Tuesday May 23, 2023 Forex & Spooz Market Review

Date: 2023-05-23

URL: https://www.youtube.com/live/hcSGlyfgKgA?si=-bzTV-WbbZf0BV2D Watched Date: May 24, 2023

I promise you’re going to learn some things tonight. We’ll also talk a little bit about order blocks, and you’ll see that there is a vast difference between my order block theory and what everyone else thinks they understand about it.

Order blocks are not supply and demand. They are not the same thing.

So let’s get right into it.

Here is the Dollar Index weekly chart. I’m watching this candle right here — this up-close candle — and I’m extending its opening price out to the right. Do that on your weekly chart, and you’ll have the level I believe the Dollar Index is likely to draw up into.

We had this imbalance here, and price has passed through it twice. I’m thinking that may now lend support, so I’m treating it as an inversion fair value gap. You’ll see this orange-shaded area transposed onto the lower-timeframe charts as we go through.

In terms of discount, I’ve been watching these two levels here: the current week’s low and the high from two weeks ago. That gives us the discount range. So I’m anticipating and expecting price to gravitate toward this candle’s opening price, which represents bearish order flow on the weekly chart.

These levels will transpose as we move into the daily chart. And here, on the daily chart for the Dollar Index, we have that weekly order block level. We also have a fair value gap in the form of a SIBI.

Here is that weekly orange level I told you about. That is the one I’m treating as a potential inversion fair value gap in discount. So if price rejects and starts to go lower, the last line in the sand for me — for bullish institutional order flow to remain intact — is that it needs to stay above the halfway point of this down-close candle here, which is a bullish order block.

If we do not reach this level here — the weekly order block — or break below this weekly BISI this week, keep that (Daily OB+ M.T.) level on your chart going into next week as well. That is my last line of defense for institutional order flow to remain bullish.

Everything has been bullish so far, so I’m expecting price to draw toward this weekly order block.

I don’t suspect that price is going to trade above this fair value gap here. If you look at this pass-through — this one up-close candle and then this down-close candle — the range between those two candles is what I refer to as a balanced price range. That’s why I don’t believe price will go above it.

If it does, then we would be extremely bullish on the Dollar Index, which does not really make sense to me right now. But stranger things have happened over the last three years, haven’t they?

So I’m electing to use the weekly order block as my draw on liquidity for the Dollar Index. That means we have a risk-off scenario until this fails. And it definitively fails if price trades through the midpoint of that down-close candle.

With these levels established, they will be transposed onto the lower timeframes.

Here is EUR/USD, again on the weekly chart. I was watching this volume imbalance up here and wanted to see whether price could gravitate toward it, but it failed to do so and moved lower.

So I’m treating this down-close candle here as a bullish order block. I believe that is the draw on liquidity. There is no inefficiency in this area, so I’m thinking price could come down here and touch that candle’s high, or more specifically its opening price, which is what I’m aiming for and what I have noted.

On the daily chart for EUR/USD, you can see that we had that run up into the last up-close candle here, which is a bearish order block. Price traded into the weekly volume imbalance once there, but it did not reach up into this area here. However, we did take out this high.

This is another reason why I have not really been interested in Forex, because this type of price action, to me, is very boring.

Now, if you drop down into a one-minute or 15-second chart, you can find all kinds of really small microstructure trades. I’m not saying it’s not tradable. I’m simply saying ICT doesn’t want to trade it.

Here’s a four-hour chart. Look at that — four-hour, man. “He got bumped. Is it four-hour? You haven’t talked about the four-hour in a long time, ICT.”

I know, I know. I felt like sharing tonight, so I’m going to pull out the four-hour chart when it’s necessary. And it is necessary here because we have a whole lot of nasty price action on the daily chart. So I want to break it down into smaller, more refined ranges where you can see inefficiencies and better liquidity pools.

That’s why I said, yes, you can trade it. But it is just not something I’m personally interested in trading at the moment. I have plenty of students who are beating this market up, but again, these are their markets. This is not my market anymore. I’ve switched over to futures.

So we have a small gap in here after the shift in market structure, after the order block, and we had a lower high here. So it’s a run up into a short-term premium with an inefficiency in the form of a SIBI. Price hits the low of it, rejects it hard, and then creates another sell-off, forming another similar SIBI.

