Saturday, September 30, 2023

ICT Liquidity - The Financial Market's Zero Sum Game | Michael J. Huddleston

For a trader or institution to buy or sell an instrument, stock, currency pair, etc. it is necessary that there is another trader or institution or 'the crowd' with the equivalent opposite position. If the smart money (capital controlled by institutional investors, market mavens, central banks, funds, and other financial professionals) wants to buy a financial instrument, they will need sellers in the market. Our presumptions are: 
  1. All financial markets are a zero sum game. 
  2. In all financial markets price is generated and driven by the market maker's auction algorithm. 
  3. The market maker's price generating algorithm continuously calculates, re-balances and manages the flow of orders always in line with the fundamental 'Minimum of 50.05% Retracement-Rule across all time-frames: fractions of a second, minutes, hours, days, weeks, months and quarters. 
  4. The algorithm generates the mathematically highest possible return for the market maker.

For the market makers, for the big dealers in the exchanges - for the smart money - liquidity is provided by the dump money, by the crowd, at levels where the dump money usually has its Stop loss, Buy and Sell orders. Driving price beyond these order-levels, the market maker collects liquidity - the money of the uninformed. Smart money activates these stop, buy and sell orders to feed and place their contrary positions in the market. Richard D. Wyckoff - a brilliant speculator, and later on a broker and market maker himself - explained the accumulation and distribution process of the 'market maker' - of the Composite Operator - in all detail ninety years ago. The Composite Operator manipulates the price in order to collect 'free money'. Liquidity.  
There are two types of liquidity:

1.          Buy Stops Liquidity (BSL)
The BSL is originated by Stop Losses of sell orders, after the BSL is taken, the market reverses to the downside, because banks use the BSL to place sell orders in the market. 
Regarding Buy Stops Liquidity (BSL) focus on:
PMH - Previous Month's High
PWH - Previous Week's High
PDH - Previous Day's High
HOD - High Of Day
OLD HIGH - Swing High
EQUAL HIGHS -  Retail Traders' typical 'Resistance'.

When BSL is taken, the market reverses to the downside.

2.          Sell Stops Liquidity (SSL)
The SSL is originated by Stop Losses of Buy orders, after the SSL is taken, the market reverses to the Upside, because banks use the SSL to place Buy orders in the market. 
Regarding Sell Stops Liquidity (SSL) focus on:
PML - Previous Month's Low
PWL - Previous Week's Low
PDL - Previous Day's Low
LOD - Low Of Day
OLD LOW - Swing Low
EQUAL LOWS - Retail Traders' typical 'Support'.

When SSL is taken, the market reverses to the upside.

The Stop Hunt (SH) is a manipulation movement used by the Market Makers to neutralize liquidity (stop losses). It's a false breakout above /below the zone where there is liquidity. Market Makers usually use High Impact News to take liquidity.
High Impact News Calendar

Always pay attention to the news calendar, to know the pairs that will move, generally, pairs with many news forecasts ('High Impact'), those currency pairs, stocks, bonds, etc. are going to move (trending) during the day or week.

See also: