Liquidity Voids

"A range in price delivery where one side of the market liquidity is shown in wide or long one-sided ranges or candles"

Definition

"a liquidity void is a range in price delivery where one side of the market liquidity is shown in wide or long one-sided ranges or candles"

"price typically will want to revisit this porous range or void of contrarian liquidity"

What Creates a Liquidity Void

"there's a void of buy side liquidity that causes downward ranges like this which is what we call a liquidity void"

"the markets aggressively moved away from that consolidation that's shaded in and because it repriced aggressively lower it was all on South Side liquidity only very little buying took place in that rundown"

Price in Balance

"when prices in a small consolidation or trading range we call this price in balance in other words prices in a point of equilibrium"

Smart Money Participation

"at some point price will eventually move out of the consolidation when this occurs we know that there's a participation in the form of smart money"

"smart money is the only one that has the deep enough Pockets to cause price to move out of consolidations or move at all really in any significant manner"

Displacement

"this causes a price imbalance or as we call it displacement"

Smart Money Indication

"when we see this this is indicating that there are smart money in the marketplace and they believe that price is wanting to go lower"

Smart Money Position Scaling

"because they're smart money their their orders are going to be larger than ours and that means their participation is going to have to be scaled in they can't facilitate their entire net short position in all at one price so they have to gradually work that position in"

Void Timing & Duration

"price can stay away from that drop down aggressively where there was only two or three candles that moved away from that consolidation that range can stay open for a while"

"there's no specific time limit on how long it's going to take for these voids to close in"

Duration Variability

"that's all going to be germane to what you're seeing in the Market at the time you see the voids they can stay open for months they can stay open just for a brief session intraday and they can close it in"

"it's all going to be relative to what you see in price action around that void"

Structure & Pattern

Void Formation

"this small little area of price action where it was only delivered on the downside we have we have long bodied candles where price has only been delivered on the downside and has a small little Gap in between the two biggest Down Candles"

Liquidity Void Formation Consolidation (Price in Balance) Displacement Long Bodied Candle VOID Small Gap between biggest down candles Price expected to revisit void "void of buy side liquidity"

Void Filling Mechanism

"we expect price to come back up and trade right back over those same price levels"

"price action has been balanced out in other words it's been a complete and uniform delivery of price action it's been offered on the down move and it's been offered on the buy move up"

Void Filling Process 104.76 104.50 104.10 LIQUIDITY VOID Down move Short-term support (Sell stops below) Run below lows (Sell stops hit) Price rallies to fill void at 104.76 VOID FILLED "price action has been balanced out... it's been offered on the down move and it's been offered on the buy move up"

Common Gaps

Definition

"when we see a gap where price has closed from one candle and gaps into another opening of another candle and that separation between the two price don't have a closure in other words it doesn't have a range closing that in it creates a common Gap"

Trading Common Gaps

"if we're going to be moving lower and we see a gap here we can put an order in here the cell with a limit order at 104.70. so in that price Gap we can be a seller at that specific price level"

Gap Fill Requirement

"once it closes in that Gap only the body closes it in it Wicks up into the body but the bodies of the up candle as it closes that Gap that's all that's necessary"

Common Gap Trading Setup Time Void filled at 104.76 Bearish candle GAP Separation between close and open Gaps down Sell Limit @ 104.70 (in the gap) Price closes gap Body closes gap Wick into body Immediate reaction lower "very very little drawdown"

Gap Trading Context

"we have a inclination that we're going to be moving lower so if we're going to be moving lower and we see a gap here we can put an order in here"

"look at the reaction there once it closes in that Gap only the body closes it in it Wicks up into the body but the bodies of the up candle as it closes that Gap that's all that's necessary very very little drawdown and immediately it trades lower"

Trading Application

Institutional Level Pricing

"pricing in on an Institutional level has to happen in graduated terms in other words it can't be done on the first pass it goes to a level it runs away from our level let's say like that first it runs away from a level"

Building Smart Money Position

"why did it sell off here initially in the on the 16th of December because they priced in some more selling so they build more of a natural position there then price trades one more time up in that 104.75 level 104.76 on the 19th of December"

Sell Stops & Short Covering

"while price is showing a short-term support level like this what's going to be building up below those lows sell stops"

"cell stops are used to pair up short covering buys with"

Smart Money Liquidity Grab

"that run on those cell stops what was necessary for them to facilitate new logs so that way if they're going to take out the 10476 they're going to make it worth their while you're going to pick up some buy orders"

Example Trade Sequence (from transcript)

  1. "see the cell stops that were ran below that low here right before the void was closed"
  2. "that low would be the buying opportunity"
  3. "price it right makes a run of 75 Pips up to 104 76 and closes in that liquidity void"
  4. "the Gap had been closed at entry at 104.70 with an ideal use of a common Gap"
  5. "price makes a run for 104.04 cell stops where we can take a cover on positions that are short"

Study & Review

Click each card to reveal the answer (from ICT's transcript)

What is a liquidity void?
"a range in price delivery where one side of the market liquidity is shown in wide or long one-sided ranges or candles"
What does price in balance mean?
"when prices in a small consolidation or trading range we call this price in balance in other words prices in a point of equilibrium"
What is displacement?
"this causes a price imbalance or as we call it displacement" - when price moves aggressively out of consolidation
Who causes price to move out of consolidations?
"smart money is the only one that has the deep enough Pockets to cause price to move out of consolidations or move at all really in any significant manner"
Is there a time limit on how long voids take to fill?
"there's no specific time limit on how long it's going to take for these voids to close in... they can stay open for months they can stay open just for a brief session intraday"
What does a downward liquidity void indicate?
"there's a void of buy side liquidity that causes downward ranges" - very little buying took place in that rundown
What is the expectation for a liquidity void?
"we expect price to come back up and trade right back over those same price levels" - price typically will want to revisit this porous range
Why do smart money orders need to be scaled in?
"because they're smart money their orders are going to be larger than ours and that means their participation is going to have to be scaled in they can't facilitate their entire net short position in all at one price"
What is a common gap?
"when we see a gap where price has closed from one candle and gaps into another opening of another candle and that separation between the two price don't have a closure... it creates a common Gap"
How do you trade a common gap?
"if we're going to be moving lower and we see a gap here we can put an order in here the cell with a limit order" - place sell limit in the gap
What is required to close a common gap?
"only the body closes it in it Wicks up into the body but the bodies of the up candle as it closes that Gap that's all that's necessary"
What does balanced price action mean?
"price action has been balanced out... it's been a complete and uniform delivery of price action it's been offered on the down move and it's been offered on the buy move up"
What builds up below short-term support lows?
"while price is showing a short-term support level like this what's going to be building up below those lows sell stops"
What are sell stops used for?
"cell stops are used to pair up short covering buys with"
How does pricing in happen on institutional levels?
"pricing in on an Institutional level has to happen in graduated terms in other words it can't be done on the first pass"