welcome back folks to lesson four of the May 2017 ICT mentorship ICT Amplified day trading and scalping this teaching is trading in consolidations okay what's the secrets behind trading in consolidations well the first thing you need to understand is the focus on the daily and or for our order flow subordination what is order flow telling you on a daily basis on the daily chart is price suggested to go higher based on IPA and Order flow or is it most likely going to go lower the 4our chart is your last line of defense in terms of determining directional buys you want to be trading in preferably both the daily and 4our both suggesting higher prices or lower prices and looking for consolidations in price in a lower time frame so in other words we could be looking at a consolidation around an hourly chart or 15-minute time frame and that may be a buildup of new positions or it could be a buildup of orders to then look for a rejection basically a turtle suit but when it comes to uh consolidations I want you to think in two Camp obviously what retail Traders are thinking trying to do the opposite of that in your own trading and that of what smart money does with their trades so retail Traders they're going to be looking for breakouts to establish a directional bias uh they have no insights as to what the market may be telling them they're looking for a cause and effect if it does this then I'll understand that okay but they're basically chasing after price smart money will engineer or fade breakouts of a consolidation smart money is not trying to follow price it's going to allow price to go to a specific level when if to when IPA trades to a specific key level or of price or a liquidity reference point or a PD array and it happens to be in agreement with a breakout of a consolidation many times you're going to see a lot of institutional sponsorship on the Move That Fades that very thing retail traders buy the previous low and sell the previous high this is in keeping with the traditions of technical analysis or what is known as classical support resistance obviously we've seen many instances where support and resistance aren't limited to just the actual old low and the old High um liquidity rests just above an old high or below an old low which obviously brings us to Smart money's perspective by buying under an old low and selling above an old High when the markets are in consolidation understand that the consolidation itself is permitting the open float which is the buildup of orders above and below the current market action so market price being what it is if markets are trading in a consolidation that market price you want to be looking above shortterm and below short term for where the buy stops and sell stops would be that's your open float when the market moves into consolidations and the long sideways consolidation the longer that consolidation is the more orders they're allowing to build up now obviously as a day trader we're not going to expect a a long phase of consolidation could be ra rather brief but inside that consolidation we have to understand what's being permitted the orders are being allowed to stack up in terms of breakout orders in terms of trailed stop-loss orders stop orders that would key up a entry for instance buying on a stop for strength and selling on a stop for weakness all those ideas overlap and it creates a great deal of near-term open float so in other words the open interest above the marketplace we start to concentrate the open interest below the marketplace will begin to concentrate and you'll have a lot of liquidity basically bracketing the market price when we look at the daily and or 4H hour order flow the subordination to that in terms of price action when consolidations occur whatever the direction of daily or 4 hour is that's going to be the direction of the move outside the consolidation most often so if price moves above the consolidation take out an old high and daily Andor 4 hour is bearish that's usually going to be the best scenario work for trading in the consolidation now if daily and 4H hour order flow is bullish any moves below the consolidation would be viewed as smart money accumulating the sell stops for move higher if the daily or 4-Hour order flow is bearish any move above the consolidation above an old high is going to be viewed as smart money knocking out buy stops and accumulating short positions the opposite is going to be seen with the retail crowd they're going to be basically chasing price retail Traders Chase expansions that originate from the equilibrium and smart money Fades the expansions that originate from the equilibrium now let me explain this a little bit more clear when the market is bearish on the daily or 4H hour in terms of its order flow this subordination factor is going to be seen in the lower time frame charts where if there's a consolidation and price starts to trade away from the equilibrium price point higher if it breaks a short-term high in the event of doing that many times retail Traders are going to see that as something bullish okay and they're going to look for expansions usually ABCD type uh movements smart money does not see that they actually fade that and they're going to go the opposite direction so any short-term High get broken and as price moves away from the equilibrium price point or middle of the consolidation they fade that as a short-term stop run and then they send it to the opposite extreme of the consolidation and just outside the consolidation range again retail thinks in terms of old High classic retail resistance old low classic retail support we're more focused on the equilibrium price point because we understand premium and discount not just simply what price did at an old high old low because we understand if it turned at an old high liquidity is going to be just below that high for a bearish order block or it's going to go above that high for the