Showing posts with label Premium/Discount. Show all posts
Showing posts with label Premium/Discount. Show all posts

Thursday, February 26, 2026

All Five ICT Entry Models Explained | JadeCap

The majority of traders lose money because they enter the market at the wrong time. In this breakdown, I will explain the exact entry models I utilized to generate over one million dollars in just two years, analyzing each one step by step. Although I have been trading for 14 years, it was only in the last few that I truly refined my strategy. It took nearly a decade for me to achieve consistency; consequently, I am sharing my experience and knowledge here to help you shortcut your own journey toward becoming a profitable trader. 

ICT Entry Models: Premium/Discount—Liquidity Raids—Fair Value Gaps—Order Blocks—Breaker Blocks. 

I. Premium and Discount
The first entry model is the fundamental concept of premium and discount. We utilize the Fibonacci retracement tool to define our specific trading range by anchoring it to a swing low and a swing high if we are bullish, or a swing high and a swing low if we are bearish. This allows us to identify the 50% equilibrium level, as well as the deep discount and premium zones.

Discount, Equilibrium, and Premium Zones: S&P 500 (1 hour candles).
 
After establishing these swing points, we wait for a retracement beyond the 50% threshold—into discount for buys or premium for sells—before hunting for an entry. Our objectives are typically a Fibonacci extension outside the range or the range high/low. In a bullish scenario, we wait for price to dip into the discount zone before targeting the previous high or a specific Fibonacci extension. Conversely, in a bearish scenario, we target the previous low or the extension.
 
Discount, Equilibrium, and Premium Zones: EURUSD (15 minute candles).

Regarding execution, candle confirmation is not strictly necessary. For instance, within a bullish range, any area below the 50% mark is considered a discount and serves as a favorable entry point. This model is particularly effective for limit orders, allowing traders to execute without being anchored to their screens. We enter long via a buy limit and place the stop loss outside the range. Because a setup is not technically invalidated until the initial swing point is breached, your stop loss should remain at that level to avoid being "chopped up" by price volatility.

II. Liquidity Raids 
This entry model identifies zones where "smart money" is likely accumulating positions: liquidity raids, commonly known as "Turtle Soup." First, we identify the specific liquidity pool we expect to be raided, such as a Previous Weekly High (PWH), Previous Daily Low (PDL), or session-specific levels like the Asian range.  
 
Liquidity Raids: EURUSD (5 minute candles).

A common mistake among novice traders is entering the market the moment a level is penetrated. Instead, we wait for a candle to close back inside the range. We look for a strong rejection followed by a close above or below the previous swing point. Only then do we enter, placing our stop loss beyond the newly created swing high or low. This ensures a superior risk-to-reward ratio, as it allows the market to signal an actual intent to reverse rather than forcing us to catch a "falling knife."
 
III. Fair Value Gap (FVG)
The Fair Value Gap (FVG) is a three-candle pattern where the second candle is so impulsive that the wicks of the first and third candles do not meet, leaving an imbalance, a "gap." We wait for the market to rebalance by trading back into this zone. 
 
Bullish Fair Value Gap: EURUSD (15 minute candles).

Ideally, the entry should be executed as price moves against the desired order flow. If we are looking to go long, we buy while price is actively dipping into the gap. While many traders demand extra confirmation, the most effective entries often occur when the market looks visually "weak," as this is where you secure the best pricing. 
 
Stop-loss placement can be aggressive (at the gap's edge) or conservative (at the high/low of the first candle). I recommend the conservative approach to give the trade sufficient room to breathe.
 
IV. Order Blocks
An order block is a down-closed candle prior to a move higher or an up-closed candle prior to a move lower. High-probability order blocks are those paired with an FVG. When an FVG rests immediately above or below an order block, it validates the level as a high-probability zone for institutional activity. 
 
Order Blocks and Breaker Blocks: Gold (5 minute candles).

We enter as the market retraces into that order block, anticipating a rejection. For instance, if several consecutive candles form an order block that aligns with an FVG, the bodies of the subsequent candles should respect that level.
 
V. Breaker Blocks
The breaker block combines liquidity concepts with order blocks. It is an order block formed prior to a raid on liquidity that is subsequently broken by a decisive move. If price sweeps liquidity and then aggressively trades through the original order block, that level transitions into a "breaker." We enter on the retracement back into the breaker's range.
 
