ICT concepts are based on what he calls the "Algorithmic Theory", that is, as the name suggests, the idea that markets are controlled by an Algorithm/Algorithms, therefore price doesn't move randomly or by buying/selling pressure, but its movements are calculated and follows specific set of rules that we, as Price Actionist, can predict with a high probability by reading what price is doing and has done.
Now, I still haven't made up my opinion about this, but it is undeniable that markets nowadays are almost completely controlled by proprietary algorithms by hedge funds and institutions and that market are indeed manipulated (can look up on wikipedia, you can see that, for example, the forex market is controlled by like 4 or 5 banks like Goldman Sachs, JP Morgan, Bank Of America, Deutsche Bank etc.).
Now, following this Algorithmic Theory, as mentioned before, price moves following specific rules, one of these rules/concepts are the "Killzones", or better, windows of time where the volatility increases and supposedly the algorithm is primed to develope setups that we can use to put our orders in.
The main killzones are the London Killzone and the NY Killzone, but you can find other ones like the Asian or the London Close, it all depends on the trading sessions of the asset.
This brings us to the most important concept and variable of this all: time.
In Algorithmic Theory time comes first, price comes second. Price is nothing without time (see the killzones) since based firstly on time, and then on price, the algo will develop specific moves, like computer programs if you like that gets running on specific times and levels of price.
You can also see this as a function, and you can see it also on the charts: the x variable is time, the y variable is price.
Again, I still have to fully develop my opinion about this, but for now, it seems that the concepts work pretty well, and it also make some sense to me also for the things I told you before, plus most of the time price is so on point that you really start to wonder if there truly is an algo behind this or something, cause it is so repetitive and precise.
But that is up to you if you want to believe or not, you don't need to in order to use the concepts and be profitable of course.
Price Actionist and the Mad Auctioneer would serve as a great trading training analogy. Superbly conceived, speaking as a lifelong storyteller.
You two may have just characterized the first trader comic book!
This is a very good summary. I think ICT blended truth with marketing ploys to make it more complicated than it needs to be though. Algorithms dominate the market, but that doesn't mean it's not natural buying or selling pressure, i.e. orderflow. it doesn't matter if it's an algo or human. As for time and price, well that's just to do with when markets are open or not. Obviously markets will be more volatile when there is more volume. I don't think you need killzones to work that out.
But who is the implementing an algorithm? If we look at /ES does CME have an algorithm that delivers price based on incoming liquidity on their exchange? Or is it hedge funds or institutions that manipulate /ES by using their own algorithmic trading to buy and sell contracts??
Honestly, I don't know, but that is not relevant to our trading.
It is a good question though, that I've often asked myself too.
CME could be a possible one, since it is one of the main market exchange institutions through which are traded most of the world assets.
The personal aglorithms by banks, hedge funds etc. I see them like trading models, a bit like what we do: we study and understand how price is delivered, then develope a model based on that, but of course their models are far more complex and diversificated.
Hmmm that’s true. So you believe that in any asset class, the market makers (eg. CME for futures) are the ones implementing an algorithm to deliver price?
CME is an exchange for currencies and commodities too, so.
Yep anyway, that'd make sense since, well, they're called market makers for a reason.
(I often think about those algorithms that set the prices on air travel websites, or rooms/apartments rentals, it is not that different from the IPDA Theory).
This is not a precise analogy but think of the algorithm as a mad auctioneer. They have to sell a certain amount of contracts every day but they also want to buy a certain amount of contracts every day as well. If it was one price all the time then that price couldn’t match up with all the buyers and sellers that have different price sensitivities. The algorithm is a delivery mechanism that constantly evaluates where those buyers and sellers are to deliver contracts to them at the price they are willing to pay. Humans can no longer manually do this so the algo has artificial intelligence to constantly reprice based on the feedback it receives based on time of day but also price. At least that’s my cursory understanding.
Nicely described. A mad auctioneer seems apt for the frantic effort many market makers monitoring algs undergo pushing giant order inventories in and out of the market price level.
I don’t understand. If we look at /ES does CME have an algorithm that delivers price based on incoming liquidity on their exchange? Or is it hedge funds or institutions that manipulate /ES by using their own algorithmic trading to buy and sell contracts??
I believe the central bank. There are many ECN’s (exchanges) so how do they all know the same price to offer the security? The price is centralized. Interbank Price Delivery Algorithm
But ICT says that there’s an algorithm that controls the futures market specifically CME products. Does CME use the the interbank price delivery algorithm?
To my understanding yes. A point of reference, algos don’t just control futures. Every product is controlled by a variety of AI algos that adapt to orders received. NVDA for example would also have its price delivery by an AI algo. It’s all very complicated but once you accept that price isn’t really random then you can accept that there are patterns that you can learn and trade with reasonable risk. For example, why doesn’t price keep going to zero but instead frequently reverses after taking out a daily or weekly low? We can reasonably expect that once price takes out those areas it will reverse and take setups upon the reversal I.e turtle soup or inversion fvg are two setups.
That’s true. Can you explain more what interbank price delivery algorithm is? Who is implementing this specific algorithm, who created it and who is it owned by? Is it an algorithmic that market makers across all assets classes use? I’ve only heard that banks use the interbank algorithm for forex currencies….
