ICT Vacuum Block

Definition

"A bullish vacuum block is a gap that's created in price action as a result of a volatility event. The gap forms by a vacuum of liquidity directly related to an event."

"Inside that range we have a vacuum block, and that means we've blocked out a reference point in time."

"Even though there's no candlestick or bar on our chart, price did in fact have a parameter before and end."

What Causes Vacuum Blocks

Structure & Pattern

"When we see that gap, the space in between the two candles is important. While on our charts there's going to be a vacuum, if you will, of trading, there's no trades being made between the previous candles close and the next candles opening."

"There's absolutely no way for any trader to execute. There's no trade between those two price points. So what it does, it creates a vacuum of liquidity."

Defining the Vacuum Block

"We're defining it as the high and the low of the gap. Now if we looked at it in the terms of a candle or a bar, it would be just the same as anything else. We would expect to see a mean threshold, an opening, and a close. So if we see that, we're just going to treat it just like any other candle."

"Short-term lows formed, and this could be if we're trading futures contracts where they have a session opens and closes where there's no trading."

Market Context Scenarios

Exhaustion Gap Scenario

"This outline that I'm giving you here would be a little bit more probable if the market had been rallying for a number of days or weeks or it's been in a prolonged uptrend and then it does this. This could potentially be an exhaustion gap. An exhaustion gap is typically a graphic depiction of capitulation, and capitulations basically like the last bit of momentum in underlying trend or direction."

Bullish Continuation Scenario

"Assuming that we have been in a downward correction in an upward market, or if we've been in a down market and we expect the market to give some kind of a bullish news, or we're expecting the market to reach for liquidity above where we're currently trading at and the news event releases and we get this gap up."

"If we gap up away from a market that's in a discount, we've had some retracement but we are expecting higher prices nonetheless, we see this gap like this."

Gap Fill Expectations

"Most times, I'm not going to give you a specific percentage because there's no real accurate way of depicting that because it's just we're going to classify as a high probability that the market will want to come back and try to close that in."

Partial Fill (Bullish Order Block)

"If we're bullish, we're looking for is there any bullish order block or down candle that would cause the gap to not want to fill entirely."

"We have the down candle right before the move and it's two consecutive down candles, so the bullish order block would begin at the higher of the two down candles prior to the gap up. And as price trades into that candle, we would reasonably expect a potential bounce there and leave that little gap opening still intact, but this could potentially be a buy."

Full Fill

"We have two reference points here: the opening of the gapped up candle and the close of the up candle right before the gap forms. And again, as price trades lower, lower, lower, boom, it hits that and we would see a complete closure of the gap. That would be a full return on a vacuum block. In other words, everything has completely been closed in."

"This whole range here is 100% filled. This is in effect perfect delivery of price. Once it's done this, this is completely balanced out now."

Entry Rules & Risk Management

Partial Fill Entry

"If you're going to be buying there, you'd have to see immediate feedback. If you're going to be buying there, can you take the risk that's associated with entering here and using a stop below that lowest down candle. So your range in terms of managing your risk and defining the risk would be between those two reference points."

Full Fill Entry

"Buying here and using a stop loss below the lowest low, your risk is more defined for more leverage but still having the same potential parameters for exposure percentage of your equity."

Post-Fill Behavior

"We're looking for the up candle that formed at the gap, we want to see that low be cleanly broke through. We don't want to see it hesitate here because otherwise that would be a bearish order block, right. So what we're looking for is we're anticipating the bullishness of this move to drive right on through that last up candle when it gapped up."

"Because now price has already been delivered efficiently, that vacuum of liquidity has been completely balanced out. We traded down with the two down candles to close the gap, now we've had a bullish move up. So what has happened? Price has been delivered on the downside to close the gap and now it's trading up. There's no reason for price to come back down."

Invalidation Rule

"We don't want to see price ever come back down below the level that would have caused it to close the gap."

"There's no reason for it to come back down and trade below the last point of reference before the gap, which would be the close of the first up candle. So when that closes in that range, the vacuum block is completely filled in and now price is permitted to trade bullishly higher."

"If it does, the trade is probably going to be suspect and you would want to look to take some profits if you've seen a move like this. Take something off, but if it starts to correct and go lower, you want to take the complete trade off because there's no reason for it to come back down into that area once it's already closed the gap."

Time of Day Considerations

"The reasons I would expect to see that is if it was time of day sensitive. In other words, if we had a lot of today left in the day where we can trade. In other words, if it's just now beginning of New York."

Early New York (8:30 AM)

"New York would probably come down and close that gap in."

"8:30 would be relatively decent in terms of allowing more time for the day to unfold."

"Generally at 8:30 news embargo lifts, there is usually markets that cause a gap like this to occur."

Late New York (After 10-11 AM)

"If it was gapped up late in the afternoon, chances are it probably would leave the gap open."

"If we are later, for instance say it's the 10 o'clock or 11 o'clock hour and we get this gap, we may end up seeing this portion of the gap to remain open and that would present us a fair value gap for a later time. We would look for price to a later time come back and close that in, but leave it open during this specific trading day."

"That would begin our thought process like that if the gap occurs late New York opening or after 10 o'clock in the morning to 11 o'clock in the morning."

London Session

"Highly unlikely that it does it in London. Usually it's a trading event that takes place, but a gap like this usually occurs in the New York session or late New York with FOMC."

Market Psychology & Liquidity

"The first assumption is on the part of most traders is this thing's going to keep going higher right away. And sometimes it will, but we're going to be looking at the vacuum block in the scope that we can use it to get in sync with what may be underlying in the marketplace."

"It creates a vacuum of liquidity. There's an absence of liquidity there, there's an absence of price being traded there."

"If there's no trades in that range, what's the market actually done? It's gapped up through it and started trading at a higher price on a new candle when it opened up and it traded a little bit more, and now we have to discern whether or not the market is going to continue and run away from that price level and leave the gap opening or will it trade back down and close in that range."

"If we're expecting higher prices, if there's liquidity that hasn't been sought out after prior to that highest high that formed on the gap opening, and back bullish liquidity above the marketplace would now allow price to drive higher."

Relationship to Other Concepts

Vacuum Block vs Breakaway Gap

"In summary, a vacuum block is nothing more than a breakaway gap."

"What I teach with the breakaway gap is because it creates a vacuum of liquidity, you have to understand not all gaps fill completely."

"If it stays open, we would label that while we're bullish as a breakaway gap and it would show willingness and strength to get in there and expect higher prices."

Fair Value Gap

"Price may only come down to a bullish order block that would be inside that gap, and price just comes to that level and then stops trading lower and then rallies higher, leaving a small gap which would be classified as a fair value gap, and we could use that at a future time."

"When price is now trading lower, we would look for price to come down and close that gap in."

Bearish Vacuum Block

"The reverse would be seen if we had gapped lower and we would wait for that gap to fill in on some up candles and then we would go short in the same venue that we would do here looking for long system in reverse."

Study & Review

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