foreign welcome back this is lesson 1. 4 defining open float liquidity pools okay we're gonna be looking at the Canadian dollar for this teaching okay we should look at here's a chart of the Canadian dollar Futures chart this is the March delivery contract for Canadian dollar foreign CAD pair daily chart when we're looking at price what we like to do is identify on a higher time frame where are the liquidity pools for the large funds because the liquidity pools for the large funds is largely where markets will want to reach for apart from long-term fundamentals on a intermediate term basis that means about three or four months the large funds open float the liquidity that's above old highs or below old lows that will be generally targeted every quarter how do we go about identifying which ones that we should be focusing on right now we have to incorporate a technique called open float now open float is simply just taking the last three months or taking the last month and a half to the next month and a half in the future encapsulating that time and basically you're looking at three months of data and by doing that what I'll do is give you a range to look for the highest high and the lowest low on the daily chart which will lead you to where the large funds liquidity pools are above and below the market price for example let's assume for a moment it's August 1st and we can look back and see where the highest high was in the last 60 days over the last 40 days and over the last 20 days prior to August 1st we can identify also the lowest low and the highest high in the first 20 trading days to the right of August 1st then 40 days out what's the high and low of that range and what's the high and low the range 60 days out from August 1st when you have that range 60 days look back in 60 days cast forward that is open float you want to find the highest high and the lowest low in between those two reference points and time on a near-term basis you can look back and see what the last 60 days trading days range was high and low in this case we can see the lowest here and the high is here going forward because we're looking at the look back period here casting forward those levels we can see that eventually during the month of September those highs that were formed in the latter portion of July 2016 they were in fact rated so the market was drawn to the buy stops on the fund level at those July highs extending it out so that we have 60 days look back and then 60 days cast forward we can see what the total open float is with the low end seen here in the high end seen here you can see the market did in fact eventually still dry forward reaching for the buy stops above the October highs in 2016. so if we're looking at the market like this we can also identify where significant short term and intermediate term highs and lows are if we look at the last range of 20 days behind us and 20 days casting forward expecting a new high or a new low to form because no one can accurately depict the future and forecast the future we have ideal times to look for in terms of intervals 20 40 and 60 days intervals looking back for the most obvious buy stops and sell stops don't just look for the highest high in the last 60 days and the lowest low in the last 60 days behind us or in the look back phase what we're doing is we're looking for where's the near-term high and low in the last 20 days whereas the short-term high and low in the last 40 days and where's the intermediate term high and low in the last 60 days that same thing can be done casting forward for looking at August 1st 2016 we can cast forward 20 trading days and expect a range of high and low to form noting what that high and low is on that particular range will give us the liquidity pulls that are on a near-term basis the easiest ones from the market to reach for when we're looking at short-term trades and day trades that range is going to be easy and helpful for you for intraday scalps and day trading when we look out 40 days it gives us a little bit more of a short-term basis for defining the liquidity pools on the daily chart looking for the last High and the last low in the last 40 days that made the highest high and lowest low buy stocks would be above that high and sales tax would be below that low in LTC 60 days cast forward from the first of August would give us the boundary point at which open float ends in terms of time not in terms of price but in terms of time so we are bracketing the market if you will 60 days forward in time and we're looking at back in the past 60 days so we have 120 trading days of what would be called open float we're looking for the highest high and the lowest low in that range but every 20 days there's a high and a low form now you're about to experience a growth spurt one of the most powerful patterns I like to trade is the turtle soup which is a false break above old high and a false break below an old well the pattern that I learned about that was taught in Street smarts book while I'm not teaching that pattern here out of respect for the the authors of that book the idea of a false break above or below based on the turtles trading pattern which is a long-term trading pattern or system if you will that allow long-term trends to pay out the turtle Traders and turtle Traders if you know what they are Richard Dennis put together a hodgepodge of different walks of life people all from different walks of life for the purpose of teaching them the concept of trading and he used a long-term trading model and he taught that buying a breakout above a 20-day High holding for long-term trends or selling short a 20-day low holding for long-term trends while they had a lot of losing trades their winners were monstrous it's a trend following system which is what I teach that the large funds are in the Foreign Exchange Market they're long-term Trend following because these markets are highly linked to interest rate markets which are under underlying fundamental drivers for the marketplace long-term trends are in fact fundamentally driven in currencies but because the system was based on buying on a breakout of the 20 period or selling below 20 period low that breakout many times was false and in itself it gives us an edge so if we look at every interval of 20 trading days which is what we have here 20 40 60.