When institutional order flow is bearish, what are we anticipating? Up-close candles should cause the market to find resistance. We also want to see down-close candles get eviscerated as price trades down through them.

So this up-close candle here — we see price trade up into it on this candle. Does it reject and go lower? Yes.

Then we open and trade up into this candle’s low, which is an up-close candle. These two consecutive candles — does price reject and go lower from them? Yes, it does.

Then the market trades up into another inefficiency right in here.

I’ll talk a little more in detail about inefficiencies when we get into the lower timeframes. I’m also going to teach a really deep-dive, charter-level presentation on liquidity.

If you use my fair value gap, you will be able to qualify and quantify actual support and resistance from a classical standpoint. That’s one of the things I used as a bridge, because I got beat up when I first started trading. And here’s one of those points where I go down a rabbit trail.

When I'm doing my live executions, you'll hear either talk about it, or I'll type it out. And I'll say, I want to see this fair value gap stay open or remain unfilled, that would be ideal for this gap to stay unfilled. That means it's not going to come back up to the high of it.

Right now, this is a four-hour chart. So we’re going to drop down into a one-hour chart.

Knowing that we have sell-side liquidity here, and that this is the draw on liquidity I believe is likely, look at the bodies of the candles respecting this order block right there. See that opening price? Extend that through. All the bodies of these candles here are holding price down. It’s only wicking through a little bit — those are like little mohawks.

Ultimately, price breaks lower. Then on this candle, we open, trade back up, create an immediate rebalance, and now we’re just marking time.

I’m watching this little candle wick over here — the tail of that candle. The midpoint of that wick is consequent encroachment. Extend that level out to the right and place it on your chart so you can understand and follow what I’m referring to.

Measure from the closing price to the low of that wick, and mark the 50% level as the consequent encroachment. Then extend that level to the right.

If we fail to trade down into the H4 BISI and the Weekly OB+ — which is my draw on liquidity — then I think price should at least reach for that H4 Discount Wick C.E. down there. So if I’m wrong and price doesn’t make it all the way into the H4 BISI / Weekly OB+, it should at least try to stab into the consequent encroachment of that wick.

When we drop down to the one-hour chart, we have this inefficiency. Price trades up into it and reprices to the high. This is exactly what you expect to see. You want to see it trade there and stop dead in its tracks.

That is institutional order flow. Does price react to it and go lower? Yes.

Then the market attacks what? What is resting below here? Sell-side liquidity. The market does, in fact, trade below that low. Then, during that run below the low, it creates another inefficiency.

Imagine you understood that the Dollar was bullish and EUR/USD was bearish, and you were sitting right here where my cursor is.

If you’re looking at price action from this perspective, look back at how price moved back and forth in this area. You can see that. Then, on this one large down candle, you only had separation between the prior candle’s low and the following candle’s high. That is what this little red-shaded rectangle represents.

So on the four-hour chart, this high of the fair value gap and this low of that four-hour fair value gap do not necessarily need to be repriced all the way back up to the high, like price did on this one here. Why? Because you already have efficient delivery and balancing in price action. Price delivered to the downside. The next time it opened, traded up, and then traded back down right there — that by itself is balanced for me.

Then it gives you one more confirmation. Price opens, trades up one more time into it, and then rejects hard, leaving this candle close right here and that small inefficiency right there.

https://youtu.be/hcSGlyfgKgA?t=1472

This inefficiency here — let’s say this chart was a five-minute chart, not a four-hour chart, and then we dropped down into this timeframe, the one-hour. That would be like dropping into a one-minute chart, or maybe a 30-second, 15-second, or even a five-second chart.

On a lower timeframe, less than five minutes, even down to a seconds chart, if I see price trading between those two ranges — the low and the high of the fair value gap — and I’m anticipating price trading up into it so I can be short, then I’m watching this inefficiency here.

I do not need, anticipate, or expect price to go all the way up to the high of that fair value gap, because it has already done this: one, two, three. Then it leaves this smaller inefficiency here. That is why price stops dead in its tracks at consequent encroachment, which is the midpoint of that gap on that candle there. Then it stops at the low, fails, and leaves this portion open.

That is real institutional order flow.

