CHAPTER 6: MARKET EFFICIENCY PARADIGM AND INSTITUTIONAL ORDER FLOW

We anticipate price seeking opposing liquidity. What does this mean?

Smart Money traders, when they look at the marketplace, they’re not looking at secret trading indicators. What they’re
specifically looking for is Time and Price. THE MOST IMPORTANT THING IS TIME. Time of day is vital whenever we’re
engaging price. Time, through the smart money lens, is crucial because there are specific elements in a daily range
that really build the likelihood of volatility to come in and, when short term reversals are likely to occur. There’re
algorithms that will start to gyrate and cause prices to run at specific times of the day. Smart money likes to cannibalize
speculative uninformed money.

Smart money always looks at liquidity. “What is the underlying narrative in the marketplace right now?”
• Is it Bullish or Bearish?
• Is the day’s daily range going to go higher but how is it going to go higher? Is it likely to go lower at the beginning
of the day first to sucker traders into going short and run sell stops so that they can acquire long positions at
and then rally going into the close or afternoon?

Smart Money asks how they can utilize that speculative uninformed money and its liquidity that it provides. THAT’S
THE MARKET EFFICIENCY PARADIGM. It’s efficient for smart money traders to view the marketplace in that
perspective.

What does a Bearish ICT Fair value Gap Look like? You have a run, preferably above some kind of old high. The first
candle is the high, the second candle is the extended low that goes below it, and the third candle is a continuation
candle. The main important factors are this: it’s a three-candle formation; the first candle’s low must be traded below
on the immediately following candle and the next candle must trade with an extended low as well that went below
candle no. 2 but does not trade with a high that trades back to candle no. 1’s low. What that creates is this small little
gap (see where the pointer is) where one candle only traded from the range of the candle number 1’s low to candle
no. 3’s high. What is occurring there is price is only being offered on the sell side i.e. price has efficiently not been
offered to buyers. The market has been delivering lower prices. It’s continuously offering lower prices in the Fair Value
Gap (FVG). To efficiently balance out that inefficient area, at some future time, the market will likely trade back into
that area. When it does and you’re bearish, that’s a short signal and you can expect the market to move lower from
that area again.

Read Point (2) & (3) as they are very important. It’s not a matter of going into charts and looking for this little gap all
the time. But look for periods where price runs above an old high and then it breaks down and look for this pattern.
So, what we are looking for is a pool of liquidity of buy stops resting above old highs – buyside liquidity (single high/
double high – double tops).

BEARISH MARKET STRUCTURE SHIFT:

You have the market trading higher; short term retracement then it trades above that old high or the initial short term
high and then it breaks down. Once that short term retracement low is broken, that’s where the market has a bearish
market structure shift. The market will see a price delivery: rally above an old high or highs and then quickly shift lower.
It should be a significant displacement (see previous episode) i.e. it should be energetic. It’s got to show a real
willingness to go lower and preferably close below the retracement low.

SAME APPLIES FOR BULLISH FVG & BULLISH MARKET STRUCTURE SHIFT
LET’S REVIEW SOME PRICE ACTION:
At 8:30 AM, mark the level with a vertical line. Why 8:30? Because at 8:30, there’s generally news that comes out.
Look left and mark the first swing high you see and draw it out on time. That is your buy side liquidity. With this run on
a 15-Minute time frame, what do you do with it? You simply start stripping down from a top down 5-Min, 4-Min, 3-Min,
2-Min and 1-Min time frame.

Check for FVGs in the lower time frames. Remember: Once price runs above that old high, look for bearish FVGs to
form. IS there a FVG in the leg downward? No. So, drop down to another lower time frame.

Look at the 3Min Chart:

Look at the highlighted area? Is that a fair value gap?

We traded below the swing low formed at 10:30 and it formed a fair value gap that we can enter once price retraces
back to it. We can now look for short opportunities in the market.

What are the rules?

• Go short at the high of the third candle forming FVG (between 10:30 – 11)
• Stop Loss just above the recent swing high – high formed near the 10:30 mark (Not BSL) i.e. Candle No. 1
High or the most recent swing high.