all right folks welcome back this is episode six in our ongoing ICT mentorship on YouTube for 2022 and the market efficiency Paradigm and institutional order flow will be our topic for this evening all right so how do we internalize price delivery first we do not trade patterns for pattern sake we do not trade indicator readings or momentum we look to enter Longs where retail sells we look to enter shorts where retail buys we anticipate price seeking opposing liquidity okay so what does that mean well if you're looking at this diagram imagine if we could take
price as a conceptual idea it doesn't matter what Market it is but let's just say there's two camps there's the informed or smart money and that's represented by this small little circle over here and then there's a larger Collective which is the speculative uninformed money there's a large influx all the time of new uninformed money coming in because there's a large influx of uninformed money going out because they lose their account they blow up whatever Equity they have in your trading account it's gone because a lack of discipline and a flawed logic smart Money traders
when they look at the marketplace they're not looking at secret trading indicators what they're specifically looking at is time and price the most important thing is time because time that is the most crucial element so time of day is vital when we're engaging price for a professional through the lens of smart money time is crucial because time of day there are specific elements in a daily range that really build the likelihood of volatility to come in and also when short-term reversals are likely to occur okay so I mentioned in previous lessons that there's algorithms that
will start to gyate and cause price to run at specific times of the day smart money looks to cannibalize this group of Traders so because they're typically wrong in their directional bias in their stop placement should they choose to use one cuz a lot of Traders don't use a stop loss as a retail Trader because they're afraid they may expect the market to go lower and they understand that the high is above where they're at if they're in a very small window of profitability unrealized profit that means they're still in the trade but they don't
have a stop loss in now logic dictates that they should have a buy stop in to protect their position in case the market screams against them at least it limits the amount of equity loss but they may look at an old high and say okay I understand that my stop should be above that but because of their infancy they have no idea where to put it above that high they don't want to put it too shallow because it might go up there and hit it and stop out their trade prematurely and or they don't want
to put it up too high and then it spikes through that reaches for them and then it reverses and goes in the direction they're holding so they take a big loss and get stopped out so those are the two conundrums that a retail Trader falls into that Pitfall but the smart Money traders are not looking at price with give me a pattern to tradeoff of you know a bull flag a a wedge pattern something to that effect they're look looking at liquidity what is the underlying narrative right now in the marketplace is it bullish is
it bearish is the day's daily range going to go higher but how's it going to go higher is it likely to go lower at the beginning of the day first to sucker Traders and going short run out sell stops they can acquire long positions at and then rally going into the close or maybe into the afternoon and that would be the extent of their plan of action and how does that speculative uninformed money and its liquidity that it provides how can they utilize that that's the market efficiency Paradigm it's efficient for smart Money traders to
view the marketplace in that perspective versus technical analysis and you can lock me in there too because the times where I'm trying to use the logic that I trade with and if it fails I've done something wrong I've interpreted price wrong everybody's going to have a losing trade okay so I want to give a little bit more specifics about the fair value Gap that way you have the rules what it looks like so that way you understand exactly what it is and where it forms because this is going to repeat so the bearish ICT fair
value Gap this is instit order flow and it's a pattern that you can see the order flow actually coming into the marketplace so we're looking at what does a bearish ictt fair value Gap look like well if you take a look at this diagram it's rather crude I know but you have a run preferably above some kind of old high so the first candle is the high and the next candle is the extended low that goes below it and the third candle is another continuation candle but the main important factors are this it's a three
candle formation the first candle's low has to be traded Below on the immediate following candle the next candle has to trade with an extended low as well that went below candle number two but does not trade with a high that trades back to Candle number one's low what that creates is this small little Gap where one candle only traded from the range of the candle number one's low to Candle number three is high so that little space that's occupied right there what is actually occurring there is price is only being offered on the sell side
there so imagine if you're painting your wall at your home okay and you take your roller you put it in the paint and you put the paint up against the wall and you roll down okay at first the first foot or so there's going to be an ample amount of paint delivered to the wall from your paint roller but then as you keep rolling down towards the floor what will happen you'll start seeing these little pockets that look really porous what do you have to do to fix that you just change directions and start rolling
the paint roller back up the same place you roll down that's exactly what price does there's an algorithm that delivers efficient Market delivery so let's go back into that analogy with this between this candle's low and this candle's High we only have sell side offer so that's like taking the paint and applying it to the wall and drawing down with the roller but now as you pull down there's little pockets right in here between this candle's low and this candle High where price has not been efficiently offered for buyers why how's that working well you
have sell side being offered here because the Market's delivering lower prices it's offering continuously lower prices between this candles low and this candle's High to efficiently balance out that little inefficient area at some future time the Market's going to want to trade back into that area when it does and you're bearish that's a short signal okay you can go short and sell there with the expectation it's going to start to move lower optimal formations of the bearish ICT fair value Gap will be found after a run into buy side liquidity so it's not a matter
of going into charts and looking for this little Gap all the time this model I'm teaching you on this YouTube channel is meant for you to look for periods where price runs above an old high then it breaks down and then you look for this pattern this is what it looks like the Run above a single high or multiple highs like a double top okay either one of those fits this criteria so what you're looking for is a pull of liquidity of buy stops resting above these highs that's buy side liquidity smart money will want