Breaker Block: EURUSD (5 minute candles).

Stop-loss placement can be complex; I tend to favor a conservative placement because breakers can produce deep wicks that may stop out aggressive traders before the trend resumes. Often, a breaker overlaps with a fair value gap; in such cases, you might utilize the 50% equilibrium of the gap or the high/low of the original order block to set your invalidation point.
 
 
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Ultimately, whether you are utilizing premium/discount, liquidity raids, or gaps, success depends on proper stop-loss placement and trade management. A stopped-out trade does not necessarily mean the setup failed—it often suggests the stop loss was too aggressive for the market's inherent volatility.
 
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Wednesday, February 26, 2025

How Algorithms Impact Market Direction: 80% of Breakouts Fail | Richie Naso

The first thing you need to truly understand is that algorithms control the stock market; not the large institutional players, not the massive hedge funds, but price auction algorithms. Algorithms are there to create volatility and liquidity; they have no mind, they are programmed to go to technical areas, certain levels, to take out buy and sell orders. 
 
The market operates on a day-to-day basis with both premium and discount levels. When the market moves toward a premium level, the algorithms target that area to create liquidity. Conversely, when the market moves lower, the algorithms aim for the discount area to generate liquidity.
 
 Equilibrium Level and Premium -Discount Zones.

Algorithms dictate the direction of the market, especially in the near term. The mathematical equations used in these algorithms are designed by humans, based on historical data. 
 
When the market is trending lower and algorithms reach a significant technical level (support/resistance, supply/demand zones, previous highs and lows of sessions, days, weeks, months, imbalances, order blocks, 50%-levels, round numbers, option strike prices) and the market is trending lower, algorithms will activate and target that technical area. They recognize that the area is a support level. They also understand that they can manipulate investor emotions to make them believe that the market is bottoming out. 
 
Premium-Discount Zones for Short and Long Setups.

As a result, when the algorithm hits that technical area, it aims to trigger emotions that lead investors to sell or short in response to what appears to be a breakdown. These breakdowns are often referred to as "failed breakout trades," and they tend not to succeed. In fact, they fail in more than 80% of cases.

 
 » Some of the best trade setups are failed breakouts. «

Why? Because it’s a contrived effort by the mathematical logic of the algorithms, designed to make investors do exactly what the algorithms want. The goal is to get people to go short at the bottom and encourage long investors to sell their positions at the lowest point, clearing the way for an upward movement. 
 
First, shorts need to be covered. Then, longs who sold at the bottom will be motivated to buy back shares, creating another emotional impulse. Typically, this leads to a poor trade for those who sold too early.

» The goal is to get people to go long at the top. «
 
The same principle applies in both directions—whether the market is moving up or down. For instance, in a false breakdown, algorithms may manipulate the market to sell. In a false breakout, they may prompt buying. In both cases, the effect is similar: short covering and long investors buying at the wrong time. To sum it up, the algorithms exploit emotional responses. 
 
There is no support for short positions when the market is trending down, and the longs who are caught at the top are forced to sell. This creates the momentum for the market to move in the opposite direction.

 » 80% of Breakouts fail. «

This is why some of the best trades are failed breakdowns—buying against technical levels that are collapsing. This is when and where you should buy, while everyone else is being pushed out of the market. You don’t want to short a failed breakdown in a technical area, nor should you buy a breakout in such an area. Instead, you should do the opposite in these situations. 
 
» Algos do what they are programmed to do. They take no prisoners. «
 
My most successful trades, without question, occur when stop orders are triggered. People use stop orders to protect themselves from losses. This is where you should enter the market—against stop orders. If stop orders are triggered and the market has to sell down, you should buy. Conversely, if stop orders are triggered on the way up, you should sell. The key is to position yourself on the other side of stop orders.
 
To sum it up, algorithms are written by programmers, and have to be designed to go somewhere. Where do they go? To technical areas. Those algorithms are heading there, without a doubt. They aim to shake out longs and get people to go short or vice versa. 
 