This is how I know when gaps are not going to completely fill: I’m watching a lower-timeframe chart.

I have one specific monitor that I call my matrix. It’s an intraday matrix that allows me to watch the 5-minute, 4-minute, 3-minute, 2-minute, and 1-minute candles. Then I can toggle lower into the 45-second, 30-second, 15-second, 5-second, and 1-second charts.

I’m looking for these types of signatures inside every inefficiency I’m watching in price.

So again, if this were a 1-minute chart, and the 4-hour chart were treated like a 5-minute chart, the relationship is the same: on the lower timeframe, it shows you delivery. That is real order flow.

I do not need to see depth of market. I do not need Level 2. That stuff is all gimmicks. Those things can be spoofed. But you cannot spoof a candlestick or an open-high-low-close bar. You can’t spoof it. It is there. Everybody sees it. And it is time-based.

The algorithm runs on time.

To know when an inefficiency or gap is unlikely to completely fill on lower timeframes, you have to read price action.

If you see all this back-and-forth movement, that is layering. That’s why I said: imagine you are standing at the point of my cursor, shrunk down like a miniature version of yourself, looking to the left. You would see a wall of price action here, another wall here, and another wall before you even get to the overflow.

So price has already moved back and forth for three specific hours near the high end of that four-hour fair value gap. Because of that, there is no necessity for price to trade above this candle’s low. In fact, it doesn’t even get there. It stops at the midpoint of that small inefficiency right there, then does it one more time here, fails, and slides lower.

Then we work off this order block here. As I said on the four-hour chart, look at the bodies respecting that level and holding price at bay. Then we break down, leave a small gap here, get a run lower, and we have sell-side building right here around that 1.07 big figure.

15-minute chart of EUR/USD — now we’re getting down to the brass tacks of intraday price action. And right here, we have the 2022 model. Apparently, this stuff doesn’t work — except it shows up every day.

You have a gap, and you have relative equal highs. What is resting above those highs? Buy stops. The market rallies up, runs through them, engages the buy-side, and trades into the inefficiency.

Now, why doesn’t it trade all the way up and touch the top of that inefficiency? Look at what this candle is doing over here: one single pass, then another single pass back through it. That creates a balanced price range. That’s why price does not need to go all the way back up into it.

So there are different ways of knowing when I do not anticipate a full closure or full repricing to the high or low of a fair value gap. If price creates a balanced price range — one single pass in one direction, then one single pass back through it — between the high and low of that gap, then that range has already been balanced.

The highest point of the gap would be here, and the lowest point would be down here. That area between those two levels is your balanced price range.

So we have this run up into buy stops. Price hits them, then reprices lower. Isn’t this low taken out right there? Isn’t that the 2022 model?

We have buy stops taken here, then a shift in market structure. Does it have a fair value gap? Yes. And we also have the order block. Extend that forward: price trades up into it, then breaks lower.

Notice that it does not completely close in the top of that SIBI. Why? Because the order block stops it. That is a change in state of delivery there.

Then price breaks aggressively lower again, moving below this low. We have an inefficiency, and buy stops are taken here. Here is another 2022 model: price creates the fair value gap, trades back up into it, and respects the low of that candle.

Now watch this, especially for the order block freaks. These two consecutive up-close candles form a bearish order block. Take the low of that candle and extend it forward. What does it overlap with? The consequent encroachment of that gap — the midpoint — or at least very close proximity to it.

So when we have a coupling or confluence of these PD arrays — the midpoint of this gap, the consequent encroachment, and the low of those two consecutive up-close candles — that is your order block. That is your change in state of delivery.

Why is it a change in state of delivery? Because it is also in close proximity to the halfway point, or consequent encroachment, of this inefficiency: a sell-side imbalance / buy-side inefficiency. There is only one pass through between this candle’s low and this candle’s high — that one candle there. Half of that range is about right there, almost exactly at the low of that candle.

Price stops dead in its tracks right at that order block, where the change in state of delivery occurs. Then it reprices lower and takes out the sell-side here.

These two consecutive up-close candles are my bearish order block. The change in state of delivery is at that low.

We’re going to look at this candle more closely on the lower timeframe. Here is that same price delivery that was shown on the 15-minute chart, now viewed on a five-minute chart. It is anchored to what would otherwise look like a random candle.

