Lesson 2 The Initial Consolidation

Category: Trading Strategies

Tags: algorithmconsolidationliquiditymarkettrading

Entities: algorithmliquiditymarket maker buy modelmarket maker sell modelsmart money

Transcript

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[Music] [Applause]

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So let's talk about the initial consolidation. So we have our market maker cell model in front of us.

Now this area circled in red is our initial consolidation. In a

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market maker cell model, we are going higher just to go back lower below the initial consolidation. So how does this initial consolidation start?

Well, this is again a crude depiction of the initial consolidation. Now the algorithm

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will hold price inside of a range for a certain amount of time. And the purpose for this is to allow liquidity to build up above the market in the form of buy stops and liquidity to build up below the market in the form of sell stops.

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Right now in some cases we can have a drop lower beneath the initial consolidation low and when we see a consolidation or equal lows that sits above a higher time frame array. So this can be in the form of an order block,

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fair value gap, a mitigation block, a breaker. So any of the arrays that you can see in price.

When we see liquidity or a consolidation above this level, this becomes a very high probability level. We can also have a variation

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where the buy stops are initially triggered and the market will then turn to activate the sell stops and into our higher time frame PDA and then expand away from the initial consolidation. Generally, I prefer to see this type of

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move because as the market runs higher, this will trap breakout traders trying to go long above the initial consolidation high, who will then place their sell stops below the initial consolidation low. The stops will get tagged as the algorithm reprices into

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the higher time frame level. And this is where smart money will pair these orders with long positions and the market will repric higher.

If we combine time into this manipulation leg below the stops into the higher time frame array, we get

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a very high probability setup that will start our buy program higher. Inside of this initial consolidation, we want to look for small candles in a tight range after we've had a run on sellside liquidity.

So, generally the consolidation will form after we've

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already run sell stops to the left. Ideally, we want to look for equal lows below the consolidation range.

Below these lows, we will find a pool of engineered sellside liquidity which will be used for exit liquidity for smart

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money later on. We can also look for equal lows in the form of the equal bodies.

But again there'll be engineered sellside liquidity below these bodies which will be used as a draw on liquidity once a sell program of the market maker sell model is initiated. So

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if we reverse this for the market maker buy model where we have the initial consolidation here circled in red the algorithm will repric lower just to go back higher above the initial consolidation. So again, we start with the initial

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consolidation where price is being held inside of a range in order for us to build liquidity above the market in the form of buy stops and below the market in the form of sell stops. If we see price hovering just below a

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higher time frame PD array, then it's likely for the algorithm to repric above the buy stops and into that higher time frame level before repricing lower to start the initial sell program of the market maker buy model. Again, we can

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often see a run on sell stops first and then repric higher to trip the buy stops and keying off a higher time frame level at a certain time and then repric lower to begin the sell program of the market maker buy model. We look for small

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candles in a tight range after a run on buy side liquidity. Generally after we have completed either a buy or sell program a new initial consolidation will commence which will be the start of another market maker buy or sell model.

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We look for relative equal highs which will make up the initial consolidation highs and engineered buyside liquidity will rest above these highs. That will be a draw on liquidity when we begin the buy program of the market maker buy model.

We can also look for equal bodies

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and again a large pool of liquidity will be resting above the bodies of the initial consolidation. We will be expanding more on the initial consolidation and how that will tie into the market maker models in future lessons.

For now, the main takeaway is

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all market maker models will start with initial consolidation and the algorithm will hold price in a range in order for it to engineer liquidity above and below the market. This is essential since liquidity is the driving force of the markets.

Without liquidity, nothing will

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move, right? So, I hope you found this one insightful and I will catch you again in the next lesson.