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ICT Mentorship Core Content - Month 03 - Institutional Sponsorship
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ICT Mentorship Core Content - Month 03 - Institutional Sponsorship

Understanding Institutional Sponsorship in Trading

Introduction to Institutional Sponsorship

  • The lesson focuses on identifying institutional sponsorship, particularly in trading setups.
  • Emphasis is placed on long setups and how to recognize them.

Key Concepts of Long Setups

  • Identifying institutional sponsorship involves observing higher time frame price displacement, which can manifest as reversals, expansions, or returns to fair value.
  • Intermediate term imbalance indicates a move towards discount or sell-side liquidity; prices may retrace below old lows to trigger sell stops.

Criteria for Recognizing Buy Liquidity

  • After identifying price movements, traders should look for short-term buy liquidity above the market for potential long exits.
  • Time of day influences are crucial; specific formations during sessions (e.g., New York session low formation) are significant indicators.

Understanding Market Maker Perspective

  • The criteria set expectations for institutional sponsorship; actual sponsorship occurs when the market targets buy-side liquidity above current prices.
  • Traders must adopt a market maker perspective—selling high while finding buyers willing to purchase at elevated prices.

Analyzing Higher Time Frame Charts

  • Short-term buy liquidity is layered with various trading strategies (long-term trades, day trading, scalping), necessitating analysis from a higher time frame perspective.
  • Studying time of day influences helps confirm the presence of institutional sponsorship in setups.

Institutional Sponsorship in Short Setups

Reverse Analysis for Short Setups

  • Similar principles apply when analyzing short setups: look for higher time frame price displacements through reversals or expansions.
  • Intermediate term imbalances indicate price moving towards premium levels and targeting buy-side liquidity.

Identifying Sell Liquidity

  • For short exits, traders should seek short-term sell liquidity below the marketplace; this allows covering positions effectively.

Time of Day Influence in Short Setups

  • Just like long setups, recognizing time of day influences (e.g., New York high formation) is essential for understanding short setup dynamics.

Defining Institutional Sponsorship

Characteristics and Importance

  • A daily chart example (USD/JPY pair) illustrates how to study data without cherry-picking. High probability setups require clear signs of institutional sponsorship.

Conceptual Understanding

  • Institutional sponsorship refers to large institutions' willingness to protect significant price swings that have a high probability of unfolding.
  • It involves recognizing characteristics that suggest where institutions might support market movements toward anticipated directions.

Liquidity Pools and Market Efficiency

Observing Price Movements

  • Price dropping below an old low typically indicates where sell stops reside—creating a "liquidity pool" that attracts buying interest from participants looking to go long.

Implications for Trading Strategy

Understanding Price Action and Institutional Sponsorship

The Dynamics of Long and Short Positions

  • Traders are not necessarily looking to short the market; rather, they aim to exit long positions when price movements trigger sell stops.
  • Price action is fractal, meaning patterns observed on one time frame can be replicated across higher and lower time frames.

Analyzing Lower Time Frames

  • By examining lower time frames, traders can identify similar price action scenarios, particularly when old lows are violated.
  • Understanding fractal nature allows traders to anticipate potential long positions based on previous price actions.

Anticipating Market Movements

  • When expecting a market move upward after breaking below old lows, traders should identify potential target areas such as short-term highs.
  • Key levels include significant candles and historical highs that may indicate where the price could retrace or consolidate.

Identifying Bullish Order Blocks

  • A bullish order block may form around an old high, suggesting buy stops are likely resting above this level.
  • The last down candle before a price increase indicates a potential area for institutional buying activity.

Recognizing Liquidity Voids

  • A liquidity void exists above the old high, indicating a pool of buyers ready to enter the market.
  • Market makers exploit these opportunities by running sell stops below old lows while accumulating buy-side liquidity.

Characteristics of Institutional Sponsorship

  • Open float refers to liquidity relative to different time frames; however, focus remains on identifying buy-side liquidity in higher time frames.
  • Accumulating sell stops suggests institutions are building long positions in anticipation of upward movement.

Higher Time Frame Displacement

  • Observing higher time frame displacement signals large entities entering the market, which is crucial for understanding institutional behavior.
  • Identifying the origin of significant moves helps classify key levels for future trading opportunities based on institutional sponsorship.

Conclusion: Trading Strategy Development

  • Successful trading requires recognizing patterns and understanding where institutional support lies within price movements.

