4 Key ICT Concepts — Full Breakdown & Transcript

[00:00] Over the last couple of years, smart money concepts have completely overtook the trading space. But here's the problem. Most people are using these concepts completely wrong. I realize that there's so much confusion for people on what actually matters and what doesn't.

[00:13] So I'm going to explain all of the smart money concepts that actually matter, so you can focus on what actually works, which is implementing these concepts into your trading space. Number one, probably the concept that I feel like everybody knows the most about or have heard of about is liquidity.

[00:28] This is the foundation of Smart Money Concepts. This is the foundation of how I personally trade. Every single trade that I take has the foundation of liquidity. So what is liquidity? In the most simplest terms possible, don't confuse it.

[00:41] It's literally just highs and lows in the market. Why is liquidity resting highs and lows? Because that's where a lot of orders and liquidity is resting at these areas. So for example, let's say we have a market that's going back and forth,

[00:55] and we're making high, we're making low, blah, blah, blah. And let's say this is a consultative range. These areas are where liquidity is resting above these highs. Basically, what the foundation of why we use liquidity is because one of the reasons why

[01:07] markets move is to hunt liquidity. These concepts are based around the idea that an algorithm runs the market. Now, whether or not an algorithm runs the market or not, I don't think it matters. And this is where I think a lot of people have a problem with ICT because they believe

[01:20] that ICT, you have to believe an algorithm runs the market. In my opinion, I don't really care if an algorithm runs the market because the concepts work. So liquidity for me is I want to understand where is the market drawing to? What high or what low do we want to go to using some of the other concepts that we're going to talk about in this video like the fair value gap or manipulation?

[01:39] So for example, all you need to understand with liquidity is start recognizing highs and lows within the market. All liquidity is in the market is it's a constant basically exchange of buy side liquidity to sell side liquidity.

[01:51] So if we're in a trending market and we're kind of selling back off, what will happen is any of the liquidity that we leave, right, like for example, equal highs right here, right, this becomes buy side. What will happen is when the market reverses, what we'll do is we'll go back to that area

[02:05] of buy side liquidity. Above all of these highs is buy side liquidity. So what I'm doing when I have an understanding of, oh, there's a lot of equal highs here or there's a lot of highs here. And for example, let's say we've now sold off and we want to look for a reversal.

[02:18] I want to target these areas of liquidity for a trade. So where would I maybe take a trade? Possibly right here. The market displaces back up, pulls back to probably a fair value gap, which we'll get into right in a second. And then we end up bouncing and then targeting

[02:32] basically buy side liquidity. Now it's the same thing for the bearish setting as well. Let's say, for example, we have almost like a consolidated range and we're kind of moving higher and we end up breaking higher. If I look at this, what I'm saying is, okay,

[02:45] all of these highs that we have right here is buy side liquidity. I can also notice that there's lows here. All of these lows is called low resistance liquidity. So it's the market generating liquidity because we know that there's liquidity resting at this low, we know that

[02:57] there's liquidity resting at this low, and we know there's liquidity resting at this low. If you've ever seen like, oh, a trend line breakout, really what it is, is it's a low resistance liquidity. Again, you can call it whatever you want. What it matters is you being able to see it for what it

[03:10] is. So for me, it's understanding, hey, this is buy side liquidity. What I then wait for is a false move higher, and then a break to the downside. So what's happening is we're taking an internal liquidity, having a change in the state, which is again, something we'll get into,

[03:22] which is just a break of structure, pretty much breaking structure to the downside below this low. And then this is when I look to possibly take a short and we then what? Go target the opposing liquidity pool, right? So sell side liquidity when you go down here. And that's basically what

[03:34] liquidity is. It's highs and lows. So a couple of things that you should understand about liquidity though. So there's something called internal and external liquidity. And basically what the differences between this is price is fractal, meaning because the market moves and there's

[03:46] so many different timeframes, one candlestick can be represented in so many different ways, right? So it's like we have a candlestick. This could be a five minute, this could be a 15 minute, this could be a four hour, right? Like this could be so many different things, but yet it looks the

