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ICT Mentorship Core Content - Month 03 - Institutional Sponsorship
The Inner Circle Trader
Overview
This video explains how to identify institutional sponsorship in financial markets, focusing on how large institutions influence price movements. It details the characteristics of institutional sponsorship in both long and short setups, emphasizing the role of higher time frame price displacement, liquidity runs, and specific times of day. The core concept is understanding that institutions protect price levels where they have significant positions, leading to predictable price reactions that traders can leverage. The explanation uses concepts like order blocks, liquidity voids, and buy/sell stops to illustrate how institutional activity creates opportunities.
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Chapters
- Look for higher time frame price displacement, such as reversals or expansions, and intermediate term imbalance.
- This imbalance often appears as a move to a discount or a run on sell-side liquidity (sweeping below old lows).
- After these initial moves, identify short-term buy-side liquidity above the market (e.g., above old highs) as a target for institutions.
- Time of day, like the London or New York session opens, is crucial for identifying the low of the day and potential institutional entry.
Understanding these patterns helps traders anticipate where large institutions are likely to enter the market, providing high-probability long trade opportunities.
Price dropping below an old low to trigger sell stops, followed by a strong rally upwards, indicating institutional buying interest.
- This is the inverse of long setups: look for higher time frame price displacement and intermediate term imbalance.
- The imbalance here involves price moving to a premium or running on buy-side liquidity (sweeping above old highs).
- Identify short-term sell-side liquidity below the market as a target for institutions to exit long positions.
- Time of day, such as the London open high or New York session high formation, is important for identifying the high of the day.
Recognizing the symmetrical patterns in short setups allows traders to apply the same principles of institutional sponsorship to identify profitable short-selling opportunities.
Price rallying above an old high to trigger buy stops, followed by a sharp decline, indicating institutional selling interest.
- Institutional sponsorship is the willingness of large entities (banks, institutions) to protect a price swing they anticipate will unfold.
- They fund the side of the market they expect to move, acting as market makers.
- This sponsorship is evidenced by dynamic and immediate price reactions when key levels are tested.
- A lack of dynamic response suggests no institutional orders are present, signaling a potential trade failure.
This definition clarifies that institutional sponsorship isn't just about price movement, but about the underlying intent and protection of specific price levels by powerful market players.
An elephant stepping into a small pool displaces water significantly; similarly, large institutional orders cause a noticeable and immediate price surge or drop.
- Look for higher time frame price displacement as clear evidence of large entity entry.
- Identify the origin of a price swing – the root price level where institutional sponsorship began.
- Focus on bullish or bearish order blocks (the last down/up candle before a significant move) as potential areas of institutional interest.
- Observe immediate, dynamic price responses at these levels; lethargic movement indicates a lack of sponsorship.
By analyzing these specific price action characteristics, traders can pinpoint the exact levels where institutions are actively participating and protecting their positions.
A daily chart showing a strong surge after price tested a specific bullish order block, indicating institutional protection of that level.
- Buy-side liquidity (buy stops above old highs) and sell-side liquidity (sell stops below old lows) are targets for institutional order flow.
- Institutions often 'run' these liquidity pools to fill their orders, accumulating positions.
- Bullish order blocks represent areas where institutions are likely to buy, defending the level.
- Price returning to these order blocks, especially after a liquidity run, offers high-probability buying opportunities.
Understanding how institutions use liquidity pools and order blocks provides a framework for anticipating price direction and identifying entry points.
Price dropping below an old low, running sell stops, then rallying significantly from a bullish order block, indicating accumulation.
- Specific times of day, particularly the London and New York session opens, are critical for institutional activity.
- The New York midnight opening price is a key reference point; price dipping below it and then rallying can signal institutional accumulation.
- Bullish order blocks formed during these sessions, especially those below the opening price, are prime areas for buying.
- Institutions defend these levels, expecting price to move higher, often targeting previous highs.
Incorporating session timing adds another layer of precision to identifying institutional sponsorship, aligning price action with predictable market behavior.
Price trading below the New York midnight opening price, forming a down candle (bullish order block), and then rallying strongly, showing institutional buying.
- Power Three is a concept for capturing the bulk of a daily range, involving buying near or below the opening price on an up day.
- The expectation is for price to move higher, resulting in a higher close for the day.
- Institutions aim to drive price towards higher targets, often clearing multiple levels of buy-side liquidity.
- Consolidation around old highs can trap traditional traders, while institutions use these areas to continue their intended move.
This strategy leverages institutional intent to capture significant daily price moves, moving beyond simple support and resistance.
On an up day, price dips below the opening price, forms a bullish order block, and then rallies to a higher close, fulfilling the Power Three concept.
- Institutions defend specific levels (order blocks) because they have a vested interest in seeing price move in a certain direction.
- When price retraces to a previously defended bullish order block, it's an opportunity for institutions to buy again (recapitalize).
- Breaking old highs changes market structure to bullish, reinforcing the expectation that price will continue higher.
- Successful trades exhibiting institutional sponsorship will show these recapitalized order blocks and moves towards higher liquidity pools.
Understanding the 'recapitalization' of order blocks explains why certain levels repeatedly offer trading opportunities and confirms institutional commitment to a price direction.
Price repeatedly returning to a specific bullish order block from previous sessions and rallying, demonstrating institutional defense and accumulation.
Key takeaways
- Institutional sponsorship is the active protection of price levels by large market participants to facilitate their intended price movements.
- Look for higher time frame price displacement and liquidity runs (sweeps of stops) as primary indicators of institutional involvement.
- Specific times of day, like London and New York session opens, are crucial for identifying institutional entry and exit points.
- Order blocks (last down candle before a rally, or last up candle before a drop) are key areas where institutions defend positions.
- Price action that shows immediate, dynamic reactions at key levels confirms institutional sponsorship; slow or lethargic movement suggests its absence.
- Understanding buy-side and sell-side liquidity helps traders identify targets and areas where institutions will likely act.
- The 'Power Three' concept suggests buying near or below the opening price on an up day to capture a significant portion of the daily range.
- Successful trades often feature the recapitalization of previously defended order blocks, indicating continued institutional interest.
Key terms
Institutional SponsorshipHigher Time Frame Price DisplacementLiquidity Run (Buy-side/Sell-side)Order Block (Bullish/Bearish)Discount/PremiumFair ValueTime of Day Influence (London/New York Open)Buy Stops/Sell StopsMarket Maker PerspectivePower ThreeRecapitalization
Test your understanding
- What are the primary indicators of institutional sponsorship in a long setup?
- How does institutional sponsorship in a short setup differ from a long setup?
- Why is understanding liquidity pools (buy stops and sell stops) important when identifying institutional sponsorship?
- What characteristics in price action signal the presence of institutional sponsorship, and what suggests its absence?
- How can traders use specific times of day, like session opens, to confirm potential institutional activity?