ICT Mentorship - Month 2, Lecture 8: Market Maker Traps & False Breakouts

Overview:

• Focus: Market maker traps, false breakouts
• Context: Primary bearish and bullish markets
• Objective: Understand market maker strategies and how to align with them

False Breakout Above Price Consolidation:

• Occurs in bearish markets
• Market: Downtrend or expected to trade lower
• Behavior: Moves into a trading range
  • Neophyte/breakout traders bracket the range with buy/sell stops
  • Market makers target buy stops above the range
• Strategy: Neutralize buy stops by driving price above the range

False Breakout Below Price Consolidation:

• Occurs in bullish markets
• Market: Trading range observed at equilibrium
• Behavior: Breakout traders set buy/sell stops
  • Market makers target sell stops below the range
• Strategy: Neutralize sell stops by driving price below the range

Breakout Trader Perspective:

• Buy Stops: Above old/recent highs
• Sell Stops: Below old lows
• Objective: Capture trends, often leading to losses with hopes of large gains

Market Maker Tactics:

• Primary Focus: One side of the market (buy side in bullish markets)
• Below Market: Sell stops are used to pair long orders
• Above Market: Buy stops are used to exit long positions, take profits
• Price Expansion: After sell stops are triggered, price moves towards liquidity above old highs

Trading Strategy:

• Recognize price moves below consolidation as false breakouts
• Expectation: Price will run higher after absorbing sell stops
• Liquidity Zones: Above old highs, below old lows
• Market Efficiency Paradigm: Observe like a market maker

Market Efficiency Paradigm:

• Liquidity is key driver in price action
• Markets seek untapped liquidity zones with minimal resistance
• Directional Bias: Determined by liquidity location and market maker activity

Key Observations:

• Repeated Patterns: Market seeks liquidity below consolidation, runs higher
• Price Action: Suggests bullish market if consistently taking out sell stops
• Measured Moves: Project and analyze potential price swings using past data

Conclusion:

• Understanding Market Makers: Align with market makers rather than fighting them
• Trade Analysis: Based on liquidity, market structure, and order flow
• Preparation for Next Month: Focus on detailed concepts and filling knowledge gaps from free resources