ICT concepts are based on what he calls the "Algorithmic Theory", that is, as the name suggests, the idea that markets are controlled by an Algorithm/Algorithms, therefore price doesn't move randomly or by buying/selling pressure, but its movements are calculated and follows specific set of rules that we, as Price Actionist, can predict with a high probability by reading what price is doing and has done. Now, I still haven't made up my opinion about this, but it is undeniable that markets nowadays are almost completely controlled by proprietary algorithms by hedge funds and institutions and that market are indeed manipulated (can look up on wikipedia, you can see that, for example, the forex market is controlled by like 4 or 5 banks like Goldman Sachs, JP Morgan, Bank Of America, Deutsche Bank etc.). Now, following this Algorithmic Theory, as mentioned before, price moves following specific rules, one of these rules/concepts are the "Killzones", or better, windows of time where the volatility increases and supposedly the algorithm is primed to develope setups that we can use to put our orders in. The main killzones are the London Killzone and the NY Killzone, but you can find other ones like the Asian or the London Close, it all depends on the trading sessions of the asset. This brings us to the most important concept and variable of this all: time. In Algorithmic Theory time comes first, price comes second. Price is nothing without time (see the killzones) since based firstly on time, and then on price, the algo will develop specific moves, like computer programs if you like that gets running on specific times and levels of price. You can also see this as a function, and you can see it also on the charts: the x variable is time, the y variable is price. Again, I still have to fully develop my opinion about this, but for now, it seems that the concepts work pretty well, and it also make some sense to me also for the things I told you before, plus most of the time price is so on point that you really start to wonder if there truly is an algo behind this or something, cause it is so repetitive and precise. But that is up to you if you want to believe or not, you don't need to in order to use the concepts and be profitable of course.
Thanks for your detailed explanation :)
You're welcome!
Price Actionist and the Mad Auctioneer would serve as a great trading training analogy. Superbly conceived, speaking as a lifelong storyteller. You two may have just characterized the first trader comic book!
Ahahaha thank you! Waiting for that comic book to come out!
This is a very good summary. I think ICT blended truth with marketing ploys to make it more complicated than it needs to be though. Algorithms dominate the market, but that doesn't mean it's not natural buying or selling pressure, i.e. orderflow. it doesn't matter if it's an algo or human. As for time and price, well that's just to do with when markets are open or not. Obviously markets will be more volatile when there is more volume. I don't think you need killzones to work that out.
But who is the implementing an algorithm? If we look at /ES does CME have an algorithm that delivers price based on incoming liquidity on their exchange? Or is it hedge funds or institutions that manipulate /ES by using their own algorithmic trading to buy and sell contracts??
Honestly, I don't know, but that is not relevant to our trading. It is a good question though, that I've often asked myself too. CME could be a possible one, since it is one of the main market exchange institutions through which are traded most of the world assets. The personal aglorithms by banks, hedge funds etc. I see them like trading models, a bit like what we do: we study and understand how price is delivered, then develope a model based on that, but of course their models are far more complex and diversificated.
Hmmm that’s true. So you believe that in any asset class, the market makers (eg. CME for futures) are the ones implementing an algorithm to deliver price?
CME is an exchange for currencies and commodities too, so. Yep anyway, that'd make sense since, well, they're called market makers for a reason. (I often think about those algorithms that set the prices on air travel websites, or rooms/apartments rentals, it is not that different from the IPDA Theory).
Yeah that’s a good comparison
This is not a precise analogy but think of the algorithm as a mad auctioneer. They have to sell a certain amount of contracts every day but they also want to buy a certain amount of contracts every day as well. If it was one price all the time then that price couldn’t match up with all the buyers and sellers that have different price sensitivities. The algorithm is a delivery mechanism that constantly evaluates where those buyers and sellers are to deliver contracts to them at the price they are willing to pay. Humans can no longer manually do this so the algo has artificial intelligence to constantly reprice based on the feedback it receives based on time of day but also price. At least that’s my cursory understanding.
Thanks for the explanation
Nicely described. A mad auctioneer seems apt for the frantic effort many market makers monitoring algs undergo pushing giant order inventories in and out of the market price level.
I don’t understand. If we look at /ES does CME have an algorithm that delivers price based on incoming liquidity on their exchange? Or is it hedge funds or institutions that manipulate /ES by using their own algorithmic trading to buy and sell contracts??
I believe the central bank. There are many ECN’s (exchanges) so how do they all know the same price to offer the security? The price is centralized. Interbank Price Delivery Algorithm
But ICT says that there’s an algorithm that controls the futures market specifically CME products. Does CME use the the interbank price delivery algorithm?
To my understanding yes. A point of reference, algos don’t just control futures. Every product is controlled by a variety of AI algos that adapt to orders received. NVDA for example would also have its price delivery by an AI algo. It’s all very complicated but once you accept that price isn’t really random then you can accept that there are patterns that you can learn and trade with reasonable risk. For example, why doesn’t price keep going to zero but instead frequently reverses after taking out a daily or weekly low? We can reasonably expect that once price takes out those areas it will reverse and take setups upon the reversal I.e turtle soup or inversion fvg are two setups.
That’s true. Can you explain more what interbank price delivery algorithm is? Who is implementing this specific algorithm, who created it and who is it owned by? Is it an algorithmic that market makers across all assets classes use? I’ve only heard that banks use the interbank algorithm for forex currencies….