The 15-minute order block is the parent. This five-minute chart is subordinate to it. So the narrative is derived from the 15-minute candlestick chart, and then you look for signatures on the five-minute chart that align with that narrative.

The order block is the change in state of delivery. Price stops right there. So that means this entire run above the buy stops was not random. Yes, price trades above those highs to engage the buy stops, but does it run into some random level? No.

How do you know how far it is likely to go when it is running stops? That is what I’m doing here. This is technical science. I’m reading everything in the price action.

This movement lower, from this high down to that low, is your price swing. That is your dealing range, and you have to split that at equilibrium.

So price traded into what? A short-term premium. Did it trade to some random level? No. It traded into a 15-minute bearish order block, which is also the consequent encroachment of this fair value gap.

So if price runs up here and takes the buy-side, why would smart money want that? Because they are going to sell short there. And what are they going to do with that short position? They are going to offset and distribute those shorts by accumulating against sell stops below that low. And that is exactly what you have right there.

Smart money sells short all through here — selling, selling, selling, selling, selling — up to that point. Then they stop. They cannot assume any more, because this is where they are being told: this is it. That is the threshold.

Then, as price moves lower, they begin distributing from those shorts by buying back as price breaks through down-close candles. Right there, price rallies back up, and then once it breaks below this candle here, they cover more. Then they continue covering below the low, where the sell-side liquidity is resting.

That is real institutional order flow. That is real order flow.

There are specific rules I gave you in that ICT Silver Bullet presentation. I gave you very specific tools to help you choose a high-probability condition. I’m going to counsel you to go back and review those rules. They are not cherry-picked to make this example work.

In the very first important slide of that presentation, I gave you the framework for how to anticipate a high-probability Silver Bullet trade. There are parameters for both Forex and futures. So whether you’re trading index futures, which is where my attention is now, or you’re still in Forex, or you want to trade Forex additionally, there are rules.

For Forex, I like to see roughly a 15-pip range. If the market can move 15 pips, that means I can potentially take 10 pips out of it. That is the minimum I’m looking for in a Forex Silver Bullet. That does not mean I’m only teaching you how to trade for 10 pips. I’m giving you a high-frequency trading methodology, and these setups repeat every single day.

It’s a time window where you can look for this to form every single trading day, even on sloppy, messy days when people say, “This is ridiculous, I can’t trade this.” You can trade it. But that does not mean it is imperative for you to try to trade it right now as a new student, because these are difficult market conditions. When things improve and the market loosens up a little more — and I suspect that may happen in a couple of weeks — you’ll see much more volatility.

So here is what I have in reference to time. At 10:00 in the morning — and again, this is EUR/USD, not ES, not the E-mini S&P, this is a Forex pair — the market has buy-side liquidity here. This buy-side is the same buy-side…

When we look above old highs, we don’t need to see depth of market, a ladder, volume profile, or anything like that to know there are stops above that level. It’s common knowledge.

There are going to be short sellers. If the market traded lower, somebody is going to be short. And if they’re short, chances are they are trying to protect that position, or at least protect some measure of unrealized profit in case they are wrong. So their buy stops are going to be above old highs.

The same logic applies below old lows. If the market has rallied, our assumption is that there are going to be sell stops below those lows. Somebody is going to view that as a long position and place their stop below it. How do you protect a long position? With a sell stop below some important low.

That’s basic retail logic. So what I try to do is take that and turn it upside down. How can I attack retail theory? How am I going to go after Goober? Goober is in here trying to trade something he learned in a book, thinking he has figured out how markets move. He has depth of market, Level 2 data, and things flashing on the right side of his chart, so he feels technically sophisticated. But what is he still doing? Placing stops below lows and above old highs.

So none of that changes anything. I cut all the nonsense out and go straight to the brass tacks: where is liquidity, and where are the inefficiencies?

Because that is exactly what the algorithm does. And it does it through time delivery. Everything is based on time.

This high right here — why this high? Why am I referring to this high specifically? Because when price made this low, that delivery started from this high right here.

I’m not talking about this high. I’m talking about this delivery, that little run right there. It stemmed from that high, so I want to see that high broken. If it does break, like it does here, then we have a shift in market structure.

