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ICT Mentorship Core Content - Month 05 - Defining Open Float Liquidity Pools
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ICT Mentorship Core Content - Month 05 - Defining Open Float Liquidity Pools

Lesson 1.4: Defining Open Float Liquidity Pools

In this lesson, we will be discussing the concept of open float liquidity pools and how to identify them in the Canadian dollar market.

Identifying Liquidity Pools on Higher Time Frames

  • On a higher time frame, such as a daily chart, it is important to identify where the liquidity pools for large funds are located.
  • Liquidity pools for large funds are areas where markets tend to reach for, apart from long-term fundamentals.
  • These liquidity pools are typically above old highs or below old lows and are targeted by large funds every quarter.

Incorporating the Technique of Open Float

  • Open float is a technique that involves looking at a specific time period, such as the last three months or the next month and a half.
  • By analyzing this time period, we can determine the highest high and lowest low on the daily chart, which indicates where the large funds' liquidity pools are located.
  • Open float helps us identify reference points in time to find these liquidity pools.

Using Look Back and Cast Forward Periods

  • To apply open float, we can look back at previous trading days to find the highest high and lowest low within specific intervals (e.g., 20 days, 40 days, 60 days).
  • Similarly, we can cast forward from a specific date to anticipate future ranges of high and low prices.
  • These intervals help us identify short-term and intermediate-term highs and lows.

Turtle Soup Pattern

  • The turtle soup pattern is a powerful trading pattern that involves identifying false breaks above old highs or below old lows.
  • This pattern is based on Richard Dennis' turtle trading system, which focuses on long-term trends.
  • While not taught in this lesson out of respect for authors who have covered it extensively in their books (such as "Street Smarts"), the concept of false breaks can be applied to identify liquidity pools.

Summary

  • Open float liquidity pools are important areas for large funds in the market.
  • By using techniques like open float and analyzing specific time periods, we can identify these liquidity pools.
  • Look back and cast forward intervals help us determine short-term and intermediate-term highs and lows.
  • The turtle soup pattern, based on false breaks, can also be used to identify liquidity pools.

The transcript is already in English.

Understanding Breakouts and Institutional Order Flow

In this section, the speaker discusses how breakouts below 20-period lows can often be false and provide an edge. They explain that by analyzing intervals of 20 trading days, one can identify the next high and low on price, as well as the highest and lowest low on each 20-day interval going forward.

Breakouts and Institutional Order Flow

  • Breakouts below 20-period lows are often false, providing an edge.
  • Analyzing intervals of 20 trading days helps identify future highs and lows.
  • Buy stops keep getting hit more frequently than sell stops, indicating bullish institutional order flow.
  • Sell stops keep getting hit less frequently than buy stops, indicating bearish institutional order flow.

Analyzing Open Float Ranges

This section focuses on analyzing open float ranges for different months in 2016. The speaker explains how to identify the lowest low and highest high within a specific lookback period to determine where buy stops and sell stops are located.

September 2016

  • Look back at the last 60 trading days prior to September 1st.
  • Identify the lowest low (sell stop level) and highest high (buy stop level).
  • Buy stops above old highs keep getting taken out, indicating bullish institutional order flow.

October 2016

  • Look back at the last 60 trading days prior to October 1st.
  • Identify the lowest low (sell stop level) and highest high (buy stop level).
  • Buy stops above old highs keep getting taken out, indicating bullish institutional order flow.

November 2016

  • Look back at the last 60 trading days prior to November 1st.
  • Identify the lowest low (sell stop level) and highest high (buy stop level).
  • The high from the previous month was taken out on the upside, indicating bullish institutional order flow.

December 2016

  • Look back at the last 60 trading days prior to December 1st.
  • Identify the lowest low (sell stop level) and highest high (buy stop level).
  • Price initially made a higher high but later ran down into a lower low, indicating bearish institutional order flow.

Applying Ideas to Dollar CAD Pair

In this section, the speaker applies the concepts discussed earlier to analyze the daily chart of the Dollar CAD pair. They demonstrate how to identify areas where buy stops and sell stops are located based on candlestick patterns.

Daily Chart Analysis

  • Wick below 130.50 level indicates sell stops resting there.
  • Price advances and takes out sell stops before quickly retracing.
  • Wick through resistance indicates buy stops resting just above that level.
  • Market sweeps down to take out sell side liquidity indicated by candlestick patterns.

Conclusion

By understanding breakouts, institutional order flow, and analyzing open float ranges, traders can gain insights into market dynamics and potential price movements. Identifying levels where buy stops and sell stops are located can help inform trading decisions.

New Section

This section discusses institutional order flow and how it can indicate market direction. It explains the significance of buy stops and sell stops, and how they can be used to determine whether the market is bullish or bearish.

Institutional Order Flow

  • Institutional order flow reveals where the market is being driven.
  • Buy stops are continuously taken out, indicating a desire to push the market higher.
  • Sell stops are rarely taken out, suggesting a bullish sentiment.
  • The continuous presence of sell stops being hit indicates bearish institutional order flow.
  • Monitoring new lows in the market helps determine its position relative to the last 60 days' range.

