“The Power Of Three,” also known as the “AMD” pattern.
In the document ‘A Guide On Liquidity,’ I explained that major players such as institutions, banks, and whales are playing games with retail traders. During this game, their goal is to take money from novice traders so that they can fill their large orders. This is often referred to as a ‘liquidity game.’
Now that you, as the reader of this document, understand the basics of liquidity, we can delve deeper and analyze a common model: the PO3 model, also known as the AMD model. These models were ‘conceived’ by ICT and RektProof. However, I want to emphasize that I have never watched a video from ICT or RektProof about this model, so everything described in this document is based on my own observations and experience.
In this document, we will use the term AMD, which stands for three phases that occur in the pattern, namely:
- [A]ccumulation — This refers to a phase where smart and experienced traders (also known as ‘smart money’) take positions and gradually accumulate assets at favorable prices. This phase is often characterized by sideways movement of the price.
- [M]anipulation — Manipulation refers to the activity of certain market participants who try to influence prices to fill their orders, or to get rid of their positions. These can be large players trying to affect sentiment and deceive other traders into selling or buying their positions.
- [D]istribution — This is the opposite of accumulation. In this phase, smart traders gradually sell or buy their positions, attracting less novice traders who purchase assets at higher prices, or sell at lower prices. This often leads to a downward/upward expansion move.
In the image below, we see the three phases of the AMD model depicted. Note that this is a bearish AMD, but the model can also appear in a bullish form.
What is important to remember is that the accumulation phase often lasts the longest. The manipulation phase is usually relatively short, and liquidity is almost always removed at the top. The distribution phase is characterized by a rapid and forceful movement, where support and resistance levels are largely ignored.
AMD psychology
Let’s delve deeper into the psychology behind this model. It’s good to observe price action moving up and down, and candles forming in both directions, but you must always remember that every price movement tells a story. What you see on the chart is essentially a result of human behavior and emotions. Understanding this human behavior can be advantageous. A bearish AMD model is created by major players to sell their current positions. A bullish AMD model is created by major players to fill their positions, and thus, to buy. The AMD model ensures that major players have sufficient liquidity to trade their positions.
Let’s go through the phases of the model step by step and see how liquidity is formed and how major players use this liquidity to their advantage. We use the image below to explain the three phases.
Phase 1: Accumulation
In the accumulation phase, the price moves within a range, with continuous tests of the range’s upper and lower boundaries. The upper boundary, the range high, is seen as resistance, while the range low is considered as support. Retail traders mainly trade at support and resistance levels as this is typically one of the first concepts they learn. Therefore, whenever the price touches the range high, short positions are opened. When a short position is opened based on a horizontal resistance zone, the stop-loss is placed in 99% of cases above the last high and, thus, above the resistance zone which creates liquidity in that area. As the resistance zone is tested multiple times without the price breaking out, a cluster of liquidity forms above the accumulation phase.
Phase 2: Manipulation
In the manipulation phase, major players seek out liquidity. As mentioned earlier, liquidity is found above the resistance zone. Hence, major players push the price out of the accumulation phase, triggering the stop-loss orders of short positions. From the document ‘A Guide On Liquidity,’ we know that when a short position is liquidated, buy orders are executed in the order book, which are then absorbed by major players. Consequently, these major players sell their positions above the accumulation phase.
Furthermore, an additional form of liquidity emerges during the manipulation phase. When the price breaks out of the accumulation phase, traders often anticipate this move by opening long positions. These traders are called ‘breakout traders’ since they anticipate the breakout of the accumulation range. The long positions opened by these breakout traders represent additional liquidity for the major players, as they can sell their positions to these breakout traders.
During the manipulation phase, a liquidity sweep often occurs as well. As seen in the example, the previous high is swept, enabling major players to absorb liquidity. This provides further confirmation that the price will eventually retrace.
It becomes increasingly evident that this AMD pattern is entirely orchestrated by major players to trap retail traders and create various forms of liquidity that they can use to their advantage.
Phase 3: Distribution
When phases 1 and 2 are fully played out, and a liquidity sweep has occurred, the price often accelerates in a southerly direction (in a bearish AMD). The distribution phase is usually characterized by an explosive movement, where support and resistance levels are almost ignored. The distribution phase extends at least to the bottom of the accumulation phase and often even deeper, as the AMD pattern is a reversal pattern.
How can you anticipate an AMD pattern?
Now that we know how to spot an AMD pattern, the next step is, of course, to capitalize on it and take advantage. As I always say, “when you trade, think like a major player, not like a retail trader.” This also applies in this situation. It’s essential to understand that you shouldn’t anticipate the accumulation phase but rather strike during the manipulation phase since this is also when major players strike.
So, we let the accumulation phase form, and as soon as the price breaks above the accumulation phase, we start looking for a short position. We often see in the manipulation phase, after the sweep of the high, that a break of structure (BOS) forms, which you can anticipate by opening a short position. Personally, I always open a short position on a bearish retest of the break of structure level, which we also call ‘the breaker’. I always place my stop-loss above the high of the manipulation phase, and my target depends on how the price action has formed.
The setup looks as follows:
This pattern can be applied to any timeframe and any asset since manipulation by major players occurs everywhere. Additionally, this pattern can be used for both short and long positions.
Example of current price action for BTC:
What we observe is that the price has gone through a long accumulation phase, followed by a manipulation phase where the lows were swept twice in succession. After the last sweep, a strong bullish reaction followed. From this point onward, we want to see strength and a strong reclaim of the old range (the accumulation range). If this happens, there is a high probability that the distribution phase will be played out, which means that we will see an impulse movement towards $31.7k or higher.