Why can’t I use this one? You can, if you want to be ultra-aggressive, but it could fail on you. You could use this one too, but that could also fail. I want this one because it is the parent price swing that sent price down here to take out the sell-side.

So I want to see that high broken to the upside. Then price trades into a fair value gap after the shift in market structure. That, my friends, is sell-side taken, then shift in market structure. There is your 2022 model.

“It doesn’t work, it’s nonsense.” Wrong — you just can’t read a chart.

You get the fair value gap, price rallies up, and then you measure the price swing from this low up to the high using a fib. Use the bodies, not the wicks, because the bodies tell the story and the wicks only do the damage. That measurement gives you that high.

So, with the 2022 model, you buy the fair value gap. First profit is the buy-side, and then you see whether you can get a runner into that inefficiency — which also happens to have the midpoint, or consequent encroachment, and the two-candle order block in confluence.

If you were buying this fair value gap, is this a qualified ICT Silver Bullet trade? Yes.

Why?

Can it move 15 points higher? Close enough, yes. Into consequent encroachment? I would say yes, that qualifies. So it offers the potential for 10 pips. In my opinion, this meets the minimum criteria right there.

And you don’t have to have the 2022 entry. But guess what this becomes? That’s a pyramid entry. Yep — that is a pyramid entry. I can take that.

Why?

Because from this low up to where I anticipate price can go, we are still not at a premium. So there is a time and place where I can pyramid. But if the criteria say no — if it’s too rich, too deep into a premium or discount relative to the trade I’m already in — then I can’t add. I just have to stick with what I have and let it run.

It forms and trades into it at 10:00. Yes, you can trade that. It does not get disqualified just because the fair value gap did not form between 10:00 and 11:00.

In this case, price trades right into the gap at 10:00. Remember, the entry must be taken between 10:00 and 11:00. The fair value gap itself can actually form before 10:00.

But what happens if I can get an entry at 9:57?

You’re not following the rules. So whatever result you get is luck, because you’re outside the framework. If you win, you got lucky because you messed it up. If you lose, you deserved it.

How’s that for logic?

We can use this low here.

Why this low? Why don’t we use this low, Michael? Because this low only ran to that high. This low starts the run up into the consequent encroachment of that inefficiency, and into the change in state of delivery where the bearish order block is — those two consecutive up-close candles on the 15-minute chart. That is what this level represents here.

So when price is running up into that area, that low right there becomes your trigger for a shift in market structure.

So now we wait. Do we have an inefficiency? Does every fair value gap need to be filled? No. This one never comes back up into it, so now we have a breakaway gap.

Then we have a fair value gap form here. This right here is an evolving Silver Bullet, just like I showed you in the video. You have to know where price wants to go. If you don’t have that, you’re doomed. I don’t care what you trade, who taught you, or what indicators you use. Unless you know where price is trying to gravitate toward, everything you try to use is going to fail you.

Write that down in your journal, folks, because that’s the gospel: you will absolutely lose unless you know where price needs to reprice to.

Price is either running for liquidity — meaning buy stops above old highs or sell stops below old lows — or it is moving toward an inefficiency. So if we use that logic here, we’re thinking this is an inversion fair value gap. Price hits a change in state of delivery, not an order block, then starts moving lower. We get a shift in market structure, but no usable inefficiencies until we get here, and this one does not fill.

Then we have an inefficiency here — a fair value gap — and price trades right back up into it. Right there is an entry.

What would you aim for? Well, you have this low here, this low here, and these lows down here. These are relatively equal lows. But now you have to filter in that same 15-pip framework. From this entry, 15 pips lower brings you into this vicinity here. You could target that low, or this low here, and that would qualify as a Silver Bullet entry. That could be your first profit. Then you can let a runner target the relatively equal lows here, which price fills later in the day during lunchtime at 12:15.

So the idea is getting short here, inside the gap, using a limit order.

Weekly order block — I think we could potentially trade down into this area if we get some really aggressive movement lower. There is a lot of talk about the debt ceiling not being raised, potential default, and all of that. If that occurs, it could potentially send us down into this area here, and maybe even lower.

I’m not trying to predict that. I simply have these levels marked as points of interest on my chart now.