[04:00] exact same. So what this means, the market will form the same things inside of each other, inside of each other. So for example, if I was to mark out a similar chart that we just did, it's like, the market comes up maybe put it on high maybe come back down very very shopping market but you

[04:13] get the idea buy side liquidity sell side liquidity now this is my external and this is my external so these is my external range anything in between this is internal liquidity so this is internal

[04:26] liquidity this is internal liquidity we took internal liquidity here so you'll see look we came up took internal equity here and then came back down and then we'll most likely continue to close external liquidity and what you'll find is the market is this constant exchange of buy side

[04:38] to sell side liquidity where we generate buy side okay so market moves back higher we put in equal highs sell back off generate lows and then we come up to take buy side and then possibly fall back inside the range to then go take sell side liquidity this is the manipulation leg in which

[04:50] we're looking for to see okay we last displacement to the upside and then we fall back to go take the lows there's a difference between external and internal liquidity and the best trades that we take is when we can align the bias so for example there's a reason why we should go to internal

[05:03] liquidity and then there's also a reason why we should go to the actual liquidity and it's the the same buy. Both are bullish, basically. Another thing that you should understand about liquidity is high probability areas of liquidities are normally session highs. So what is session

[05:15] highs and lows? Basically, what this is is like Asia session, London session. So like, what was the high and low of New York or high and low of London session? These are high probability areas of liquidity in which we want to target. Another one is data highs and lows. So what data highs

[05:29] and lows are is let's say we have FOMC or 830 news. And at 830, we end up having this big move and volatility spikes and now there's like a massive candle. The high and low of the time that that data was released,

[05:43] so for example, a lot of the times what we'll find is this happens at 8.30 news release of a red folder and at 8.30 news, we'll put in a data candle. The high of that candle or the high of that initial volatility move is a high probability area of buy-side liquidity

[05:57] and the low of that data release is high probability area of sell liquidity So I would always want to be targeting data highs or data lows And then my last one is just relative or equal highs or lows So when lows or highs are stacked a lot of the time

[06:09] this is an area in which I want to see price revisit as well and go target. So this is pretty much it. The basic foundation, liquidity is one of the most important things of my strategy. It's one of the most important things in any smart money concept. So highly, highly recommend. Start viewing the market in terms of liquidity.

[06:22] Now, let me also show you what it looks like if I was to jump in a chart of how I actually view it. So if I was to look at this chart on the 15 minute on ES, I would basically say, okay, well, notice all of these stacked highs, right? This would be my buy side liquidity. I would want to

[06:34] then check if there may be a session here. So I just use an indicator. I just use like Seek and Destroy profile. And I can say, hey, this is New York previous session high. And then there's actually another New York session high here. So I know that like a lot of this is low

[06:46] resistance liquidity and I'm expecting it all to get ran at once. And so what's to the left of us? Like why would I expect price to not go lower and then maybe start to go back towards buy side? But what would I need to see for buy side? I need to get some point of sell side. So what happened,

[06:58] right? We ended up doing the same thing, low here and low here, right? So we ended up taking these internal lows. So now what I want to see is I want to see displacement back up and I would expect us to go take back to buy side liquidity, right? We ended up continuing sell off, continuing

[07:12] sell off. And again, there's no displacement yet. So I wouldn't really be looking to take a trade yet because right now we're just rebalancing on this previous price range, right? So I still have my buy side marked. I still have maybe the sell side marked, but I need to see what the reaction

[07:24] is of the internal market, right? I need to start to see displacement. I'm waiting, I'm waiting, I'm waiting, I'm waiting, I'm waiting. Boom, we're starting to actually see displacement, right? Here is my confirmation. So I use change in the state, which we'll get into in a second,

[07:37] but a change in the state is basically a close above or below the last series of down-closed or up-closed candles. So again, this is confusing. It's not that confusing. Let me explain. This move

[07:49] is the last series of down close candles. One, two, three, and then this is a bullish candle. So I marked the high of this. As soon as we get above this, I am bullish and I'm expecting a reversal.

