2022 ICT Mentorship [No Rant] ep. 2 - Elements To A Trade Set Up

About this video

• Video Title: 2022 ICT Mentorship [No Rant] ep. 2 - Elements To A Trade Set Up
• Channel: SirTrader
• Speakers: Not specified
• Duration: 17:11

Overview

This video, the second installment of the 2022 ICT Mentorship series, focuses on identifying the key elements that constitute a trade setup. The speaker emphasizes analyzing price action across different time frames, from weekly to minute charts, to determine market direction, liquidity targets, and optimal entry points. The goal is to equip viewers with a structured approach to finding consistent and profitable trading opportunities.

Key takeaways

• Weekly Bias: Start by determining the likely direction of the weekly candle to establish an initial bias for the trading week.
• Liquidity and Draw on Liquidity: Identify swing highs and lows on daily and hourly charts, as these represent liquidity pools (buy stops above highs, sell stops below lows) that the market is likely to gravitate towards.
• Imbalances (Fair Value Gaps): Recognize imbalances, characterized by a single candle's rapid price movement, as areas where price may return to before continuing its trend.
• Market Structure Breaks: Understand how breaks in market structure, particularly on lower time frames after a liquidity hunt, can signal potential entry points.
• Premium and Discount: Utilize Fibonacci levels to identify whether the market is trading in a premium (expensive) or discount (cheap) area, influencing trading decisions based on the overall bias.
• Lower Time Frame Analysis: After identifying a setup on higher time frames, drop to lower time frames (1-3 minute charts) to pinpoint precise entry points within imbalances or after market structure breaks.
• Homework and Practice: Viewers are encouraged to backtest these concepts on historical charts to reinforce learning and develop consistency.

The video outlines a multi-step process for identifying trade setups, emphasizing a top-down approach from higher to lower time frames. Here’s a breakdown of the steps:

Step 1: Establish Weekly Bias

• Action: Begin by looking at a weekly chart (e.g., NASDAQ futures).
• Goal: Predict whether the upcoming weekly candle is more likely to move higher or lower. This isn't about predicting the exact close, but the general direction for the week.
• Why: This sets your initial directional bias for your trading.

Step 2: Analyze Daily Chart for Liquidity and Structure

• Action: Move to the daily chart.
• Goal: Identify swing highs and swing lows. These represent areas where liquidity (buy stops above highs, sell stops below lows) is likely to reside. Also, determine where the market is in its broader range (expanding higher or lower) relative to the weekly bias.
• Why: This helps understand where the market might "draw" price to, as institutions often target these liquidity zones.

Step 3: Incorporate Hourly Chart for Refinement

• Action: Drop down to the hourly chart.
• Goal: Transpose the key daily levels (like old daily lows or highs) onto the hourly chart. Observe the market's behavior within the weekly range, noting consolidations, short-term highs, and lows. Look for patterns like "stop hunts" where price briefly moves against the expected direction to trigger stops before reversing.
• Why: This provides a clearer view of intraday price action and liquidity engineering events that often precede significant moves.

Step 4: Identify Stop Hunts and Liquidity Engineering

• Action: Pay close attention to how price interacts with previous highs and lows.
• Goal: Recognize when buy stops (above highs) or sell stops (below lows) are being triggered. For example, if the weekly bias is bearish, the market might first move up to hit buy stops before selling off. Conversely, it might briefly dip to hit sell stops before rallying.
• Why: These "stop hunts" are a form of liquidity engineering by algorithms, providing counterparties for "smart money" to enter trades at favorable prices.

Step 5: Look for Imbalances (Fair Value Gaps) on Lower Time Frames

• Action: Once a direction and a liquidity target are identified, switch to lower time frames (e.g., 15-minute, 2-minute, 1-minute charts).
• Goal: Find "imbalances" or "fair value gaps." These are areas where price moved rapidly in one direction, leaving a gap between the high of one candle and the low of a subsequent candle.
• Why: Imbalances represent inefficient price delivery and are often areas where price will return to rebalance before continuing its move.

Step 6: Identify Market Structure Breaks and Entry Signature

• Action: On the lowest time frames, look for a "break in market structure."
• Goal: This occurs when a short-term low (in a bearish scenario) or a short-term high (in a bullish scenario) is breached. Following this break, look for price to re-enter the identified imbalance or fair value gap.
• Why: This combination (liquidity run, market structure break, and return to imbalance) provides a specific "signature" for a high-probability trade setup.

Step 7: Determine Entry and Stop Loss

• Action: Once the entry signature is confirmed (e.g., price enters the fair value gap after a market structure break), enter the trade.
• Goal: Place a stop loss above a significant high (for shorts) or below a significant low (for longs), often using the high/low of the candle that formed the imbalance as a reference.
• Why: This defines your risk and ensures you are trading within defined parameters.

Step 8: Define Downside/Upside Objectives using Premium/Discount

• Action: Use Fibonacci retracements drawn across a key price range (e.g., the day's high to low).
• Goal: Identify the 50% level. Areas above 50% are considered "premium" (expensive), and areas below are "discount" (cheap). If you are shorting, you want to exit or take partial profits as price moves into a discount area, potentially targeting previous lows or further imbalances.
• Why: This helps in setting realistic profit targets and understanding where the market is likely to find value.

Step 9: Practice and Journaling

• Action: Go back through historical charts, identify these setups, and log them in a trading journal.
• Goal: Reinforce the learning process by consistently applying these steps and observing how they play out over time.
• Why: Repetition and review are crucial for developing the experience and "rhythm" needed to consistently execute these strategies.