Name: Internal & External Liquidity Model - ICT Concepts
Uploaded: 2024-06-20T15:00:26.000Z
Duration: 16 min 18 s
Description: Thousands of YouTube videos with English-Chinese subtitles! Now you can learn to understand native speakers, expand your vocabulary, and improve your pronunciation...

To-infinitive

This video is going to be about building a model based off of internal and external liquidity concepts.

Gerund

Now if you don't know what internal and external liquidity is, please go ahead and check out the video linked in the top right before watching this video.

For those of you that do, we will go ahead and hop into a PDF, quickly review, and then talk about the model.

Now the first thing you need to understand is what is internal liquidity.

Internal liquidity is just a fair value gap.

Now if you don't know what a fair value gap is, we will quickly review that, but I also have a video on that as well.

It is just a three candlestick pattern, one, two, three, in which the wick of the first candle and the wick of the third candle do not overlap, showing aggressive price action through this area.

So you can see, one, two, three, these candles do not overlap.

Now the next thing to understand is what is external liquidity.

External liquidity is simply highs and lows, so you can see here we have a range, we have a swing high here, we have a high with a lower high on each side, creating a high.

Similarly down here, we have a low with a higher low on each side, creating a swing low.

So this is external liquidity, or sell side liquidity and buy side liquidity.

Now the next thing we're going to cover is the relationship between the two.

Since price swept and could not displace through this external liquidity, it is likely to reach back where?

Now that price reaches internal liquidity, it's respecting the fair value gap, and you can see this closure here.

So you can see price moves from external to internal and back to external.

So now let's take a look at the actual model.

So this model is just going to use a higher time frame level.

Dropping down a time frame, I will look for internal or external liquidity.

Then on the lower time frame, I will look to make sure I'm in a kill zone.

I have a stop rate, a market structure shift, a fair value gap, and then I will target to R.

So for an example of this, when we swept this external low and looking for price to trade to internal and on the lower time frame, we get a market structure shift, a fair value gap, and targeting to R on the way to this fair value gap.

Let's go ahead and hop into trading view and go over a few examples of this.

So here we are on NQ daily chart, and you can see that we took this low right here.

Now with this super aggressive close down here, I'm not expecting a retracement right away, so I'll let a few candles form.

Now, if we're going to mark this out, we have a low with a higher low on each side, forming a swing low.

Now, let's see what the next candle does.

We get aggressive displacement up, violating this fair value gap right here.

So if I'm going to look for external to internal, I have a fair value gap resting right here, right around discount of this range here.

So using that as my drawn liquidity or looking for price to draw to this higher time frame level, I'm going to drop down to the hourly chart.

So zooming in here, you can see here we have a candle where this wick does not overlap with this wick.

So having this marked out is our fair value gap.

Now that we have internal liquidity, if price reaches into it during a kill zone, can we frame a trade?

So now that price reached into this fair value gap, if it is going to continue to trend higher and this is going to form a swing low, I'd anticipate price going from internal to external liquidity.

So now that we have our higher time frame draw, which is this daily fair value gap, and then dropping down a time frame, we have a move from internal to external liquidity.

Let's drop down another time frame and see if we can find a setup.

So down here on the five minute chart, you can see we reach down into the hourly fair value gap and we come back up and shift market structure here.

So now I'm looking for the fair value gap.

And if you notice, we have a fair value gap here as well as a fair value gap here.

So looking to take an entry, I'm going to take an entry on the start of this fair value gap, but I want to allow it to be able to trade down into this fair value gap.

I'll put my stop on this fair value gap, Campbell's low.

Then I'll be looking to target 2R, which you can see is just at these highs.

Even though I could target 3.16R with a total run to the fair value gap, I'm just going to be looking at 2R, and I could hold runners if I want to.

So letting this play out, let's see what happens.

And we get a move higher towards these highs, completing the move from internal liquidity to external liquidity.

And skipping ahead, you can see after hitting RTP, if I would have moved my stop to break even on runners, they would have been stopped out before reaching the daily fair value gap.

However, if I was just holding my whole position to the daily fair value gap, keeping my original stop, it would have worked out as well.

But for this model, I'm just focused on catching 2R.

So zooming back out to the hourly chart, you can see we have our daily fair value gap, which was just targeted in the previous example.

We just swept an hourly high, so external liquidity.

And do we have internal liquidity resting below?

Well, this fair value gap was mitigated on the previous example.

And that will act as our drawn liquidity.

So I'm looking for price to trade off this daily level, and then use the hourly external to internal to frame a trade.

Let's hop back down to the 5-minute chart to see how we could frame something.

Now down here on the 5-minute chart, you can see that we have price sweeping this high here, and then our drawn liquidity is lower.

So we're looking for price to displace below this low to give us our shift in market structure.

And there we get displacement below this low.

Now the next step is to look for a fair value gap.

So if I'm going to look to enter a position there, where would I want to have my stop?

Well, here you can see most of this price action is balanced above, but in here it's a little bit messy.

Now I want to have my stop over opposing candles.

But if it's a little messy, let's go ahead and zoom out a timeframe.

So to the 15, you can see here everything is balanced.

You can see there's no fair value gaps, but we do have a little inversion right here.

So ideally, I'd want to have my stop above that inversion and look to target 2R.

And back to the five-minute chart, another thing I could do is take a position at the same spot, have my stop on the fair value gap candles high, and then look to target 2R.

But here we get tagged in, hit 2R on the first and 2R on the second.

So you can see either one of these would have worked.

This is just a more conservative stop loss than this one here.

Let's go ahead and let this play out and see if we do reach that hourly fair value gap.

For this next example, we'll also be on Enqueue daily chart.

And so taking a look at the last few days of price action, what do you see?

So if just marking out previous days highs and lows, you can see that Thursday here swept Wednesday's high, and then Friday reversed, closing below the opening price here.

And you can see how these previous days lows are all lined up here, and that is low-resistance liquidity.

So looking for a point of interest, the two spots that I look for, like this, is the opening price, as well as the mean threshold of this up-close candle.

Now just in terms of premium and discount of the range, it makes more sense to look at the mean threshold here.

So dropping down to the hourly, I want to see when we enter a kill zone or reach the point of interest.

You can see, as this fair value gap is holding, it doesn't seem like the opening price is going to push us lower, so we're likely to reach a little bit further up towards the mean threshold of this.

We just kind of consolidate, and then as we enter to New York, we do reach up into the mean threshold, so this point of interest.

Subtitles ListPlay Video

Internal & External Liquidity Model - ICT Concepts

pattern

structure

aggressive

bias