Understanding Market Dynamics and Institutional Sponsorship

The Role of Price Action in Trading

  • The book represents the body of a candle, emphasizing that price action is crucial for understanding market dynamics.
  • A significant price drop hitting a level indicates the need to observe immediate dynamic responses; lethargic movements suggest a lack of institutional orders.
  • If trading shows lackluster activity, traders should consider reducing risk or exiting the position entirely, as re-entry is always possible later.
  • Traders should not feel regret about closing trades that do not show evidence of favorable movement; it's essential to prioritize sound decision-making over emotional attachment to trades.
  • Immediate feedback from the market is preferred; if prices stall or reverse slowly, it may indicate being on the wrong side of the trade.

Identifying Institutional Sponsorship

  • Quick losses are preferable as they provide clear signals about being offside; slow squeezes can lead to more significant losses without immediate feedback.
  • Using stop-loss orders is critical to manage risks effectively when facing potential losses due to market movements against one's position.
  • Higher time frame price displacement signifies institutional involvement; an analogy compares this effect to an elephant displacing water in a small pool, indicating substantial capital entering the market.
  • When large entities enter the marketplace, it often results in noticeable price surges against previous trends, suggesting strong buying interest at specific levels.
  • Observing how prices react upon returning to previously established levels can help identify areas where institutional buying may occur again.

Trading Strategies Based on Market Behavior

  • Traders should look for signs of upside momentum when prices return to identified support levels where previous buying occurred strongly.
  • Focusing on bullish order blocks helps pinpoint where institutional sponsorship begins and provides opportunities for profitable trades based on historical data.
  • Criteria for identifying institutional sponsorship include observing higher time frame displacement and price returning into discounted areas or fair value zones.
  • Understanding short-term buy liquidity involves recognizing logical areas where banks might want to unload long positions after accumulating them at lower prices.

Understanding Market Dynamics and Buy Stops

The Role of Buy Stops in Market Movements

  • The presence of buy stops above recent highs indicates a pool of buying interest, particularly from traders protecting short positions. This creates upward pressure on prices.
  • Strong-willed bears will have their buy stop protections just above old highs, suggesting that if buying occurs at lower levels, it aims to reach these protective orders.
  • As price approaches these levels, it pairs orders with buy stops, indicating that liquidity is being absorbed as the market moves higher.

Analyzing Price Structure and Institutional Sponsorship

  • A daily chart analysis shows that after running sell stops, the market's willingness to go higher suggests bullish sentiment. This is reinforced by previous buying activity at similar levels.
  • The likelihood of returning to previous lows decreases as the market structure shifts towards bullishness; institutional sponsorship should protect against significant retracements.
  • Traders should not expect price to return to lower levels for better entry points since the market has already cleared significant resistance.

Identifying Key Levels and Equilibrium Points

  • Understanding price swings involves identifying four stages: origin, midway point (equilibrium), and terminus. These stages help in determining potential profit-taking areas.
  • Institutional sponsorship typically supports price movements at logical areas within these identified stages, making quick entries essential before major moves occur.

Anticipating Market Behavior Based on Order Flow

  • When aiming for profits from buy stop traders above certain levels, it's crucial to recognize that prices are unlikely to revisit previously established lows due to prior trading behavior.
  • Observing intermediate-term market structure changes can provide insights into future price movements; down candles may indicate bullish order blocks forming at support levels.

Continuous Movement Towards Buy Stop Liquidity

  • Institutional sponsorship should prevent significant downward movement; if this fails, it signals a high probability for reaching upper targets where buy stop liquidity resides.
  • On a four-hour chart perspective, observing how prices interact with old lows can reveal bullish order blocks expected to push prices higher.

Price Action Analysis and Institutional Sponsorship

Understanding Price Movement Dynamics

  • The discussion begins with the importance of buy stops above a higher high, indicating potential price movement.
  • A price surge occurs, breaking through the second level of buy-side liquidity but fails to return to the previous high, showcasing classic price action behavior.
  • The analysis highlights the origin point of a price swing and its first scale, leading towards an equilibrium price point in market analysis.
  • Evidence of institutional sponsorship is noted when prices show reluctance to decline, suggesting strong buying interest from institutions.
  • Focus shifts back to whether prices will target buy stops above the old high after clearing previous levels.

Analyzing Equilibrium and Institutional Support

  • Price moves into what is considered equilibrium on a daily chart after surpassing the old high, prompting further examination.
  • The speaker emphasizes how understanding institutional sponsorship can enhance one's study of price action and identify targets for buy stop liquidity.
  • A four-hour chart is introduced to analyze institutional support throughout a significant price swing, highlighting key movements.
  • Introduction of blue line segments as indicators that provide insights into future price direction and setups based on past actions.
  • These blue lines not only indicate current support or resistance but also forecast potential future setups in market behavior.