[08:02] So watch. I would look to see this hold, and this is where I could possibly look to take a long targeting buy side liquidity, and my stop loss would be at the previous low. So we end up holding it, and we end up going pretty much straight to buy side, right?

[08:14] So that's pretty much my strategy. It's like I need to know, have an idea of where the market's going, where's buy set liquidity wait for a reversal wait for a change in the state and i just long targeting liquidity like it's not hard so in my opinion the next most important thing or one of

[08:27] them and it kind of plays off of liquidity is just overall market structure so highs and lows fall into this category manipulation and equilibrium this is kind of the main things that i'm looking for with market structure so when we go back to the idea of liquidity and we say okay well there's

[08:40] highs and lows that rest within the market so there's two things that we can potentially do when we are revisiting a high or a low. For example, market comes up. We put in a high. What can we possibly do? There's only two things. Either manipulate, take the high,

[08:54] lack displacement, reverse. Or we can, oh, high, continue, right? And we break through it and we end up having a continuation, right? There's only two things that we can do. Either we displace or we sweep it.

[09:06] When it comes to manipulation, when I look to tie this price signature with the idea of liquidity, If I know that if we last this placement through highs, I expect reversal, what could I then do if I knew that sell-side liquidity was resting down here?

[09:21] Oh, maybe you understand why this is called manipulation now? Because for the market to go higher, we must go lower. For the market to go lower, we must go higher. Because what happens is the reason why you feel like you get stopped out all the time in the market

[09:34] is because you're putting yourself up to be the manipulation. You are the liquidity that is being taken within the market, so then the market can reverse. So basically what I want to do is let's say this is sell side liquidity. This low right here is sell side liquidity.

[09:48] Excuse my terrible thing I'm on a little track path. Market comes down, we end up putting a low in, maybe come back up, and maybe we're creating some buy side liquidity. So now sell side liquidity gets taken.

[10:00] What am I looking here? What's my bias? I'm not bearish. Why am I not bearish? Because the whole reason why I would initially be bearish is over, was to go target sell side liquidity. Now, sell-side liquidity is taken.

[10:12] So, what am I looking at? Well, I know buy-side liquidity is resting right here. And also, what are we doing? Internal liquidity, internal liquidity, internal liquidity, right? We're generating liquidity while we're moving down to sell-side. So, what do I need to see?

[10:25] I need to see manipulation. Meaning, on the bigger time frame, this could be manipulation, right? Because we're now taking all of this sell-side liquidity, and we could then come right back into the range. Boom. And on the bigger time frame, it's literally this, right?

[10:39] Lack displacement through that low. We're lacking displacement through this low. But now what I do is I zoom in and I look for the same thing. Bear with me here. Think about this, right? I look for the same thing. But what happens if I zoom in and then I see this?

[10:52] All right. Oh, bang. Lack displacement internally, right? Remember when we were talking about external versus internal? Externally is this.

[11:04] Low is here. Lack displacement. Fall back inside the range. But we're also doing it internally. One last move lower, boom, break a structure to the upside. This is where I'm longing. So this is when I look to take an entry, bank, target buy side liquidity,

[11:17] and then have a move towards the opposing liquidity pool. But I'm looking for manipulation, meaning sweep of liquidity, a lack of displacement lower. So for example, if I'm looking for a reversal towards buy side, I want to see a lack of displacement lower.

[11:29] I want to see the market displaced back higher inside of whatever range that we're looking for so that I now know I'm sweeping here and I'm sweeping here. And then once I get this reversal, I then look to target the opposing liquidity pool. So another thing I use for market structure is equilibrium.

[11:43] So for example, if I was to draw out and say, okay, from the low that we created here, from the high that we created here, the midpoint of this is like here. So this is equilibrium. Now, a lot of the times we will see price rebalance back to equilibrium.