liquidity resting above it in the form of buy stops the equilibrium we want to see price moving expanding away from that now if we're looking for now the daily or 4our is bearish okay in the order flow subordination on the lower time frame we expect any consolidations any rally away from the equilibrium price point that breaks a short-term High we will be looking to sell short retail is going to want to see that as a breaking uh structure if you will okay uh for folks that want to trade empowered that they're going to see those types of things that would in their minds indicate a ABC d correction to the upside if daily 4-Hour order flow is moving lower as we understand it and we see an expansion away from the equilibrium price point or the middle of the range and it breaks a short-term high that is our sell scenario and we're looking for the opposite end or the old low or retail support that's what's going to be targeted next and then move below that and the opposite said for what equilibrium is expanding downward when the order flow on The Daily or 4 Hour is bullish if we see a short-term low that's broken on an expansion away from equilibrium we'll see that as a run on buy stops not a break in structure for lower prices we see that as a sweep on sell stops to accumulate new Longs and they're going to run for the other end of the consolidation or just outside of it for the liquidity for the buy stops pair that out okay some of the scenarios uh conceptually that's just what it looks like uh we have price moving away from equilibrium all the way up into the outside of a consolidation so we're going to be referencing old highs and old lows whatever that defined range would be we're just classically defining in terms of support and resistance here whenever you see price in a consolidation that's clearly definable and price rallies above that consolidation when daily and or 4our is be is retail Traders are going to see this as a bullish breakout and they're going to be wanting to buy that that buying if they're surging into the marketplace as a buyer that creates the perfect opportunity as a counterparty to us who mimics the smart Traders smart money is going to be selling that breakout when daily end or 4our is bearish so we want to see consolidations and a rally outside of that consolidation to entice retail or less informed traders to buy thinking they're buying strength when that higher time frame daily or 4our order flow is going to cause the lower time frames to be subordinate to those higher time frames so we're going to be doing the same thing as a smart money we're going to be selling those breakouts and consolidations when the daily or 4 hour is bullish and the price breaks down below the consolidation retail Traders going to see that as a break in structure they're going to see that as weakness okay they're going to look to sell short on weakness so retail Traders are trying to sell that as a breakout entry or a short position smart money will see the opposite of that if the daily or 4our is seeing bullish order flow when we see this break below and old consolidation we understand that's accumulation of sell stops in the form of pairing up their orders to go long now inside of the range or the consolidation when the daily or 4H hour order flow is bullish what I like to anticipate is Traders seeing that old low that show a short-term little bounce when price trades back down to that same equal low they're going to be buying there and guess where they're going to put their stop loss just below that previous short-term low so when retail Traders see this they're treating the old low as classic support and resistance resistance Theory doesn't work that right there is what we anticipate seeing then when we get the opposite when price trades down below the previous low outside of the consolidation that's where we're looking to be a buyer we're buying up those sell stops when again the daily Andor 4 hour is in a bullish orderflow that creates our lowrisk high probability entry now when we have these conditions we're looking for price to return back to equilibrium we do not anticipate or always hold for the opposite end of the consolidation we don't know that we have no idea if that's going to occur with any validity we just simply take the move back to the equilibrium because price while in consolidations is always going to want to gravitate back to the mean and equilibrium is the middle of what we deemed as fair value so always when we're consolidations anticipate price expanding away from the equilibrium price point then outside of the consolidation but many times it'll snap back up into the middle of the range or go back to equilibrium if the daily or 4 hour is bullish here even if we are going to bounce lower after heating equilibrium many times this in itself will provide an opportunity to get long and have a tradable rally okay okay the offsite here when a daily or 4 hour is bearish and we see price trade back up to an old high while it's inside the consolidation again retail Traders going to see this as an old High classic support and resistance theory is going to be in operation they're going to sell short right there and you know what they're going to do with their stop their buy stops going to be placed just above the previous high that was inside the consolidation they have no understanding of order flow they have no understanding of how markets have building up of liquidity around specific price levels they have no appreciation for how that liquidity is sought after in price so when retail Traders see this as their entry point we're anticipating this and then the buildup of buy stops just above that previous high so when we wait for that exercise patience we're looking for the consolidation breakout above a previous high and when that happens we're doing the same thing by mimicking what smart money does by selling above scooping up those buy stops