to trade up into that and go short they may not be engaging above the high they may miss it just like any one of us that haven't been ready to take an order and place it in the marketplace they may miss that this is their Saving Grace right here this pattern that's what smart money is looking for they're looking for that right there and then once they see that they go in either with their limit order mark it in something to that effect and get short and the stop would be above the high that is
exactly what you're looking for for a fair value G so when you're doing your annotations and your charts this is what you want to be doing all your back testing label number one candle the number two candle is always going to be where the Gap resides and then the number three candle gives you the lower end the upper end of the fair value Gap is going to be the low of candle number one the lower end of the fair value Gap is going to be the high of candle number three and the difference between candle
number one's low and candle number three's High that's the fair value G so the easiest entry would be trading just above candle number three's high you can put a limit order right there and be done the bearish market structure shift what does that look like conceptually well you have the market trading higher shortterm little retracement then it trades above an old high or the initial short-term high that it trades above here and then it breaks down once that low is broken that's when the new trade idea is now being birthed you don't even know where
you're getting in at yet until you go through this process I'm going to show you right now the market will see a price delivery of a rally above an old high or highs and then quickly shift lower that's this right here now the significance I'm placing on the term quick is linked directly to the term displacement okay it's got to be energetic it can't be a little lethargic little move it's got to show a real willingness to want to go lower and preferably close below that if it does that that to me is a little
bit more significant whereas if we just go through this low a little bit like a wick and come back up that to me is not all that convincing I want to see that it has absolutely displaced and then the candle closed and then we look inside this range here so when you're looking at Market structure shifts this is all time frames so don't think this is just the intraday version of it but I'm specifically dealing with intraday so when we create that high that high down to the low that breaks the shortterm low here so
now we have that shift in Market structure there right below that low that is the displacement low this is your displacement high so what you have in between that range that right there you're going to be hunting your fair value gaps because that's exactly where it's going to form that short-term low being broken draw that out in time that's your displacement low and the high is your displacement high so that range between here and here that's displacement how do you know it's displacement how it closes down here below that low so that's this is the
secret to it here knowing how we trade below that and if it's energetic a lot of movement big a big beefy bearish candle that closes low below this level right there okay if we have that soon as we have that candle form start watching to see if it creates a fair value Gap in between this low and this candle's high or that range okay if there is no fair value Gap in here guess what you don't have a trade you wait or go to another Market because one of them is going to be there everything
I teach obviously is reverse the same way so I'll just go through this a lot quicker because this is already becom a longer video than I wanted to be but bullish ICT fair value Gap again institution order flow pattern and it's three candles formation the candle here is number one the second candle here and the third candle there candle number one one's High that is the low of the fair value Gap candle number three's low is the high of the fair value Gap candle number two is where the fair value Gap will be formed so
that is your fair value Gap and everything you would expect to see in form of a market run below an old low or multiple lows for sell side liquidity once it starts trading higher and takes it out a short-term High that's not being shown here okay so I'm showing you the pattern itself this is what you're looking for okay this separation between three candles that's the criteria you have to blend in the logic of a market structure shift that's bullish so what does that look like you have a market trade below no low and maybe
go a low another leg lower and create a run into sell stops once that occurs then you're looking for a run higher that takes out the short-term high and it closes above it with an energetic displacement higher once you see that then you have a trade idea being birthed you don't have a trade entry yet until you determine if it has a fair value Gap where does that reside between the displacement High and the displacement low in between right before the market structures broken bullishly and the low that ran into the sell stops that is
your range this is exactly where you're looking for a fair value Gap so in that range that's where your bullish fair value Gap resides if there isn't one there you don't have a trade all right so let's go into the price action so here we have the 15minute time frame from today this is the e- mini NASDAQ naked chart which swing high would you anchor where is there a stop run on buy stops all right so we have 8:30 marked here okay very specific right element of time 8:30 why because there's news that comes out
okay employment data came out today so at 8:30 the market from that point on here look to the left what do you see what's the first swing High you come to right there so this High here draw that out in time and you'll get this right here but watch with this run right there on a 15-minute time frame what do you do with it well you start stripping down from a top down 5 minute 4 minute 3 minute 2 minute 1 minute so once you have this level in your chart on a 50-minute time frame
you drop down to your five everything's transposed from the 15 to the 5 minute you can see it trades above it here and the market starts to trade lower when it's trading lower in here you're going down into what the 4 minute here we have it here is there a fair value Gap in here yet nope there's one right there see that right there so we traded below this swing low there's a fair value G right there you can enter there right on this candle's high you can go short there what's the rules you remember
what the rules were you can put your stop above this here or the swing High there's a swing high right there I want to go down and really fine-tune it so I'm dropping down through all the time frames 5 4 3 2 1 in the two-minute chart you don't have a fair value Gap in here until there as well same entry and you can put a stop there as well and on the one minute chart we have the run here the break below the shortterm low here fair value Gap trade up into that look how