[11:56] So what I want to see a lot of the times is if we are in discount so below equilibrium is discount above equilibrium is premium If I am bullish I want to be taking longs in discount If I bearish I want to be taking shorts in

[12:12] premium. This is basically another thing that I look for to understand market structure, is if I'm looking to take a long, I want to be in discount. So just another way of how I do price action. Again, it adds more conviction, it's better probability if it's in discount. And yeah, the next important smart money concept that I pretty much use every single day is a

[12:27] fair value gap and I also use inverse fair value gap. So there's two different types of things of a fair value gap. Let me share with you what the differences of them are. All right, so a fair value gap is basically made up of a three candle formation. So on the left side,

[12:39] we have bearish sequence, right? Candles are going lower, price is going lower. And on the right, we have price going higher. Now, what basically a fair value gap is, is it's the gap that is created during this move. So if we look at the left here and we can see these downclosed candles,

[12:55] It's a three candle formation and we leave a gap to the downside from the low of the wick from the first candle to the high of the wick from this candle. So this is our trade value gap.

[13:08] So we expect price to come back into this and then possibly trade back out of it to then go lower. So this is a bearish value gap. It's basically just the gap that is created from the last candle that was printed, the high of it, of the wick to the previous three candle formation.

[13:23] It's the same thing with the bullish example. So for the bullish example, again, take the high of the first candle wick, low of the third. And again, this is our free-to-value gap. And this is where we expect possibly price to come down. Again, hold this, manipulate, displace, go higher.

[13:37] So now, use what I just drew here. Think about this. How did I draw this out? Based off of what we just talked about earlier about liquidity and manipulation, imagine we have a bigger time frame free-to-value gap, which I'm expecting price to rebalance to. Keep in mind, one of the reasons why markets move is to rebalance to inefficiencies.

[13:52] So I'm expecting the market to rebalance through this fair value gap. And again, I'm going to draw this model out, right? Boom, boom, displace back lower. Displacement, bang, right? What's happening here? So we're in a bigger timeframe for value gap in which I'm expecting to hold bullish.

[14:05] We have internal manipulation, lax displacement, and then we have what? Our break of structure, change to the state. So then what I do, I enter long. And then what am I looking for? Go target the buy side. Is it starting to come together here?

[14:18] So using bigger time frame imbalances, not just for creating biases and understanding that, hey, where do we want to reject, but then looking at all of the liquidity that we create on this move and then looking to take entries out of these bigger time frame to rally gaps

[14:31] when we wait for manipulation. So this is basically how I view the market. The more that you view it this way, the more you're going to see how clear it actually is to see. So now we have to look at the other side, which is inverse to rally gaps. So if those imbalances don't hold,

[14:45] but now let's look back to the exact same example we just said. So we still got this free value gap. Now, what if price comes back down into this and we just immediately run it, right? Price comes back down, you know, we're generating liquidity, boom.

[14:57] And we just straight break through this. And then we come up where we maybe expect. So there's a couple of things. A lot of times we can maybe break through this, hold on to it, and then immediately get bought back up. This sometimes happens. And then there's a bearish free value gap here that turns into an inverse.

[15:09] So this is sometimes what happens. What ends up happening is this becomes a bigger timeframe candle lick. What you'll find out is a lot of times where something originally gets ran through, it'll actually turn into this, where this candle on the bigger time frame will just have a really long wick, and it'll look like this.

[15:21] So price ends up coming down, holding the fair value gap, and then running whatever imbalance we created on this move lower, and then the bigger time frame candle just creates a large wick, and then we end up reversing back to the upside. Now let's say that this does get ran through, but there needs to be context.