So, what do the smart players do who are at the bottom of these algorithms, scooping up all this action? They feed into these people. That's the purpose of algorithms. We take advantage of what they give us. Printing money. That’s what we do. And we do it every day. 
 
You need to know the technicals, the levels, and pay attention to them. Technical areas are borders, and price history is how you identify and track them. Do multi-time frame analysis; understand what failed breakdowns and failed breakouts look like; double bottoms, double tops, pin bars, three-push-patterns, three-bar reversals, and M and W patterns, all the way down to the 1-minute chart. Find out what else VWAP, EMA (9), and Keltner can do for you.  
 
Wait for price to get to technical areas, and for reversal setups to form. Price to price, level to level, zone to zone. Don't chase trades; scale into them, as single-entry trades will kill you. Understand position management; know your stop-loss level, take-profit targets, and your R, and take what the market gives you. Consider taking partial profits and holding positions through a session close or daily close. Journal your trades; some of your best trades will be losing trades that help you learn valuable lessons. Keeping things simple is the key to success as a trader.

See also: 
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Thursday, July 18, 2024

Interbank Price Delivery Algorithm (IPDA) Data Ranges | D'onte Goodridge

IPDA (Interbank Price Delivery Algorithm), a ICT trading concept, is a theoretical model used to explain price movements driven by liquidity hunts, imbalances, and large orders from commercial speculators. It causes the four market phases—consolidation, expansion, retracement, and reversal—with shifts on daily charts every 20, 40, and 60 trading days, known as look-back periods, where liquidity pools form approximately every 20 days.
 
 IPDA Look-Back Periods = 20, 40, and 60 Trading Days

IPTA is always working and exchanging orders every second. IPTA can be applied on a daily timeframe of the current trading day or the first trading day of a month. Before trading a new month, traders should follow three steps to gain insight in the market:

(I.) Visualize IPDA Data Ranges in Daily Chart
The first step you must follow is finding the first trading day of a new month. Next you count back 20, 40, and 60 trading days (TD) from the first trading day of the month. Last find the highest high and lowest low in each look back data range.

 
The above is the daily chart of British pound versus US dollar (GBPUSD). Currently we are in January 2023, and the first official trading day is Monday, January 2, 2023. That is the start. From here we look back 20, 40, and 60 trading days: back 20 TD = December 2, 2022; back 40 TD = November 4, 2022; back 60 TD = October 7, 2022. Now we have all our look back data ranges. We find the highest high (red lines) and lowest low (blue lines) in al three quadrants.

(II.) Create hypothesis were price might draw to based on Technical and Fundamental Analysis
Now that we have finished our chart activity, we will take a look at technical analysis, then perform fundamental analysis and gain macroeconomic data that can aid with insight. Last, bring together the two analysis techniques to form a hypothesis on what price should do in the near future. 
 
Every new trading month, I am asking myself two questions: 
 
(1.) Is price going to give me a quarterly shift, meaning change trends?
(2.) Or is price going to continue its current trend? 
 
I have no idea whether or not the market is going to continue its trend or make a quarterly shift during the new month. However, using the IPTA ranges, I am able to structure some story-line, especially around liquidity. Going into a new trading month, IPTA ranges can help to figure out where the large orders of liquidity are residing. One side of the market is going to be taken, whether that is buy side liquidity or sell side liquidity. Look for the highs and lows that are still intact. This is where the price algorithm is going to draw to.
 
 British Pound Forex Seasonality.

(III.) Consider Seasonality
Incorporate Seasonality for more insight going into a new trading month. Seasonality does not tell you when to buy or sell for the year but it does give a general sense of when to anticipate the high of the year or the low of the year or when a instrument may be going sideways for a month or a couple of months.

 
IPDA Library Example #1: Gold/USD vs IPDA.
 Primary driver of the market are Interest Rate Differentials (IRDs).
 
Reference:
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Sunday, July 14, 2024

Trading Major News Events | D'onte Goodridge

News events typically inject momentum into the market, often prompting traders to anticipate where price might trend in response to the news. Making educated predictions about these movements is a common strategy rooted in technical analysis. Position yourself AFTER major news releases (NFP, CPI, PPI, PMI, FOMC etc.) with either a Pump & Dump or a Dump & Pump trading setup.


