Ben Carter
Institutional candles are a powerful forex trading strategy used by price action traders to identify market manipulation and take advantage of it. They are formed when larger market participants drive the price of a currency pair lower to buy it at a lower price or sell before buying. The key is to identify equal low, equal high, or SR levels where manipulation may occur and the institutional candles might form. These candles have long candlestick bodies and minimal to no wicks, and they signify that the aggressive move was made to sweep liquidity.
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What You'll Learn
Focus on the body of the candle, not the wicks
When identifying institutional candles, it is important to focus on the body of the candle rather than the wicks. This is because the body of the candle holds the majority of the volume, and it is here that the big players in the market are trading. Retail traders, on the other hand, trade in the wicks, which are less significant.
So, what should you look for in the body of an institutional candle? Firstly, it is important to understand that institutional candles are formed when larger market participants drive the price of a currency pair lower in order to buy it at a lower price. This is known as market manipulation or liquidity manipulation, and it is a key characteristic of institutional candles. The intention is to run out of liquidity above or below the immediate SR line, and this is what causes the stop losses of early sellers and buyers.
When identifying institutional candles, look for strong candlesticks with large bodies and minimal to no wicks. These candles signify abrupt price movements and are often found near key order blocks and psychological levels. They represent areas of high-probability trading setups, where traders can align with institutional order flow and take advantage of the manipulation to make profits.
In addition to the characteristics of the candlesticks themselves, there are a few other factors to consider when identifying institutional candles. Institutional candles are often found in zones where institutions have entered with large positions. They may also be preceded by displacement candles, which are smaller candles that form as the market briefly continues in the previous direction before reversing in the direction intended by the institutions.
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Identify equal low, equal high or SR levels
When identifying institutional candles, it's important to focus on the body of the candles, rather than the wicks. This is because the majority of the volume is held by the body, where the big players trade.
To identify equal low, equal high, or SR levels, it's important to understand the concept of institutional candles and how they work. Institutional candles, also known as Institutional Funding Candles (IFC), represent the last opposing single or multiple close candles before the market forms a strong directional move. They are characterized by late buying or selling candles with one or more candlesticks within them, which run out of liquidity before heading in the intended direction. This is often a result of liquidity sweep or manipulation by big banks and institutions to manipulate the market.
To identify equal low, equal high, or SR levels, you can follow these steps:
- Analyze the trading volume and time of day when specific candlestick patterns occur. Institutional traders tend to execute significant trades during specific hours, creating recognizable patterns in volume and timing.
- Incorporate technical indicators such as moving averages, relative strength index (RSI), and stochastic oscillators to confirm the signals generated by the candlestick patterns.
- Identify key candlestick patterns such as engulfing patterns, doji candles, pin bars, and inside bars. These patterns can provide insights into the behavior of institutional traders.
- Pay attention to the body of the candles, looking for large candlestick bodies and minimal to no wicks. This indicates an aggressive move to sweep liquidity above or below swing highs or lows.
- Identify price imbalances or gaps left behind by institutional candles. These imbalances signify abrupt price movements and potential manipulation by institutions.
- Mark up the major swing points formed by the institutional candles. Identify the IFC range by selecting the highest and lowest points using a Fibonacci tool and plot the retracement.
- Backtest the institutional candle strategy on historical data to gauge its effectiveness before implementing it in live trading.
By following these steps, you can identify equal low, equal high, or SR levels, and use this information to make informed trading decisions based on the behavior of institutional traders.
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Understand the intention of the candles
Understanding the intention of institutional candles is key to identifying them. Institutional candles are formed when larger market participants, or institutions, manipulate the market to their advantage. This is done by driving the price of a currency pair lower to buy it at a lower price, or selling before buying and buying before selling. This is known as "smart money" trading and is a standalone powerful forex trading strategy.
The intention of institutional candles is to create a liquidity zone. This is done by taking out the liquidity above or below the immediate SR line. The number of candles is not important; it can be one or more. What matters is the push to run out of liquidity, which triggers the stop losses of early sellers and buyers. This push is placed above the high for sellers and below the low/minor SR line/support for buyers.
Institutional candles are also used to identify market direction and confirm market manipulation. Directional institutional funding candles (IFCs) have large candlestick bodies and minimal to no wicks. They are aligned with the overall market structure and signify an abrupt price movement. IFCs also represent market manipulation by institutional entities. Accurate identification of IFCs requires the presence of long candlestick bodies or long wicks, indicating an aggressive move to sweep liquidity.
