is crucial; it must align with the overall market narrative to anticipate a shift from buying to selling programs.

Utilizing SMT for Confirmation

• SMT (Smart Money Technique) should not be used in isolation; first, establish a narrative regarding potential swing highs before using SMT as a confirmation tool for changes in order flow.

Changes in Delivery State (CSD)

• CSD illustrates the formation of swing highs through market movements: an upward run followed by retracement, culminating in displacement downwards, often marked by fair value gaps indicating program shifts.

Identifying Bearish Breakers

• A bearish breaker occurs when previous highs and lows are established; if the market displaces through these levels with fair value gaps, it signifies strong reversal patterns that can act as resistance.

Recognizing Reversal Signatures

Key Reversal Patterns

• Two primary ways exist for market reversals: observing low formations within bullish fair value gaps or identifying failed attempts to surpass previous highs during upward movements.

Importance of Fair Value Gaps

• When retracements occur into old lows after failing to break prior highs, they signal potential resistance points. Ideally, this should coincide with bearish fair value gap formations during downward displacements.

Market Maker Models Explained

Understanding Market Maker Buy Models

• Recognizing market maker buy models involves spotting bullish order flows on higher time frames that expand upwards before retracing. This fractal nature allows for analysis across different time frames.

Fractal Nature of Price Movements

• Price movements exhibit fractal characteristics; understanding lower time frame models within higher time frame contexts helps traders identify significant patterns and setups effectively.

Engineering Buy Side Equity

Market Maker Models and Smart Money Reversals

Understanding Market Dynamics

• Retail traders often react to bearish price movements by going short, placing stop losses above recent highs. This behavior can lead to market manipulation.

• A shift in order flow from a sell program to a buy program indicates a potential reversal, where the market begins to expand upwards after forming lows and retracing.

• Fractal Market Maker models can be identified within larger market structures, showcasing both sell and buy model schematics across different time frames.

Fractal Market Maker Models

• Recognizing whether the market is in a higher timeframe buy or sell model allows traders to identify fractal patterns on lower timeframes for better trading decisions.

• It’s essential for traders to independently verify these patterns through chart analysis rather than solely relying on external guidance.

Key Market Reversal Insights

• The discussion emphasizes the importance of personal research in understanding market dynamics and recognizing key signatures that indicate reversals.

• A significant point of interest (POI) is highlighted where two correlated markets drop into this POI, leading to smart money reversals.

Analyzing Correlated Markets

• One market forms a low before retracing while another drops aggressively but does not create a new low, indicating engineered sales at equity levels.

• The divergence between markets—one creating lower lows while the other creates higher lows—serves as confirmation of changing order flows.

Delivery State Changes and Signatures

• Observing changes in delivery states helps identify when the market transitions from selling pressure to buying pressure, crucial for anticipating future movements.

• The formation of highs within specific contexts (like bearish gaps turning bullish upon displacement above previous highs) suggests potential support levels for upward movement.

Identifying Support Levels

• When multiple indicators align (such as imbalances and gaps), they reinforce expectations that certain price levels will act as support during upward trends.

Market Analysis and Trading Strategies

Understanding Market Support and Reversal Scenarios

• The previous high is expected to act as support, with a bullish reference gap indicating potential upward movement.

• Notable correlation between two markets shows that the market finds support at an old high before expanding upwards.

• Market reversals typically follow one of two patterns: either creating a lower low with a bullish breaker or forming a bullish mitigation block.

Theory in Practice

• Emphasizes the importance of understanding theoretical concepts alongside practical application to recognize market signatures effectively.

Execution Insights from July 29, 2024

• A long position was taken on NASDAQ during an upward move; analysis begins by examining price action from high to low.

• Observations on the M15 chart reveal how premium and discount ranges can inform trading decisions based on market behavior during New York sessions.

Market Dynamics and SMT Analysis

• Significant divergence noted where ES traded below its low while NASDAQ did not, indicating a potential Smart Money Trap (SMT).

• Anticipation of higher prices based on liquidity above current market levels suggests a lower timeframe market maker buy model may unfold.

Trade Execution Details

• After observing price action post-market opening, entry into long positions was made upon confirmation of upward displacement above key levels.

• The trade was exited after failing to maintain support at critical highs, highlighting the need for caution when order flow becomes unpredictable.

Further Examples and Afternoon Session Analysis

• On July 30, 2024, analysis begins with NASDAQ's early session movements showing expansion below previous week's lows.

Market Maker Buy and Sell Models Explained

Understanding Early Bearish Gaps

• The early bearish gap (CB) was identified as liquidity for the afternoon session, extending it to the right on the chart.

• The low of this CB corresponds to the high of a fractal Market Maker buy model, indicating a significant price movement from high to low.

Market Dynamics and Key Levels

• A key market drop occurred during lunch at 1 p.m., trading below previous cycle lows, which are crucial in understanding market behavior.

• Observations of signature patterns were noted that indicate potential reversals, leading to upward price movements above premium ranges.

Price Action and Support Levels

• The market traded above lower time frame imbalances and formed a bullish breaker pattern characterized by specific highs and lows.

• Anticipation was set for these bearish gaps to act as support; however, challenges arose when price struggled with these levels.

Retracement Insights

• Within higher time frame retracements, lower time frame Market Maker buy models can emerge, signaling potential setups for traders.

• An example from August 1st, 2024 highlighted a clean delivery despite being a no-trade day due to NFP announcements.

Correlation Analysis Between Markets

• A comparison between NASDAQ and ES showed crack correlation at highs; traders are encouraged to investigate this phenomenon independently.

• Notable patterns emerged where relative lows were formed before significant downward movements post-high formations.

Displacement Patterns and Trading Strategies

• When prices trade below established lows within an SMBC context, it indicates potential sell models forming on lower time frames.

• Observations of market dynamics revealed how higher prices can trap traders into false expectations before rapid declines occur.

Final Thoughts on Market Behavior

• Investigating displacement patterns is crucial; once prices retrace into bearish gaps after forming highs, it signals important shifts in market structure.

Market Maker Models Explained

Understanding Market Maker Models

• The speaker explains that market maker models are fractal in nature, indicating that they can form within one another. This complexity allows for a deeper understanding of market movements.

• A specific example is provided where a low-risk sell model exists within a larger market maker sell model. This highlights the layered structure of these models and their interconnections.

• The discussion includes observations on correlations between different indices, such as NASDAQ making higher highs while ES creates lower highs, leading to an eventual downward expansion in the market.

Conclusion and Personal Insights

• The lecture concludes with an invitation for feedback and encourages viewers to check out a free ebook linked in the description, emphasizing the value of continued learning.