Sell Scenario/Setup: Wait for the buy side liquidity pool on the 15 minute timeframe to be raided first. After that, go to the 1 minute timeframe entry above the killzone's opening price. Then, anticipate that price will revert back down to a sell side liquidity level.
 
 
Buy Scenario/Setup: Wait for the sell side liquidity pool on the 15 minute timeframe to be raided first. After that, go to the 1 minute timeframe entry below the killzone's opening price. Then, anticipate that price will revert back up to a buy side liquidity level.
 
When price moves above the opening price of a killzone, it's in a premium. This is where to find ideal sell entries. 


When price moves below the opening price of a killzone, it's in a discount. This is where to find ideal buy entries.

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Wednesday, May 29, 2024

ICT Optimal Trade Entry (OTE) | Darya Filipenka

Timing is an important factor in trading, and a well-defined strategy can significantly increase your chances of success. The ICT Optimal Trade Entry (OTE) strategy is one approach that traders can utilize to identify high-probability trade setups. It’s important to pinpoint the specific time and day when the OTE is most likely to occur. Typically, this happens between 8:30 AM and 11:00 AM, New York local time.
 

Market Structure - As the market rises and declines and makes higher highs/lower lows, each new swing higher/lower in price is anchored or directly reacting to another swing higher or lower. Every swing in price has an equal counter swing it is unfolding from and attempting to fulfill. 
 
Market Structure Shift (MSS) - comes from the HL or LH levels, it will serve as one of the reasons for us to enter the trade. A market structure shift is depicted as a significant level on the chart where the prior trend Is invalidated. When the market is in an uptrend, the market structure shift level is typically identified as a point where a lower low is formed. Conversely, in a downtrend, the market structure shift level Is often observed at a juncture where a higher high emerges. Notably, these market structure shifts tend to arise following a displacement, signaling a potential shift in the overall trend direction.

1. The Premium Zone represents the price correction range situated above the 0.5 (50%) level in the context of a downward momentum. Traders pay attention to this zone when considering selling opportunities.
2. The Discount Zone refers to the price correction range located below the 0.5 (50%) level in the case of an upward impulse. Traders observe this zone for potential buying opportunities.
3. The Equilibrium Zone denotes the price range where the asset's average price is located. In other words, it represents the fair price zone or the level of balance between buyers and sellers.
 
 Concept of Premium & Discount.

Traders and market makers seek opportunities to buy at a Discount and sell at the Premium zone. As a result, traders often disregard the 0.236 and 0.382 Fibonacci levels in their analysis and instead wait for the price to move above or below the equilibrium level. We focus on the Premium / Discount Zones, since the price does not always enter the OTE zone. Sometimes it is enough for price to adjust by 0.5 (50%) in order for the big man to gain or lose a position.
 

To select the high and low points of a dealing range, follow these steps:

1. Run a Fibonacci retracement tool from the highest high to the lowest low within the dealing range. This will help establish the overall range of price action.
2. Pay attention to areas where the algorithms consolidate. These consolidation areas indicate fair value and are important in determining the proper dealing range.
3. Consider the nearest high when the 50% Fibonacci level aligns with the common consolidation area. This will help identify the appropriate high point of the dealing range.
4. Select the lowest low as the low point of the dealing range. This ensures that the range encompasses the relevant price action and aligns with the areas where algorithms are active.

To implement the OTE strategy, follow these steps:

1. Determine the current market structure, whether it has a bullish or bearish bias. This ia crucial as Fibonacci levels work best within a trending market.
2. Identify significant swing highs and lows to draw the Fibonacci grid. These highs and lows are often visually prominent and easy to label.
3. Use the Fibonacci retracement tool to assess the correction potential in an uptrend (from bottom to top) or downtrend (from top to bottom).

Using OTE during Silver Bullet: After identifying the MSS, I recommend drawing an OTE retracement from the Swing Low (High) to the Swing High (Low). The optimal entry point for trades is typically at the 62% retracement level of that range. Once the trade is entered, the first target is typically set at the -27% extension level, and the second target is set at the -62% extension level. Wait for price to trade back into the FVG (Fair Value Gap) and then reprice out of the FVG towards the targeted pool of liquidity. Usually a FVG lines up with the 62% retracement level.  
 
Reference:
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