Institutional Market Structure Lecture

Overview

• Objective: Understand how institutions and market structure interact to move markets.
• Segments: Institutional aspects and Market Structure.

Institutional Aspects

• Key Players: Central banks, huge financial institutions.
• Market Movement Drivers: Institutions either
  1. Offering fair value
  2. Seeking liquidity

Offering Fair Value

• Concept: Both buyers and sellers get a fair opportunity to participate in the market.
• Example:
  1. Market moves higher (buyers get involved).
  2. Retracement gives sellers a chance to get involved.
  3. Once both have participated, fair value is achieved.
• Fair Value Area (FVA): Formed after a 3 swing movement (buy, sell, buy), the retracement is limited to this area before prices continue in the original direction.
• Identifying Fair Value Areas: Similar to mitigation blocks, order blocks, or breaker blocks.

Seeking Liquidity

• Concept: When fair value is already achieved, the market seeks liquidity instead.
• Indicators: (Not offering fair value any more):
  • Deep retracements into fair value areas
  • Creation of Fair Value Gaps indicating the market's intent to seek liquidity.
• Targets: Liquidity points like highs or lows in the chart.

Market Structure

• Correlates with institutional concepts to form the 'Institutional Market Structure'.
• Key Components:
  1. Short-term Highs (STH) and Short-term Lows (STL)
  2. Intermediate-term Highs (ITH) and Intermediate-term Lows (ITL)
  3. Short-term Ranges (STRs) and Intermediate-term Ranges (ITRs)

Short-Term High (STH) and Low (STL)

• Short-Term High: Middle candle higher with candles on either side lower.
• Short-Term Low: Middle candle lower with candles on either side higher.

Intermediate-Term High (ITH) and Low (ITL)

• Intermediate-Term High: A STH with lower STHs on both sides.
• Intermediate-Term Low: Similar, but for STL.

Short-Term & Intermediate-Term Ranges

• STH/STL leaving behind fair value gaps form STRs.
• ITH to ITL area forms an ITR.

Cycle and Confirmation

• **Confirming ITH/ITL: **Need two STRs to confirm an ITH or ITL.
• Targets: Confirmed intermediate-term targets are strong points.

Example Process

1. Identify FVA: Move from ITL to ITH is the FVA.
2. Seek Liquidity: Identify if the market is offering fair value or seeking liquidity.
3. Confirm through cycles: Validate if it is a strong high or low.

Practical Examples

• **Different Markets (EU, Crude Oil): **Examples explained on EU and Crude Oil daily charts for practical understanding.
• Pattern Recognition: Identifying patterns like breaker blocks, mitigation blocks, etc.

Conclusion

• Understand institutional actions and market structure to achieve high probability trades.
• Key Takeaway: Market alternates between offering fair value and seeking liquidity; use this knowledge to anticipate market movements.

Note: Also discussed upcoming spring enrollment for a four-month boot camp for motivated traders.