New Section

This section expands on the concept of institutional order flow and its implications for market direction. It explains how buy stops and sell stops can signal a quarterly shift in the marketplace.

Market Direction based on Order Flow

  • If above the last 60 days' low, continuously monitor buy stop hits.
  • If below the last 60 days' low, oversold conditions may be present.
  • A shift in market structure or quarterly shift may occur if buy stops turn into sell stop hits.
  • The Canadian dollar serves as an example of this phenomenon.

New Section

This section compares price action in futures contracts with currency pairs to analyze market movements. It highlights that futures contracts are inverted compared to currency pairs.

Analyzing Futures Contracts

  • Futures contracts show inverted price action compared to currency pairs.
  • Price movement in futures contracts reflects strength or weakness of respective currencies.
  • Reference points from previous slides can be applied to futures contracts for analysis.

New Section

This section emphasizes using quarterly shifts and open interest to identify potential market moves. It explains how higher time frame charts can provide clues for short-term fluctuations.

Using Quarterly Shifts and Open Interest

  • Higher time frame charts offer clues for market moves.
  • Quarterly shifts can be catalysts for high probability entries and exits.
  • Identifying logical levels where buy stops and sell stops are resting is crucial.
  • Declining open interest indicates a lack of sell-side liquidity, suggesting potential strength in the market.

New Section

This section further explores the relationship between open interest and market movements. It highlights the significance of declining or increasing open interest during price drops or rallies.

Open Interest and Market Movements

  • Declining open interest during a price drop suggests smart money is not heavily shorting.
  • High open interest indicates significant liquidity offered by banks to buyers.
  • Analyzing Canadian dollar futures contract in November 2016 demonstrates these patterns.
  • A move from a specific level can be derived by examining evidence such as open float casting forward.

New Section

This section concludes the transcript by discussing the importance of identifying new highs on higher time frame charts and waiting for price confirmation before making trading decisions.

Identifying New Highs on Higher Time Frame Charts

  • Every 20 trading days, new highs become evident on higher time frame charts.
  • Circling these new highs helps identify potential price movements.
  • Waiting for price confirmation after identifying new highs is essential before taking action.

New Section

In this section, the speaker discusses the importance of understanding institutional overflow and how it affects trading decisions.

Understanding Institutional Overflow

  • Institutional overflow refers to a situation where there is a significant amount of buying activity from institutional investors.
  • When the market is continuously taking out sell-side liquidity and rarely reaching new highs, it indicates institutional overflow.
  • During periods of institutional overflow, it is not advisable to sell short as the market is moving higher due to increased buying pressure.

New Section

This section focuses on identifying opportunities for short selling and waiting for a clear change in direction before changing trading strategies.

Short Selling Opportunities

  • To identify short selling opportunities, one should focus primarily on being short until there is an obvious change in direction.
  • If the market starts trading at its lowest low in the last 60 days, it indicates oversold conditions and presents an opportunity for short selling.
  • Even if the price only bounces slightly on a higher time frame, such as 150-200 pips, it can eventually roll over and continue going lower.
  • It is crucial not to be caught on the wrong side of the marketplace by trading against the prevailing trend.

New Section

This section emphasizes the importance of considering liquidity levels and simplifying analysis by focusing on a revolving continuous range of 120 days.

Considering Liquidity Levels

  • Traders need to consider where liquidity levels are located in order to make informed trading decisions.
  • A simple way to determine liquidity levels is by monitoring a revolving continuous range of 120 days. This involves looking back 60 days and forward 60 days from any given day.
  • By identifying the highest high and lowest low within this range, traders can locate buy stops and sell stops on a large fund level.
  • It is essential to study new price action as it occurs and be mindful of whether the market is near a high or low within the last 60 days range, as this can indicate the next quarterly shift.

New Section

This section explains how monitoring the highest high and lowest low within specific time frames can provide clues about future price shifts.

Monitoring Time Frames

  • Traders should monitor different time frames to gain insights into potential price shifts.
  • The near-term move is determined by the highest high and lowest low in the last 20 trading days, which indicates where buy stops or sell stops are located.
  • The short-term open float considers the highest high and lowest low in the last 40 trading days.
  • The intermediate-term open float looks at the highest high and lowest low in the last 60 days.
  • Understanding where current price levels are within these ranges can provide valuable information about future price movements.

New Section

This section highlights that markets generally move from range to range and discusses how to trade based on this concept.

Trading Based on Market Ranges

  • Markets typically move from one range to another rather than having one-sided parabolic price moves.
  • By understanding this concept, traders can identify where near-term shifts are likely to occur based on the highest high and lowest low within a specific time frame (e.g., 20 trading days).
  • Recognizing when a breakdown occurs from these ranges indicates a significant price move, which traders can capitalize on even on a daily time frame.
Playlists: 2017 ICT Private Mentorship Core Content Month 05
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