[15:34] What would make sense for this fair value gap to get ran through, and why would we possibly expect it to get ran through? Well, maybe there's self-advocacy rushing below. So for example, let's say that there's a bunch of stacked equal lows

[15:47] resting right here acting as sell side. So what might happen here? What might happen, we'll see price originally have, you know, a little bit of a move here and we'll say, oh, you know, maybe generating liquidity, you know, maybe generating buy side, maybe come back down, cap this, maybe hold it once,

[16:00] manipulate the high, last displacement, change in the state, boom, sell off, boom, and then we get below this, have an extra rebalance, and then we continue. There's a lot of this that's happened here, but I need you to understand. I'm going to point out exactly why I group this way,

[16:13] because this is how the market moves. Generated liquidity, buy side gets taken. we initially rebalance, hold it. What happens here? Your value got boomed, inversed, gets ran, bang, possible long, right here, because there's a big imbalance, or we wait for exactly what we talked about earlier, where maybe price comes back down, takes the internal low, then change,

[16:27] then enter, right? Manipulation. But notice what happens here. Buy side gets taken. We lack displacement, right? Keep in mind, bigger time frame. What does this look like on the bigger time frame? High, boom, lack displacement, change, right? Sweep. We sweep it, we do not displace it.

[16:40] Once this buy side level gets taken, what happens here? Internal high, lack displacement, then changing the state. Bang. Break of structure. We displace below it, come back, rebalance, possibly a bearish for value gap here, reject, go lower. So now we're looking at this bigger

[16:54] time frame bullish inefficiency and we're saying, what the fuck is going on here? Why is this going to happen? What happened? We break through it because we've buy size been taken and there's sell side resting below. There's context here. Not every imbalance will hold. Not every imbalance

[17:07] will break. You need to have context. What's happening here? There's a bigger time frame for We come back, we rebalance, we come up, take buy side, buy side liquidity has been taken. What happens next? We just place back inside the range. So we go to what? Internal sell side liquidity, this low, internal sell side.

[17:21] And then we break through the bigger time frame for buy gap. It acts as an inverse. We come back up, tap the high of the provide gap and then start to work back lower. What can I possibly do here to take a short? Imagine if the market does this. Experience liquidity comes up again, last displacement, right?

[17:35] We're looking for the same thing. An area in which we expect to adjust, a confident draw on liquidity. I'm expecting the market to go lower. I wait for manipulation in the opposing direction of the draw, and then I look to take a short somewhere here. Really, all of this is, is the relationship between buy side liquidity and sell side liquidity.

[17:50] Where does the market want to draw to? Sell side, buy side. Then, once we have an idea of where the market wants to draw to, how are fair value gaps getting respected or disrespected? We come back down to the bigger time frame Hey there buy side resting above us I know just by looking at this one we at this point right here right There buy side resting above us So I expecting and looking right I being reaction

[18:11] I don't know if this for value gap is going to hold bullish or not. I want to see manipulation and then a continuation, right? So I'm going to show you a trade that I took yesterday that is the exact epitome of this. All right, I want you to pay attention here.

[18:23] I need you to focus up. What's going on here? Bigger time frame, one hour for value gap or 30 minutes for value gap, right? See this big imbalance? Candle high, candle low. Bullish fair value gap that we're holding. What happens in this fair value gap?

[18:35] Sell side gets taken. Boom. Low. Bang. Taken. Lack of displacement. We are not breaking through this low. We are sweeping it. What is the next thing I'm looking for? Displacement up. Boom. Right here. Bank.

[18:47] We displace up and we close above the down slow candle. What is above us? Buy side liquidity. So keep in mind, my buy is now going into the day is bullish, right? So what do I do when I'm going in open? What am I looking for? manipulation lower to then go higher, right? Everything on the bigger time frame is telling

[19:01] me I need to be bullish. So what happens here? We have sell side going, right? Because what happened in the morning? Well, we ended up taking this buy side. We're now generating all of this buy side. This is going to be my highs. And again, keep in look,

[19:13] what is the sessions? Where are we going first? We're coming back down to the London's. So market sells, boom, low gets taken. What happens here? Dial in. This low gets taken. What do we do? displace displace rebounds respect it go lower now what low gets taken we do not displace

[19:32] we are sweeping it so what am i looking for a close above the down close handle wait wait wait wait wait boom we close above it i take a long and keep in mind i took this live i'll put the

[19:45] execution somewhere on the chart i took this live with my students this is not back tested this is the trade I actually took. And then what am I doing? I'm targeting buy side liquidity. So again, lack displacement lower, close above. There's a reason for price to go higher because on the