many times it gives you a chance to get in this candle that's one 2 three then it continues even lower so you're getting a really really tight entry there I actually went in and traded this today on trading View and you'll see me entering right here and riding down and taking out my exits below an old low but I'm going to also teach you how you can use the model here and use the exit strategy I use today for external range liquidity so let's go over trading view it's started at the 8:30 hour our line
here is at that 15-minute high so what we're expecting is a run above that high we're running above a short-term high right here there's a fair B got right there hit that now watch it should sell off that's not what I want I want to use this high back here but if you're a scalper you could take that low out right there and that would have been a trade there as well but for the daily range which is much more significant I'm using the 15-minute High I'm bearish on the day I'm expecting lower prices because
we've already went up a lot on the daily chart so now if you're waiting all day you might look at this and say oh I've missed it there's nothing for me to do don't think like that okay because the equity Market opens at 9:30 stock markets start getting really busy and volatile around that time frame and we're coming up on it in a few minutes here and usually not always but usually the first run at 9:30 is opposite to what the real move you want to be doing not every time now here here's a 9:30
volatility look how crazy it gets okay it's creating a low with another low here so there's what what's building underneath that sell stops Traders are being induced into thinking long trades go long go long go buy in get in there and go high Buy Low sell high right but it's it's sloppy in here but it's keeping these lows over here intact above these highs that's where my interest is okay so I don't have a trade until we get up above this level there and this is on the one minute chart Okay small little shallow run
we want something that's going to push through it no fair value got formed anyway okay I just paused it right there now now look at this initial poke above that high that we've drawn a line on it went above it it went down yes did it create any fair value gaps in here no every candle overlaps there's no gaps there okay there's also no swing low taken out so there's nothing in here yet now we have a higher high running Above This High and the high we were looking at on the 15-minute time frame which
is denoted by that horizontal line right there now we have the likelihood we if we're watching live we're waiting to see does it break lower if it breaks lower where is there a swing low right there so if we can trade down below that swing low and soon as it does that look in the highest high that forms in that low see if there's a fair value at that forms right there we went below it after taking out the high here's your number one candle the number two candle and the number three candle so there's
your Gap right in here so if it trades back to this candle's High plus I don't know one handle or one tick maybe two ticks whatever whatever you believe is an ideal entry for you the easiest one to is just go one tick above that and removes all the doubt there's no guess work there there it is and where's your stop loss going to be above the high of candle number two or you can use above candle number one which creates a swing High okay whichever one you can afford and allows you to to put
the trade on boom right there that candle if you had a limit order right there that would trip you in going short and your stop would have to be above here another one right there there's your second entry right above this candle here that's entering that's your limit where we're getting in go short same stop third opportunity almost completely closes in all that range right there see that right there if you see that live it feels like it's going to keep going higher because this candle at one time when it was at the high was
all green and bold you need to trust and train yourself to look at this pattern as it's forming because once you see dozens of it occurring it changes your perspective you don't get scared in fact it's fascinating to anticipate okay it went here so now it's going to go lower so at that point right there at that entry from this candle's low to this candle's High where's about 50% about right here right so be before we go any further where do we take our profits well you have a fair B got right there right so
if you're selling short up here you can buy it back below here because you're below 50% of the range that it range from high to low you're at a discount down here so there's your first Target remember there's equal lows down here I was telling you about what's below that sell stops so you want to be taking profits here and or here this is ideal okay let's go back and watch the rest of it right there that's it these are minute candles so you're selling short here or maybe you entered on the first one here
so that's minute one so 1 minute 2 minute 3 minute 4 minute 5 minutes 6 minutes 7 8 9 10 11 minutes and you have 10 20 30 40 50 60 we'll call it 60 we'll just call it 60 60 Handles in minutes okay if you are going to hold it focusing below these lows down here okay trust the bias that type of move right there is intended to upset Traders and get out and if they trailer stop L too short and aggressively they get knocked out right before the Big Move comes down takes out
the the lows down here so we're looking at right in here well let's look for 14680 there it is now is that a lot of time getting short here weathering some of this you already took first partial down here so even with this pulling back your stop stays here you use the first partial to kind of like quench that desire to roll your stop don't do that if you do that you're probably going to get stopped out because you don't have the understanding or the experience to know where to place a protective stop while it's
being Trail once it takes this low out down here and if you want to hold on to position then you can roll your stop to here but not before why because you've taken out a significant intermediate term low this low this high on a one minute chart that's an intermediate term price swing so it's taken that here but it's also a full Target for selling short up here and getting out down here so now in closing I Revisited the idea of this High to that low that's your range okay and if you put a Fibonacci
on that so we have 50% that's your equilibrium so everything above that price level because this low to that high that's our price run and 50% below it is discount so there's your little fair value you got right there you see that that right there that's your target going short there but this is internal range liquidity because it's internal relative to this low and this high that range so it's in the middle of that range which makes it internal range liquidity what is the stops below these lows down here external range liquidity so partials internal
range external range closure trade very simple logic isn't [Music] it