Detailed Examination of Price Action

  • Old highs are marked with gray horizontal lines on charts to signify areas where buy stops may exist, focusing solely on price action rather than numerical values.
  • Emphasis is placed on observing pure price delivery without distraction from specific numbers during this teaching segment.
  • The narrative describes how prices trade down below previous lows before reacting upward again, building bullish order blocks in lower time frames.
  • Down candles contribute to forming a bullish order block identified by specific candle characteristics within the four-hour chart context.
  • The opening price at midnight in New York becomes crucial for assessing bullish expectations; if prices dip below this level, accumulation should occur.

Liquidity Voids and Market Reactions

  • Observations are made about how prices react around the midnight opening; if they drop below it, it indicates potential accumulation zones due to institutional activity.
  • Following drops below opening prices often lead to subsequent rallies as institutions step in to support pricing trends.
  • Prices returning into older blocks after creating liquidity void signals opportunities for traders looking for reversals or continuations.
  • Each day’s trading patterns reveal consistent reactions from institutional sponsors who capitalize on dips by pushing prices higher again.
  • Consolidation phases are analyzed alongside individual stages of market movement as they relate back to established order blocks and their significance in trading strategies.

Understanding Order Blocks and Market Dynamics

The Concept of Order Blocks

  • A down candle can become a bullish order block when price trades through it, allowing for potential buying opportunities below the opening price of that day.
  • The following day, if the price trades below the opening price, it indicates a small order block; however, trading at equilibrium suggests waiting for a more definitive order block to form.

Trading at Equilibrium

  • Price is observed trading at equilibrium between a high and low point, necessitating an order block to justify upward movement away from this equilibrium.
  • Adding five pips to the identified level allows traders to enter as buyers when price takes off after hitting the down candle.

Institutional Sponsorship and Market Behavior

  • Utilizing previous day's down candles is acceptable; institutional sponsorship is indicated by violations of these candles on the upside.
  • A new bullish order block forms when prices retrace back down but do not reach prior lows, suggesting potential buying opportunities.

Power Three Concept in Daily Trading

  • The "Power Three" concept relates to daily open-high-low-close bars; traders should aim to buy near or below the opening price on up days for optimal range capture.
  • Despite seeming straightforward, many traders struggle with executing this strategy effectively.

Expectations of Higher Closes

  • Consistently buying near or below the opening price leads to higher closes each day; this pattern reflects an upward trend from lower prices.
  • As prices approach old highs, consolidation occurs where traditional support-resistance strategies may mislead traders into short positions.

Market Reactions Around Old Highs

  • Traders often sell short at old highs expecting resistance; however, their stop losses above these levels can lead to unexpected market movements.
  • Classic textbook strategies suggest selling at resistance points; yet market behavior may invalidate these expectations as prices return into established order blocks.

Retracement and Accumulation Phases

  • After reaching an old order block, prices rally but then experience retracement which may mislead traders into thinking a new high has formed.
  • This retracement often leads traders to believe they should short positions based on social media sentiment while ignoring underlying market dynamics.

Importance of Down Candles in Higher Time Frames

  • Down candles on shorter time frames contribute to larger order blocks on higher time frames; understanding this relationship aids in predicting future price movements.

Understanding Order Blocks and Market Dynamics

The Role of Candles in Trading

  • The discussion begins with the importance of candles in trading, specifically highlighting their role as a buying signal.

Identifying Order Blocks

  • Traders are encouraged to recognize order blocks formed from previous sessions, particularly focusing on down candles that precede upward movements.
  • Old bullish order blocks can be capitalized upon due to institutional interest in defending specific price levels, aiming for higher highs.

Institutional Sponsorship and Price Movements

  • Institutions scale out of positions at various levels while ultimately pushing prices higher to attract more buyers.
  • Understanding market direction is crucial; traders should analyze price action around old lows and highs for potential trades.

Key Concepts in Price Action Analysis

  • Focus on down candles before up moves and vice versa, identifying liquidity voids and old lows or highs for trading opportunities.
  • Each order block is linked to significant trading sessions (London/New York), which helps identify new buying opportunities based on past price actions.

Recognizing Successful Trade Characteristics

  • Successful trades often exhibit characteristics of recapitalized order blocks, indicating institutional sponsorship.
  • Traders should monitor sell stops below previous session lows as they can lead to upward rallies when taken out.

Strategies for Effective Trading

  • Utilize down candles from prior sessions as indicators for new buying opportunities; this reflects institutional support.
  • Higher time frame liquidity pools become essential when going long, allowing traders to remain calm during retracements.

Conclusion: Learning and Adapting Trading Strategies

  • Continuous learning is necessary; understanding specific order blocks tied to major trading sessions aids in discerning market dynamics.
Playlists: 2016 ICT Private Mentorship Core Content Month 03
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2016 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in November 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.