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Understanding Market Structure and Liquidity

Mar 16, 2025

ICT Mentorship Lecture - January 25th, 2022

Overview

  • Topic: Internal Range Liquidity and Market Structure Shift
  • Platform: YouTube
  • Date: Tuesday, January 25th, 2022
  • Main focus: Understanding market structure shifts, liquidity, and trading strategies using these concepts.

Homework and Preparation

  • Homework Assignment: Analyze a specific chart to identify market structure shifts and liquidity.
  • Chart Focus: 15-minute timeframe on the E-mini Nasdaq 100 futures contract for March delivery 2022.
  • Objective: Identify the sell-side and buy-side liquidity and anticipate market structure shifts at specific points.

Key Concepts

Liquidity and Market Structure Shift

  • Sell-Side Liquidity: Identified by trades below old lows, marked by sell stops.
  • Buy-Side Liquidity: Found above equal highs, marked by buy stops.
  • Market Structure Shift: Not just a break; it signifies a potential intraday price direction change.
    • Intraday Shift: Short-term potential movements, different from market structure breaks which imply longer-term changes.

Important Price Points

  • Sell stops: Below old lows and relative equal lows.
  • Buy stops: Above equal highs.
  • Market Structure Shift Points: Occur where liquidity is taken and short-term highs/lows are violated.

Execution Strategies

  • Fair Value Gap: Identify gaps for potential trade entry; significant when paired with liquidity pools.
  • Order Blocks: Down/up closed candles within liquidity pools, marking areas for potential entries.
  • High-Frequency Trading Algorithms: Operate on market structures across different time intervals (1-minute, 2-minute, 3-minute).

Practical Application

Chart Analysis

  • 15-Minute Chart: Provides a broader view of liquidity pools and potential shifts.
  • 2-Minute and 1-Minute Charts: Used for pinpointing exact entry/exit points and validating market structure shifts.

Trading Execution

  • Live Trading Example: Demonstrated on a live account using the E-mini Nasdaq with annotations and order executions.
  • Key Execution Points: Entering at fair value gaps, using order blocks for confirmations, and setting realistic targets.

Trading Mindset and Considerations

  • Risk Management: Understanding risk per trade, exemplified by live trade with specified risk parameters.
  • Psychological Aspect: Importance of having faith in systems and maintaining composure during trade drawdowns.

Homework and Study

  • Task: Backtest and log examples of market structure shifts and liquidity grabs on the E-mini futures.
  • Goal: Develop a study journal to reinforce concepts and improve recognition of trading patterns.

Additional Tips

  • Session Times: Key session times for potential shifts include London, New York, and Asia sessions.
  • Backtesting: Log detailed annotations, understand market behaviors, and practice consistent chart analysis.

Conclusion

  • Emphasis on Self-Learning: Encourages students to verify teachings through personal chart analysis and logging.
  • Continuous Improvement: Encourages adapting and broadening understanding beyond simplified perspectives.

This lecture provides foundational insights into market structure and trading strategies, urging students to independently verify and apply these concepts through rigorous chart analysis and study.

Full transcript