ICT Mentorship Core Content - Month 04 - Liquidity Pools

Main Ideas / Concepts Taught (ICT Mentorship: Liquidity Pools)

1) Liquidity pools = where buy/sell interest is concentrated

• Liquidity in the market is described as the open interest of buyers and sellers, especially at/near specific price levels.
• Traders expect price to react when it reaches areas where other participants have pending orders.

2) “Smart money” positioning vs. retail behavior

• The speaker contrasts typical behaviors:

Smart-money-minded traders

• Want to sell at a premium: place sells above the current market price (targeting buy-side liquidity / buy stops).
• Want to buy at a discount: place buys below the current market price (targeting sell-side liquidity / sell stops).

Retail traders

• Often react at/near market price and may buy/sell in breakout/continuation ways (e.g., bull flags, wedges).
• Are often unaware of how others place stop orders around key levels.

3) Pending orders are the real “fuel”

• Identify where new pending orders likely exist:
  • Buy stops above the market (often from traders expecting upside continuation; can also be protective stops for longs).
  • Sell stops below the market (often from traders expecting downside continuation; can also be protective stops for shorts).

4) Market direction framework: “predisposed to go higher or lower”

• Determine on a higher timeframe whether the market is predisposed bullish or predisposed bearish.
• Then wait for price to reach liquidity pools that would trigger stops being hit and create a reversal/transfer of positions.

5) Core mechanism: liquidity sweep → stop orders become market orders → price reprices

• When price breaks a recent low or recent high, it can:
  • Trigger stop-losses (sell stops or buy stops).
  • Convert those stops into market sell/buy orders.
  • “Inject liquidity,” creating conditions for the opposite side’s entry/accumulation.

---

Methodology / Step-by-Step Instructions (As Taught)

A) If the underlying market is bearish: seek sell-side liquidity, then buy into the reversal

1. Identify a liquidity pool below the recent/old low.
2. Recognize that below the low there are typically sell stops:
   • When price trades below that low, those sell stops trigger and become market orders.
3. Trading plan:
   • Anticipate a sweep (run) below the low (example guideline: often 10–20 pips below the old low on lower timeframe charts).
   • Place a buy limit just below/at the recent low (framed as consistent with “smart money” accumulation).
   • Expect upward re-pricing after sell-side stops are cleared.
4. Profit-taking:
   • Sell into buy-side liquidity above (e.g., old highs, equal highs, bullish order blocks, fair value gaps, liquidity voids—referenced as targets).

B) If the underlying market is bullish: seek buy-side liquidity, then sell into the reversal

1. Identify a liquidity pool above the recent/old high.
2. Recognize that above the high there are typically buy stops.
3. Trading plan:
   • Wait for price to rally into/above the old high to trigger buy stops.
   • Those buy stops become market buys, injecting buy-side liquidity.
   • Smart money then sells into that liquidity (i.e., shorts in the pool).

C) Stop-loss / risk guideline for the “run on liquidity” (buying below a low)

• Practical exercise guidelines:
  • On lower timeframe validation (e.g., 15m/30m):
    • Expect a 10–20 pip sweep below the old low.
  • Suggested stop sizing:
    • A 30–50 pip stop is described as ideal if entry is below the low.
    • Rationale: if price moves beyond ~25 pips below the low, it may signal further decline rather than a simple stop-run.
• Entry positioning caution:
  • Avoid buying above the low (often driven by fear of missing the move).
  • Prefer buying after price trades under the low and then triggers the intended reaction.

D) “Role-play” technique to locate other traders’ stop levels

• Since most retail traders don’t track others’ stops, the speaker suggests inferring them:
  • If you were short, where would your protective buy stop be?
  • If you were long, where would your protective sell stop be?
• This helps estimate likely stop-loss placement above/below key highs/lows.

---

Graphical / Definition Explanation (How “Liquidity Pool Runs” Work)

• “Run on liquidity / liquidity pool” is defined as:
  • A low under current market price often holding a trailing sell stop for long traders.
• Validation occurs when:
  • The low is violated (price moves below the recent low).
  • Sell stops become market sell orders, injecting sell-side liquidity.
• It’s often paired with:
  • Smart money entries that buy once stops are cleared, especially when the broader direction framework supports a reversal.

---

Chart Examples Presented (Pair-Specific Applications)

Example 1: CAD (Canadian Dollar vs US Dollar, USDCAD implied)

• Daily chart:
  • Identify a previous day candle low at approximately 1.3102 / 1.3101.
• Transfer level to a 15-minute chart:
  • Price trades below that level, then rallies.
• Another low forms intraday around 130.95.
• Buy scenario:
  • Buyer entry example around 130.90 (limit).
  • Actual low prints around 130.83 (~7 pips drawdown).
  • Rally target: unload into a higher liquidity area around 1.3360.
• Takeaway:
  • Presented as a “low risk entry, big payout” liquidity pool reaction.

Example 2: Dollar Index (DXY-style)

• Setup:
  • The market had bullish movement and cooled into Friday.
  • Friday behavior expected to be choppy/sideways, then “take something off the table.”
• Mechanism:
  • Price moves down to clear sell-side, then runs buy stops above equal highs.
  • Then it seeks sell stops below relative equal lows.
• Takeaway:
  • Liquidity pool run of buy stops followed by clearance of sell stops.

Example 3: Dollar Swiss (USDCHF implied)

• A horizontal line marks the low.
• Plan:
  • Buy at/just below that low.
  • Look for a sweep below it, then expect a move up.
• Profit / take-profit layering:
  • Stop/profit areas referenced near 1.0145, 1.0130, and 1.0125.
• Takeaway:
  • Reaction confirms liquidity pool behavior: price sweeps below the low, then strongly reverses upward.

Example 4: Cable (GBP/USD implied)

• Based on prior live-session logic:
  • Expect a sweep below a level again, then run a pool of liquidity.
• Mechanism:
  • Sweep below opening/short-term low clears sell stops.
  • Then price rallies into a higher liquidity target area (speaker references ~125.20 and above ~125.75).
• Takeaway:
  • Run on sell-side liquidity followed by absorption/offsetting with long entries.

---

Additional Course / Teaching Schedule Note

• No live sessions during the week of Christmas.
• The speaker will provide five additional pre-recorded teachings focusing on:
  • Liquidity pool runs
  • Fair value gaps
  • Liquidity voids
  • Water blocks
  • Mitigation blocks
  • Reclaimed order blocks
• These are described as amplifying the regular eight teachings for December 2016.

---

Speakers / Sources Featured

• Primary speaker: The instructor/lecturer for “ICT Mentorship Core Content” (no specific individual name provided in the subtitles).