that retail Traders or less informed Traders are going to be placing because there's going to be a buildup of that buy side liquidity so when price trades up there ifpa will permit an opportunity for short sellers at the bank to pair up their shorts with obvious level of buy stops that we resting above that previous High okay when the daily or 4H hour order flow is bearish and we see a price move moving away from and higher away from that equilibrium price point and it breaks a short-term high that short-term high is broken retail Traders going to see that as a breaking structure and they're going to look to buy going long and they're look for an ABC type formation and expect to see strength in that particular Market smart money on the other hand we see that as a opportunity to sell away from the expansion because again the subordination the lower time frame charts are going to have the follow what's being dictated on The Daily and or 4our chart so if it's bearish order flow that we're seeing on The Daily and 4our chart and we see a consolidation we have to identify where equilibrium is and then look for short-term Highs are just above equilibrium and then a rally above that many times we're going to see this as the ideal entry point for shorts once that short-term high is broken that's an accumulation on buy stops so if they're going to run the buy stops in a daily or 4- hour bearish environment that's where we look to go short and we aim for the liquidity resting below the previous low that creates the consolidation support we're going to pair up our buying to cover our short with those individuals that have sell stops resting below an old low all facilitated by a run on buy stops from a short-term high that was created just above the equilibrium price point that we used to sell into those willing buyers so what we're doing is we're pairing orders just like the smart money does at the bank level using institutional order flow from a daily end or 4H hour chart when the Daily 4 hour is bullish retail Traders going to see that sell opportunity in their mind by having that expansion lower that breaks below an old short-term low they're going to see that as a Breakin support a break-in Market structure and they'll see that as selling short on weakness and they're going to be looking for a continuation or breakdown in that particular Market we anticipate this very thing and by them doing that we're going to fade that whole move that move that breaks that short-term low retail sees that as an opportunity to sell short again there's selling weakness that's an opportunity for us to fade that and do the opposite smart money on the other hand when they see that short-term low in the daily or 4 hour is bullish what they see is a run on sell stops that short-term low is going to be building up a liquidity Poll for sell stops that would create immediate injections of selling liquidity why would they want to seek selling liquidity because they need to buy the market long their counterpart is going to be this run on that short-term low or expansion away from equilibrium when daily or 4 hours bullish what we're looking for is this particular right here where price comes down snaps up short-term sell side liquidity they use that sell side liquidity to be counterparties to buy long when that occurs they expect and anticipate a move outside of the consolidation to pair up their orders with the buy stops that are resting above the old consolidation high so what we do here is we do the same things that the bank Traders do we anticipate it and we use the generic price action characteristics that are inside of a consolidation that retail Traders don't think they don't think about price like this they think about selling weakness and buying strength and they have no understanding what fair value is and how to use it with the equilibrium so now when we look at Price action on the lower time frames for day trading and on higher time frames as well the daily or 4H hour order flow if it's bullish or bearish are we respecting a bullish order block are we reaching up to a premium PD array that means we're going to be bullish that means the the consolidations that we're seeing here this is a pattern that we would like to see for our day trades that short-term low could be in many cases the Asian session low or it could be a previous day's low and either one of those scenarios would create a wonderful opportunity to get long as a day trade and everything I just said here could be reversed for going short so I want you to think about when markets going consolidation there's some very generic characteristics that we look at or at least I do as a Trader and it helps me build an idea but it all stems from the subordination that price is going to hold relative to the Daily and 4our direction bias based on institutional order Flow by using what the PD Matrix would be suggesting is in play right now of discount or premium Market we use our PD Matrix to determine what those levels that's are reaching for basically and that's that's our directional bias so if we see that directional bias arrived at from a daily chart or a 4our chart we have higher time frame directional bias on our side than any consolidation we know what side do we need to be working on any short-term low that's violated below the equilibrium we're going to look to go long on that if it's bullish on the da or 4 Hour any move below the old lows or the consolidation we anticipate that as a run on sell side liquidity why they want to run the sell stops because they want to pair those up with their buying so again we have to focus primarily on The Daily and 4H hour for day trades to give us the high probability directional play and also how to not get beat up by trading in consolidations and working on one side of the marketplace and seeking that liquidity like the banks do so until the next lesson I wish you good luck and good Trading