[20:00] bigger timeframe, we're in the one hour, we're sweeping internal liquidity for the market to go higher. We must go lower, but I have an idea that the market wants to go higher because there's buy side resting above. I hopefully you're following me because the people that are following me, you guys are going to fucking bank. You're going to kill it. Test your brain here. And then guess

[20:14] what? We come back down, rebalance, boom. And then we've run buy side. Not just do we run buy side, we continue towards the external draw and we go take the external draw so I'm aligning the internal model with the external model I'm saying hey this is bulwark and guess what's also bulwark when I

[20:30] zoom in and I see cell side taken and there's bar side resting above are we starting to understand here if I take a square I could say hey man there's four squares inside of this square and you're gonna say no it's not I'm gonna say yeah it is because the square I could say this square

[20:45] is made up of four squares and that square is made up of another four squares. That's exactly what the market is. It's models inside of models inside of models. If I have an idea of what the bias is on the one hour time frame and I say there's buy side liquidity resting here on the

[20:59] one hour, I zoom in and then I take the exact same thing targeting the action model. Do we understand this? If you don't, keep searching for the answers. Keep testing these ideas. Go back, watch this video, look in the market and see how this works. So how do we put this all together?

[21:14] Hopefully you are already following along and you're kind of getting how we put it all together. But there's three things here. There's liquidity, right? So where is the market going? Where's the liquidity? Where is the manipulation? And then we look for displacement.

[21:26] So again, if I was to draw this out, super simple. We need to understand where liquidity is resting. Now, if the market looks like this. Do I maybe have an idea?

[21:38] No, this is ass. This is terrible market conditions. So let's give us a good example. All right, so let's say our bigger timeframe here is a total bearish trend, right? So what ended up happening here, we came up, took this recent high, came back down, right?

[21:51] But there's still a lot of buy side resting above. Like, there might be a potential that we go higher, but, you know, we just took this low. I don't know if we wanted to completely sweep this or we want to maybe rebalance and go back lower. I don't know, right? So what do we want to see? We want to see clear manipulation and clear structure.

[22:05] So now let's watch this and say, okay, well, for me to be really bullish here, I would need to get above this high because there's not really any manipulation like yet, right? because then this is the signature price, right? I, low, lack displacement, and then break, right?

[22:18] So only at that point would I know, so it's kind of hard, right? So maybe we do this. Maybe we consolidate a little bit, we manipulate, and then we have this. Ooh, wait a second, now we have something. Now I can say, there's buy side resting above here,

[22:33] and let's now also say, on the bigger time frame, there's a bullish trade with high gas here. Oh, oh, more context now. Wait a second. More context now.

[22:45] So now we have, where's liquidity? I know liquidity is resting here. I know all of these internal highs, right? Now what? Manipulation. Have we manipulated? Yes. Lows generated.

[22:57] Lack displacement. Break of structure. Last thing is what? Displacement, which is what? My break of structure, right? Displacement back in the direction of the draw.

[23:09] So then we get above this high, and this is where we're most likely to start to see a reversal. Now, this might happen when we come back down, take this internal low, and then we continue the trend, right? And that's why our stop needs to be at the low.

[23:21] But this is basically how the market moves. We have generating of liquidity, we have manipulation, we have a break to the upside, and we have a continuation of the buy model. And that's pretty much all you need. Start viewing the market in terms of liquidity, in terms of manipulation, in terms of displacement,

[23:36] and you will find yourself taking better setups and having a better understanding of what the market is actually doing. These are the core smart money concepts that actually matter. The key is understanding how to put this all together, not just have them in isolation.

[23:48] When you can combine liquidity analysis with market structure, with displacement and manipulation, that is when you actually start trading like a professional. Focus on mastering these concepts instead of jumping to the next shiny strategy and your trading will transform.

[24:01] If this helps you understand smart money concepts, let me know in the comments and I will see you guys in the next video. Peace out.