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ICT Mentorship Core Content - Month 02 - Market Maker Trap False Breakouts
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ICT Mentorship Core Content - Month 02 - Market Maker Trap False Breakouts

Introduction

In this teaching, the focus is on market maker traps of false breakouts. The transcript explains how false breakouts manifest in primary bearish markets and bullish markets.

False Breakout Above Price Consolidation

  • False breakout above price consolidation generally manifests in primary bearish markets.
  • Neophyte traders or breakout traders will bracket the trading range in price with orders that means they're going to have buy stops to break out on a buy above the old highs.
  • Market makers will typically send price above the range to neutralize buy stops.

False Breakout Below Price Consolidations

  • False breakout below price consolidations generally manifests itself primarily in bullish markets.
  • Neophyte traders and/or breakout traders again we'll bracket the trading range in price with orders again looking to focus on buying on a breakout or selling short on the breakout that you're not privy or astute enough to know what direction they just simply want to react.
  • Market makers will typically send price below the range to neutralize sell stops.

Graphical Representation of Market Maker's Perspective

This section provides a graphical representation of how market makers view false breakouts from their perspective.

Buying Environment

  • When the market breaks below consolidation, those sell stops are used to pair long orders.
  • Buy stops rest above here if we know below the marketplace itself stops what's resting above the highs buy stops so naturally as the market moves away from those cell stops being ran out below consolidation they're going to expand price think of ipta now they're going to expand the price up to

the liquidity above the old high so those buy stops are going to be used to pair long selling in other words they're going to scale out their long positions or take some profits.

Understanding Market Paradigm Shift

In this section, the speaker discusses how market makers absorb sell stops to be counterparties for their longs. They also explain how smart money exits positions and books a profit or hedge.

Market Makers' Strategy

  • Market makers take the market below consolidations to absorb sell stops to be counterparties for their longs.
  • Smart money looks to exit their positions and book a profit or hedge by getting out in a place where there are willing participants to buy.
  • As the market moves higher, they liquidate some of their positions to hedge and also liquidate positions that traders on the bank level are speculating for profit.

Liquidity Above Old High

  • Liquidity rests above old highs, primarily seen in the bodies of candles.
  • Price expands up and seeks liquidity as it moves higher.
  • The underlying condition of the marketplace is bullish because price keeps taking below and rejecting that absorption of sell stops.

Trading Range

  • The model is still bullish even though we have moved into a larger range.
  • There are willing buyers waiting at 109.45 with buy stops once price gets there.

Understanding Market Efficiency Paradigm

In this section, the speaker explains how to use consolidations with the expectation of viewing the market with that market efficiency paradigm. The speaker also talks about how to think like a liquidity provider and still speculate, hedge, and make a profit using the same model.

Using Consolidations to View Market Efficiency Paradigm

  • Buy stops are used to pair long exits.
  • By using consolidations with the expectation of viewing the market with that market efficiency paradigm, traders can still speculate, hedge and make a profit using the same model.
  • Traders should think like a liquidity provider.
  • Sell stops are activated in the same way as buy stops.

Understanding Liquidity Provisioning

  • Market makers provide liquidity by facilitating their long positions and building a buy model in price or in an asset.
  • The absence or lack of understanding that traders have is usually misappropriated to their broker but it is actually what market makers do.
  • The number one driver in price action is when markets seek liquidity.

Discerning Directional Bias

  • Markets will always seek liquidity where there is untapped recent area of liquidity with least resistance getting to it.
  • When traders see markets go into consolidation and they have an underlying directional premise or arrive at one based on studying the market, they can quickly ascertain trade setups and signals will jump off the chart at them by way of looking at it again from that market efficiency paradigm perspective.
  • Traders should look at price with that market efficiency paradigm.

False Breakouts & Accumulation of Long Positions

  • Every time there's a consolidation, expect every drop down below an old area of consolidation to be viewed as a false breakout.
  • Anticipate accumulation of long positions in the market once they can accumulate their long positions, then they will reprice the market higher running for the buy stops above old highs.
  • False breakouts that would trip up traders otherwise or knock them out of profitable positions if they would have been remaining long can be viewed in the marketplace with the market efficiency paradigm.

Conclusion

  • By looking at ranges and when they break below and we see willingness to rally after that, it gives us our first telltale clue.
  • Traders should study the chart and discern where buyers and sellers are at.

Understanding Measured Moves and Market Efficiency

In this section, the speaker explains how measured moves and market efficiency can be used to predict price movements in the market.

Measured Moves

  • The algorithm will reach for a price level that is equal to the first impulse price swing.
  • The second leg in price higher is equal to the first one.
  • Larger price swings from initial buy up to intermediate term high or midpoint of overall price swing can also be measured.

Market Efficiency

  • Understanding each individual component of market efficiency helps bridge the gap between what goes on past the right edge of your chart.
  • By looking at how the market maker is booking and manipulating prices, you can determine which side of the marketplace they are working on and where they are punishing those who are less informed.
  • If sell stops are being ran below a consolidation, it runs higher through buy stops. This indicates a bullish market profile.
  • You need to look at where orders are residing against back to that market efficiency paradigm by having that model in focus when you look at price and when you see market consolidations.

Conclusion

In this section, the speaker concludes by summarizing what was covered in this video and hints at more information to come in future videos.

  • The speaker hopes that viewers found this video insightful and looks forward to providing more detailed concepts related to price action in future videos.
Playlists: 2016 ICT Private Mentorship Core Content Month 02
Video description

2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in October 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.