By recognizing institutional candles, traders can gain insight into smart money activity and align themselves with institutional order flow. This allows them to avoid common mistakes and make profitable trades along with smart money. Institutional candles help determine order flow and market structure, making them a popular entry strategy for traders.
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Recognise the footprints of institutions
Institutional funding candles (IFCs) are a key concept in forex trading, also known as 'smart money' or 'bankers' candles. They are a standalone strategy used by many price action traders to identify and take advantage of market manipulation. IFCs are formed when institutions manipulate prices to trigger retail traders' stop-losses or pending orders near key levels, creating liquidity for large positions. This is done by driving the price of a currency pair lower to buy it at a lower price, or selling before buying and buying before selling. This manipulation leaves behind institutional footprints on the chart, marking zones where institutions entered with large positions.
To identify IFCs, look for long candlestick bodies with minimal or no wicks. These candles signify an aggressive move to sweep liquidity above or below swing highs or lows, and are often found near key order blocks and psychological levels. IFCs are used to identify both market direction and manipulation; in the case of the latter, the scenario must be different. Directional IFCs are strong and aligned with the overall market structure, whereas manipulation occurs by breaking key market structure levels.
IFCs can also be identified by their impact on the market. After the initial sharp displacement of price, there is often a structural shift in the market as it reverses direction. This creates liquidity zones that can be used for high-probability trading setups, allowing traders to avoid common mistakes such as false breakouts. By recognising IFCs, traders can align themselves with institutional order flow and make profits alongside smart money.
It is important to note that the number of candles is not indicative of IFCs; it can be one or multiple candles. The crucial aspect is the intention to run out of liquidity, which triggers the stop losses of early buyers or sellers. This push is placed above or below the immediate SR line, and the market never violates the low of the last down-closed candles in a bullish market or the up-closed candles in a bearish trend.
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Identify strong candlesticks that sweep liquidity
The identification of strong candlesticks that sweep liquidity is a crucial aspect of trading strategies. Here are some instructive guidelines to help you recognise these influential price action indicators:
Firstly, it's important to understand the concept of liquidity zones. These are pivotal areas on a price chart where a high concentration of traders' stop-loss orders or buy orders are positioned, waiting to be activated. Liquidity sweeps occur when significant market participants, often referred to as "smart money", deliberately push prices beyond these key levels to trigger a wave of buy or sell orders. This strategic move creates the necessary liquidity for these large players to enter or exit their positions with minimal impact on the market, known as "slippage".
When identifying strong candlesticks that sweep liquidity, pay close attention to the candlestick patterns near these liquidity zones. A distinctive sign of a liquidity sweep is when a candlestick wick extends beyond a support or resistance level and then swiftly reverses its direction. This dynamic movement indicates that a cluster of orders has been triggered, creating a surge of buying or selling pressure.
The body of the candlestick is also a critical factor. Strong candlesticks that sweep liquidity typically exhibit long bodies, reflecting the robust buying or selling pressure exerted by institutional traders. The wicks, which represent the highest and lowest prices reached during the period, may provide insights into market volatility, but they are not the primary focus when identifying institutional candles. Instead, concentrate on the body of the candlestick, as it signifies the majority of the volume where prominent traders are active.
To further validate a liquidity sweep, mark the buyside liquidity and sellside liquidity levels on your chart. Observe how the price behaves around these levels. If the price surpasses your marked level and then swiftly retraces back above or below it, this dynamic movement strongly suggests a liquidity sweep has occurred. This price action reveals the deliberate actions of institutional traders, manipulating the market to their advantage.
Lastly, it's important to approach liquidity sweeps as a component of a broader trading strategy. They should not be solely relied upon but rather used in conjunction with other technical indicators such as Fair Value Gaps (FVG) or Order Blocks (OB) to create a more comprehensive and robust trading approach. By doing so, you can increase your chances of success and align yourself with the strategic moves of institutional traders.
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Frequently asked questions
An institutional candle is a price action trading concept. It occurs when larger market participants manipulate the market by driving the price of a currency pair lower to buy it at a lower price, or selling before buying and buying before selling.
The agenda of an institutional candle is to take out the liquidity above or below the immediate SR line. This is done by creating displacement candles to continue in the previous direction, leaving institutional footprints on the chart.
To identify an institutional candle, look for strong candlesticks with large bodies and minimal to no wicks. These candlesticks occur when the price takes liquidity from swing highs or lows and then reverses sharply, continuing in the direction intended by institutional players.
Institutional candles form in zones where institutions entered with immense positions, near key order blocks and psychological levels. They are often found near key level breaks, such as a swig high or low.