On the daily chart, we have a discount array — the Daily BISI — that we traded down into today, along with the order block here on the daily chart, which I have noted. So I think we can drop into this area, and how price trades there will be important going forward.

I like the fact that, a few days ago, we traded up to the consequent encroachment of this wick and then worked lower. But in my opinion, this Daily OB+ mean threshold is the last line of defense for the bulls. If we lose this area here, then the sell-side down below becomes my area of interest.

The other day, I mentioned on Twitter that I was not confident we had a high in place yet because I was watching this divergence between ES and NASDAQ. That is what these markings represent here.

But then we developed a much more pronounced and prominent S&P divergence: NASDAQ went higher, relatively speaking, while the S&P failed to do so. From there, price moved down into this inefficiency and into the sell stops, which overall served as the draw on liquidity.

That is what you want to see in price action.

On the hourly chart, we have this small fair value gap here. Price trades up into it, then works lower into this bearish order block right there.

Look at this: boom, boom, boom — multiple reactions from that area, and then displacement to the downside, trading into sell-side inefficiency as well.

This is a deep discount down here, and the sell-side has my attention if we use this as an inversion fair value gap.

I don’t know for certain what we’re going to do tomorrow morning. I have to wait and see what we do at the opening.

Here is the 15-minute chart. This is the current New Week Opening Gap high, and this is the current New Week Opening Gap low. There’s that fair value gap I mentioned.

Sell-side was taken, then price consolidated inside the New Week Opening Gap before breaking aggressively lower. It left a fair value gap, traded back up into consequent encroachment, and then rejected.

Remember that old idea of classic support and resistance? Here’s that low. How do you know that low is likely to act as support turned resistance? Because you have the inefficiency right there. Price trades up into it, sells off, and then delivers down into the imbalance, the fair value gap, and sell-side liquidity.

The order block through those candles is holding price back near the 70% level of the range, which keeps the New Week Opening Gap sustained.

That sell-side imbalance / buy-side inefficiency, and its consequent encroachment — the midpoint of that range — acts as the reference point. Price sells off from the order block. Look at the opening price there: it hits it, then delivers lower into the inefficiency we are currently trading underneath.

I favor the downside, but I don’t know yet how price will deliver overnight.

This is regular trading hours. Here is the Opening Range Gap, shown in this shaded area. Notice that price only worked into the lower 50% of that gap and left this upper portion open. So if price trades higher, it will likely want to reach up into this section of price action. And if it does, then we could potentially resume higher if price finds support at the Opening Range Gap high.

But until proven otherwise — and until we get above the New Week Opening Gap low — I’m bearish. That makes it pretty simple. That’s it.

Here is the Opening Range Gap on the five-minute chart. The inefficiency is a sell-side imbalance / buy-side inefficiency, with consequent encroachment — the midpoint of that range. Price sells off from the order block that was on the higher timeframe, then drops into this one.

We are now digging into that area, so in my opinion, price probably needs to run up into a short-term premium. Then I’d want to see maybe another wipeout of the lows, because this area down here is too smooth for me. I like those types of lows.

Again, based on the rules, you would need a 10-handle range.

Here is the AM Silver Bullet window: 10:00 to 11:00 in the morning. I misspoke earlier when I said 11:00 — it is 10:00 to 11:00.

Here, you have a fair value gap, and price trades up into it. Now, where is 10 handles from that point? Ten handles lower would be at this low or below it.

Can price get below that? I don’t believe it can, because we already had this low taken out by this low, then we formed a higher low, and then we have this low here. So price traded down into this area, and we are inside that Opening Range Gap, consolidating.

So this would not be a Silver Bullet trade that fully meets the classic criteria. It could be a scalp-style Silver Bullet to take out these lows here, but it is not the ideal 10-handle setup.

For the PM session, this one does qualify.

We had the order block trading up into here, then a shift in market structure. This is the ICT Silver Bullet here, and there is a second one here if you want to go after it.

The 10-handle objective is this discount fair value gap. So from here to here, there are 10 handles or more. That gives you a valid Silver Bullet setup, and this Silver Bullet is high probability — and it delivers.

So you have to understand that there are rules to these things, folks. You can’t simply say it doesn’t work just because you can’t do it. It’s there every single day. Every single day. And if you get behind the rules I gave you, they will serve you well.