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2022 ICT Mentorship Episode 12
1:13:59

2022 ICT Mentorship Episode 12

The Inner Circle Trader

7 chapters8 takeaways15 key terms5 questions

Overview

This video introduces an advanced concept of market structure for precision technicians, moving beyond the basic retail understanding of higher highs and higher lows. It emphasizes analyzing price action based on institutional order flow, liquidity grabs, and the rebalancing of imbalances (fair value gaps). The presenter details how to identify long-term, intermediate-term, and short-term highs and lows, explaining that intermediate-term structures are formed by the rebalancing of imbalances. The lesson stresses the importance of higher time frames, particularly the daily chart, in determining market bias and avoiding subjective retail concepts like trendlines and moving averages. It provides a framework for understanding algorithmic trading principles and how they manifest in price movements, offering a more scientific approach to technical analysis.

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Chapters

  • This lecture covers advanced price action theory on market structure, intended for precision technicians.
  • It moves beyond the simplistic retail view of higher highs and higher lows to a deeper analysis.
  • The concepts apply across various asset classes like forex, stocks, and bonds, using NASDAQ futures as an example due to current volatility.
  • Learners should expect to study and review the material, as it's complex and not fully graspable in one viewing.
Understanding this advanced market structure is crucial for developing a more robust and objective trading strategy that aligns with how institutional algorithms operate, moving beyond common retail misconceptions.
The NASDAQ March 2022 contract is used to illustrate concepts, showing a predicted run below previous lows and a rebalance into a fair value gap.
  • The primary questions before analyzing charts are: Is price likely to move for buy-side or sell-side liquidity, or to rebalance an imbalance (fair value gap)?
  • Retail concepts like patterns, harmonic analysis, or Elliot waves are disregarded in favor of these core principles.
  • Market structure is analyzed by examining the relationships between swing highs and lows, not just simple trend direction.
  • The daily chart's bias is paramount, guiding expectations for price movement over the next day or two.
Focusing on liquidity and imbalances provides a clear, objective framework for understanding market direction and potential turning points, which is essential for high-probability trading.
The presenter asks if the market is likely to go up for buy-side liquidity or down to rebalance an old imbalance, framing the core analytical questions.
  • An intermediate-term high or low is formed when price rebalances a previous imbalance (fair value gap).
  • Unlike retail definitions, an intermediate-term high doesn't necessarily need to be higher than previous short-term highs; it often signifies weakness if it fails to do so.
  • The concept of 'institutional order flow' suggests that during a bearish move, up-closed candles should act as resistance, and during a bullish move, down-closed candles should act as support.
  • This advanced view contrasts with Larry Williams' market structure concepts, offering a more refined interpretation.
Correctly identifying intermediate-term highs and lows is key to understanding the underlying strength or weakness of a market move and anticipating potential reversals or continuations.
When a large down candle (imbalance) is rebalanced by a subsequent move up, the high formed at that point is classified as an intermediate-term high.
  • An 'order block' is not just the last up-closed candle before a down move, but a series of up-closed candles within a specific price range that can act as resistance.
  • An aggressive entry can be taken when price rebalances an imbalance within an expected bearish order block, even without a break of a short-term low.
  • The presenter uses lower time frames (e.g., 50-minute, 15-minute, 4-minute) to refine entries within the context of higher time frame analysis.
  • The risk for an aggressive entry is managed by placing a stop loss just above the identified order block or swing high.
Understanding advanced order block concepts and utilizing aggressive entries based on refined market structure allows traders to enter trades with potentially higher risk-reward ratios.
The presenter points to a series of green (up-closed) candles on the hourly chart, identifying this range as a bearish order block from which an aggressive short entry can be taken if price rebalances an imbalance within it.
  • If an intermediate-term high or low is violated after a trade idea is formed, it signals that the initial analysis is likely flawed.
  • Price targets can be derived using Fibonacci extensions anchored to key swing points (intermediate-term highs/lows) after a significant break in market structure.
  • The core principles of market operation are liquidity runs (sweeping stops) and imbalance rebalancing, not subjective retail indicators.
  • Traders should align their bias with the higher time frame (daily chart) to increase the probability of success and avoid fighting the dominant market trend.
This chapter provides a method for validating trade ideas and managing risk by recognizing when market structure shifts invalidate a trading plan, preventing costly mistakes.
If a trader is bearish and the intermediate-term high is broken to the upside, the trade idea is considered flawed, and the trader should wait for new setups.
  • The daily chart provides the overarching bias and dictates the 'order flow' that lower time frames should adhere to.
  • Trading against the daily chart's bias significantly increases risk, akin to swimming upstream.
  • When the daily chart is bearish, up-closed candles should act as resistance, and vice-versa for bullish scenarios.
  • The presenter emphasizes a neutral stance when the market context is unclear or lacks a high-probability setup, even if opportunities seem present.
Aligning trades with the higher time frame bias is fundamental to consistent profitability, as it leverages the direction of institutional money flow and reduces the likelihood of being caught in counter-trend moves.
The presenter states he is currently neutral on the NASDAQ, despite a previous bearish bias, because the price has moved back above a significant low, creating ambiguity.
  • Understanding these advanced concepts requires time, study, and consistent practice; it cannot be learned in a single lesson.
  • The presenter uses questions from the community to inform future lessons, addressing common points of confusion.
  • The core market drivers are liquidity and imbalance, not subjective retail tools like trendlines or moving averages.
  • The proof of this methodology lies in backtesting and observing its consistent application in live market data.
This section reinforces that mastery of advanced trading concepts is a journey, encouraging learners to be patient, persistent, and to trust the process of learning through observation and practice.
The presenter mentions that a previous analysis of the NASDAQ predicted a 14,500-point move, which then occurred, demonstrating the predictive power of the methodology taught.

Key takeaways

  1. 1Market structure analysis should focus on liquidity runs and the rebalancing of imbalances, not subjective retail indicators.
  2. 2Intermediate-term highs and lows are formed by the rebalancing of fair value gaps and are critical for understanding market direction.
  3. 3Higher time frame bias, particularly from the daily chart, is paramount and should guide all trading decisions.
  4. 4Institutional order flow dictates that up-closed candles act as resistance in bearish markets, and down-closed candles act as support in bullish markets.
  5. 5Aggressive entries can be taken based on advanced order block concepts and market structure, but require a clear understanding of the underlying bias.
  6. 6When market structure shifts or key levels are violated, it's a signal to invalidate the trade idea and wait for new setups.
  7. 7Patience and consistent study are essential for mastering advanced price action concepts; instant gratification is not possible.
  8. 8The market operates on logical principles of liquidity and efficiency, not on a confluence of disparate retail trading theories.

Key terms

Market StructurePrecision TechnicianPrice Action TheoryFair Value Gap (FVG)ImbalanceLiquidity (Buy-side/Sell-side)Swing High/LowLong-Term High/LowIntermediate-Term High/LowShort-Term High/LowInstitutional Order FlowOrder BlockAggressive EntryBiasFractal

Test your understanding

  1. 1How does the concept of 'rebalancing an imbalance' define an intermediate-term high or low in advanced market structure?
  2. 2Why does the presenter advocate for focusing on liquidity and imbalances over traditional retail indicators like trendlines and moving averages?
  3. 3What is the role of the daily chart's bias in framing trade ideas, and why is it considered more important than lower time frame analysis alone?
  4. 4Explain the concept of 'institutional order flow' and how up-closed candles act as resistance in a bearish market scenario.
  5. 5Under what conditions would an aggressive entry be considered valid according to the advanced market structure principles discussed?

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