you can encapsulate where the next high and the next low is on price and where the highest and lowest low on each 20-day interval going forward and looking back you'll know where device thoughts and sell stops are so that we can take respective trades based on that also if you notice that the buy stops keep getting hit and rarely do the sell stops keep getting hit by default it teaches you to institutional order flow is what bullish it's looking for higher prices it keeps drawing on the buy stops above the marketplace and conversely if we notice that the cell stops keep getting ran out and very rarely do the buy stops keep getting hit that tells us what for institution order flow it tells us that the institutional overflow is bearish so therefore the banks are making a move on the large funds liquidity below the lows or running their sell stops okay moving forward one month this is September 2016. the same thing is done here we've identified where the ranges in terms of the look back 60 trading days from the beginning of September and we have 60 trading Days cast forward we're going to look for the lowest low in the last 60 trading days prior to September 1st and that's this one here and the highest high in the last 60 days is here and again we can keep noticing that the buy stops above old highs keep getting taken out you can see that high is violated also in the month of September moving forward we have October 2016. look back period of 60 days and cast forward of 60 days we have identified our range or open float the highest high in the last 60 trading days prior to October 1st 2016 is this High here and the lowest low in our look back period of 60 days is here so open float on a large fund level are referenced by these two price points the higher it's where the buy stops are and the lowers where the sell stops are so they're looking for the buy stops above the marketplace and they keep taking those buy stops out notice also in the first 20 trading days to the right or the future from October 2012 there's a low that forms in the Canadian dollar it takes the lows out in the form of the bodies of the candles made in the last portion of September then there's a rejection that trades higher so we had one attempt here to clear out the sell side liquidity moving forward delineating our open float range for November 2016.
you can see the look back period 60 trading days maximum 40 trading days and 20 trading days the highest high and the lowest low formed in the last 20 and 40 and 60 trading days the lowest lowest seen here highest high seen here and again going forward into November we can see that that high was in fact taken out on the upside so they keep taking the buy stops out and institutional order flow is indicated as bullish casting forward one more time into December 2016. looking back last 60 trading days prior to December 1st the lowest low is seen here sales tax will be resting below that in a large fund level and buy stocks will be resting just above the high scene here notice also in the first 20 trading days after December 1st 2016 We Made It Low and then price ran eventually up into creating another higher high but blowing out the buy stops above the November High and then ultimately making a run down into a lower low for January and it forms in the first 40 trading days after December 1st 2016. and going forward in time at the time of this recording look back period last 60 trading days you see as low as low as seen here highest highs seen here we have already violated the lowest low so we've taken out the cell stops on a large funds level and we can look forward in time for a new price like that retrace higher and then see if they want to take it lower because it's all indicating that they want to take out the sell side liquidity now okay let's take a look at the dollar CAD pair this is the daily chart and let's apply some of these ideas on the daily chart okay you can see the bodies of the candles over here we did Wick down below 130 50 level and retrace a little bit that's where the cell stops will be resting oh no intermediate term basis because we're looking at a daily time frame price advancing does trade down there and takes those sell stops out of the marketplace and quickly runs away next area up here the bodies of the candles you can see that Wicks through it five stops will be resting just above that large funds have their buy stops taken out here and then quickly rejected and we have a low down here with the bodies of the candles sales thoughts will be rested just below that and we can see the market does in fact sweep down there and take the sell side liquidity out so what makes these false breaks and and false breaks higher and lower so lucrative is the fact that we understand that large traders in the form of a fund Trader they have their buy stops above these levels and they have their sell stops below these levels every 20 trading days there's going to be a new liquidity pool formed it's going to be on the buy side and on the sell side you just have to identify where those ranges are in respective terms to where the most obvious swing high and swing low is formed and then frame that going forward whereas the next 20 days high and low whereas the next 20 days high and low keep going out but looking back in the last 60 days and looking forward into the future 60 days gives us the range for open float the highest high and the lowest low in that range of 120 days that's what the large fund macro is in other words we're there aiming for the large fund buy stops or sell stops they're going to be derived at looking at where the range high and low is on the last 120 days 60 days backwards in time and with the next high and low if it makes a higher high in the next new 60 trading days we don't know where that high is going to be in in the future we don't know if it's going to create a higher high or if it's going to make a lower low we just monitor as price creates new price swings on highs and lows where are we in relative terms to the last 60 trading days are we making a higher high then the the highest high or are we making a lower low in the lowest low in the last 60 days and we look forward 60 trading days into the future and we keep moving that basis forward each new month we're looking for and we're we'll eventually arrive at the institution order Flow by default you can see where they're running the market they're taking out buy stops continuously rarely if ever taking out cell stops what's telling you do they want to press the market higher they keep grinding against those large funds so if it's seen as an opposite where we keep seeing the sell stops keep getting ran out and very real the buy stocks get taken out institutional order flow is bearish so therefore as long as we continuously see the market making new lows we keep watching that range of the last 60 days and where are we in relationship to that are we above it or below it if we're above it we have to continuously keep seeing buy stops get taken out if you start seeing cell stops get taken out we're probably making a quarterly shift and the reverse is said if we're