Inner Circle Trader Institutional Order Flow Entry is one such trading methodology in the forex and futures markets for those who follow ICT's trading methodologies, especially the ones focused on understanding the behavior of institutional players and how it affects price movements. The concept of institutional order flow entry is about discerning where the big money is entering or leaving a market and taking a position to trade with that big player.
Here are some key concepts about ICT Institutional Order Flow Entry:
1. Institutional Order Flow
Order Flow describes the activity in the market, which reveals where big money is going in or out. ICT traders are looking for imbalances or places in the market where large institutions would most likely place their trades.
The "footprint is that such institutions move the market in ways that might not easily be realized by retail traders. Much like the "footprint" of institutions can often be seen in areas of price action, such as liquidity zones, fair value gaps, and order blocks.
2. Basic Concepts in ICT Order Flow
Liquidity Zones: These are those areas wherein stop losses or pending orders tend to stack, especially above/below swing high/low areas. Institutions will often look for these zones to fill orders.
FVGs-Fair Value Gaps: These are areas where price has moved too quickly, leaving a gap between market orders. Quite often, price revisits these gaps as institutions look to fill them.
Order Blocks: These are price levels where institutional buying or selling has taken place, therefore creating a "block" of price action that shows evidence of high probability of continued institutional interest at that level.
Market Maker Theory: The idea that often price moves to entice retail traders to take positions at the worst possible time, such as at extremes of a move, or in reaction to false breakouts. Institutions-manufacturing prices-create the appearance of trends or reversals in order to ensnare the retail traders.
3. ICT Institutional Order Flow Entry Points
Rejection at key levels: ICT traders are looking for price to reject certain levels such as order blocks or liquidity zones, or some key support/resistance area, indicating institutional selling/buying.
Price Action Signals: The key levels will also see the ICT trader look to confirm the entry with candlestick patterns such as engulfing candles, pin bars, or other reversal signals.
Stop Hunts or Sweep of Liquidity: The higher institutions usually push the price to hunt stops above or below key levels. After that, on a stop sweep, it provides trading opportunities in the opposite direction.
Change in Market Structure: A change in market structure-for example, from a formation of lower lows and lower highs to higher highs and higher lows-may indicate that a new trend is being initiated by institutional participants.
4. Institutional Order Flow Identification Tools
Volume profile: shown, basically reflects at what price specific levels the most volume has traded. This helps find out the area of interest by an institution.
Time and Sales: Tape reading involves real-time monitoring of the flow of buy and sell orders to extract a view on whether the institutions are participating. This, however, requires advanced tools and experience.
Volume and Price Divergence: When a price moves higher on decreasing volume-or vice versa-it is a potential reversal situation caused by institutional trading.
Smart Money Concepts: This provides tools and techniques to find out how to identify and trade in the direction of institutional money, through methodologies that include market sentiment analysis, open interest analysis, and positioning data.
5. Risk Management
Stop Loss Placement: As most institutional traders trade in size, their entries can produce sharp moves in the market. Proper risk management involves the placement of stops at logical levels-such as below recent swing lows or highs-to avoid getting stopped out through these price movements.
Position Sizing: ICT traders also prefer smaller position sizing to factor in the volatility around institutional activity.
Example of ICT Institutional Order Flow Entry
Identify Liquidity Zones: You observe that the price is in an uptrend, but there is a significant liquidity zone below the local swing low-a probable stop-loss concentration.
Wait for Price Reaction: Price starts falling toward this liquidity zone but waits for a price reversal signal at this level; for example, an engulfing candle or a pin bar.
Confirm Order Flow: Once it confirms as a reversal pattern, you enter above the candlestick pattern, and you're entering the market in alignment with the probable institutional order flow, taking the assumption that at least some of the institutions want to move price higher from this point.
Risk Management: Set the stop just below the recent low to account for a possible stop hunt.
Conclusion
The entry strategy of ICT institutional order flow is to understand where the large institutional players are likely to enter or exit a market. How traders position for these flows is by identifying liquidity zones, order blocks, and key price action patterns to put themselves in a position that will help align them with such flows and, thus, increase the probability of a successful trade. As usual, risk management and patience will be cardinal when applying this approach.