below the last 60 days low and if we're below that last 60 days low we're really oversold we're in a deep discount market and if we start seeing buy stops getting hit and very rarely new we now see cell stops getting hit we're probably performing a market structure shift or quarterly shift for a new Direction in the marketplace and you can see that in fact is what happens here with the Canadian dollar so let's take this information and go back to the Futures Market and take a look at some things now obviously this is going to be the price action of the Futures Contract which is going to be inverted from what we see when we're studying the dollar Index versus the Canadian dollar because that pair starts with the US dollar first that means when that market is going higher as a pair that means the dollar strong in Canadian dollars weak if the dollar cad's going lower that means the dollar Index is weak and the Canadian dollar is strengthening well in this case we are looking at the Futures Contract of Canadian dollar and I want you to look at the same reference points we just showed in the previous slide we're just going to do the opposite in the Futures Market you see the bodies of the candles being ran out here in December and then quickly rejected we can see the bodies of the candle made in November gets rated in December and quickly Rejects and it runs for what the bodies of the candles here we're running the old high out where buy stocks will be resting and that's where we're at presently but prior to that big run up off of that 73 50 73 65 level take a look at this right here I gave you a teaching with the Australian dollar and I showed you how we can use these quarterly shifts to take place and open interest off of support resistance ideas on a higher time frame basis when we're looking at higher time frame charts we are identifying Clues and seeking evidences that we can see that they are about to make a move on one side of the marketplace we understand what's making that short-term fluctuation could be largely attributed to just running the stops on funds large fund traders buy stops and sell stops but it's not always that the markets are moving based on very very long-term fundamentals and as it relates to higher time frame charts but every three months there can be a manipulative phase in the marketplace that still can be a catalyst for us to be a Trader taking high probability entries and looking for high probability exit points and by looking at where the logical fund level traders buy stocks and sell stocks would be and looking for evidence is that the market is showing participation by smart money I.
E the banks if the Market's trading down to a support level at 73. 80 to 7360 in that range we have a clue here that once the market start trading lower from the 7 500 to 74. 60 74 40 level to 7400 and then once we got below 73.
80 level by that point open interest had already tanked you can see clearly here that's a huge drop it's a massive drop you only need a 15 the decrease to have a massive uh indication that there's big huge institutional sponsorship behind the move that you're expecting if open interest is declining what they're saying to us is they are not willing to be offering sell side liquidity to buyers they don't want that so they're scaring those individuals by dropping the market really quickly and open interest declines rapidly open interest only declines as an Evidence that the smart money are not wanting to be heavily short high open interest is a indication that there's a big massive liquidity uh program that's been offered for buyers the bank is offering that as risk they're holding the risk on that but if open interest declines while the market drops off precipitously and it goes into a support level because look at what's happening in November 2016. the Canadian dollars Futures Contract it rallied from around 73. 80 up to 76.
40 which is a very respectable range price comes back down runs the bodies of the candles that was formed as a low in November 2016. price comes down again looking for another shift in the marketplace it runs out the sell stops below the 7380 level with an old low remember we look back in higher time frame institution order flow reference points liquidity pools water blocks fair value gaps equilibrium all those price points we used and learned in September we look for those in our higher time frame charts we're seeing a liquidity pool in the form of a cell stop resting around 73. 80 they make that run and on low open interest at a support level they are indicating that it's going to go up higher if the Futures Contract for the Canadian dollar marks contract delivery is indicating that there is very low open interest at a support level at a time when the stops have been running out below the marketplace that's indicating what potential strength and you can see the price action that transpired after that rather explosive price move looking for a move from 73.
80 all the way up to 76. 80 so 300 Pips move up from one specific level that could be easily derived by looking at the evidences that we've shown here in this teaching using open float casting forward 60 days casting forward 40 days casting forward 20 days notice also every 20 trading days the high and the low becomes very obvious you can start circling these as you create new highs every time there's a new higher high note that and then wait for the price to come back down to an old 20-day low study that every 20-day High every 20-day low is going to have buy stocks and sell sauce resting above the highs and below the lows if you do this as an exercise going forward you'll see clearly what side of the marketplace it's seeking if it keeps taking out the buy stops or the highs the market is doing what it's moving higher it means institutional overflow is on the buy side you don't want to be selling short in those conditions if the market is taking out the sell side liquidity continuously and rarely ever taking out the highs of the uh price action that means that institutional overflow is indicated lower and you want to focus primarily on being short until we get an obvious change in Direction how would that happen well if you go and you start trading to the lowest low in the last 60 days well we're probably going to be very very deeply uh oversold and we're going to be in deep discount even if the price only bounces a little bit on a higher time frame like this it can bounce you know a great deal it could be over 150 200 Pips sometimes and then eventually roll over and continuous uh fashion keep going lower you don't want to be caught on the wrong side of the marketplace trading on a hard time frame chart and not see the evidences that it's given you and trade accordingly you have to have all these things in mind looking for where the liquidity is and the easiest way to do it and to make all this very simple because it could be very easily complicated and I'm sure probably complicated in many of your minds what you're looking for is a revolving continuous range of 120 days and you whatever day you're looking at you look back 60 and you look forward 60.
