In Inner Circle Trader (ICT) concepts, the Vacuum Block is a lesser-known but powerful price action concept that highlights market inefficiencies and price imbalances.
It can be understood as a zone where liquidity has been “vacuumed” away, meaning there’s a lack of active trading orders, causing rapid price movement.
The absence of orders creates a temporary vacuum in the price chart, which market participants eventually seek to fill, leading to a potential reversal or retracement.
The Vacuum Block forms during sharp market moves, often following the clearing of liquidity zones like stop hunts or false breakouts.
The price moves quickly through these zones, creating a vacuum where very few transactions occur, leaving behind an imbalance.
These areas become critical points on the chart that often attract institutional traders, as they represent inefficiencies that need to be corrected.
1. Key Characteristics of a Vacuum Block in ICT
1. Sharp Price Movement:
A Vacuum Block is typically created during a strong and swift price move, often without many pullbacks or retracements.
2. Low Liquidity Zone:
This zone is characterized by low liquidity, as price moves too fast for significant order matching to take place.
3. Market Inefficiency:
The market hasn’t balanced buy and sell orders properly in these areas, creating an imbalance or a gap.
4. Potential Rebalancing:
Eventually, price may return to the vacuum block area to “rebalance” the market. Traders using ICT concepts look to capitalize on this movement.
2. How Does a Vacuum Block Form in ICT?
Imagine a situation where institutions drive the price down rapidly in order to trigger stop-loss orders placed by retail traders.
As these stops are hit, there’s a rush of sell orders, and price plummets in a short time frame.
In this situation, price moves so quickly that there’s little chance for orders to be filled or for proper market transactions to take place, leaving behind a vacuum.
This “vacuum” of untraded price levels is what ICT refers to as a Vacuum Block.
After the institutional players have completed their stop hunt or liquidity sweep, price often retraces back into this vacuumed area as the market seeks to balance out the orders that were missed during the initial move.
3. Example of a Vacuum Block in Action in ICT
Example 1: Rapid downward Move in EUR/USD
Let’s say the EUR/USD pair is trading around 1.1500. Suddenly, there’s a sharp drop, and the price plunges to 1.1400 within a short period due to institutional traders sweeping liquidity from stop-loss orders placed just below 1.1450.
Step 1: Creating the Vacuum Block
During this sharp decline, there’s very little trading volume between 1.1450 and 1.1400.
The price drops so fast that not many orders get filled in this range, creating a vacuum block.
Step 2: Institutional Buying
Institutions may begin buying once the price hits 1.1400, causing a reversal.
This creates an opportunity for traders following ICT concepts to ride the price back up as it fills the vacuum.
Step 3: Price Rebalancing
As the market seeks to rebalance itself, price climbs back toward 1.1450.
This is where traders look for a potential entry point, knowing the market may want to fill the imbalance left in the vacuum block.
Example 2: Bullish Run in GBP/USD
Suppose GBP/USD has been trending upward, and price rapidly moves from 1.3100 to 1.3200 due to a news event or large institutional buy orders.
During this rally, the price jumps so quickly that there is a gap in liquidity between 1.3150 and 1.3175.
This creates a vacuum block.
Step 1: Formation of the Vacuum Block
Price moves up without significant pullbacks, creating a vacuum where not many orders were traded between 1.3150 and 1.3175.
Step 2: Market Retracement
After the initial bullish run, price may retrace into the vacuum block area.
ICT traders recognize this as a high-probability trade setup, as price rebalancing often occurs in such vacuums.
4. Why Are Vacuum Blocks Important in ICT?
1. Rebalancing Opportunities:
Vacuum blocks highlight areas of price imbalance.
Once the vacuum is created, price tends to revisit the block to fill the gap and rebalance.
Traders can use these areas as points to enter trades, expecting a reversal or continuation.
2. High-Profit Potential:
Since price tends to move swiftly in and out of vacuum blocks, identifying them can offer high-probability trading setups with relatively low risk.
3. Market Inefficiencies:
Vacuum blocks represent inefficiencies in the market caused by rapid price movement.
ICT traders use these inefficiencies to align their trades with institutional order flow, increasing the likelihood of success.
4. Clear Entry and Exit Points:
Vacuum blocks provide clear areas on the price chart where traders can expect price to either reverse or continue moving.
These points are key in deciding when to enter or exit trades based on institutional activity.
5. How to Trade Vacuum Blocks in ICT
1. Identify Rapid Price Movements:
First, locate areas on the chart where price has moved rapidly, leaving little to no trading volume behind.
These areas usually form vacuum blocks.
2. Wait for Retracement:
After the initial sharp move, wait for the market to retrace into the vacuum block.
This is often where price will rebalance itself, providing a good entry point for a trade.
3. Enter the Trade:
When price retraces into the vacuum block, enter the trade in the direction of the original move (if it’s a retracement, buy; if it’s a pullback after a sharp drop, sell).
4. Use ICT Concepts for Confirmation:
Combine the vacuum block with other ICT concepts, such as order blocks or liquidity sweeps, to increase the probability of a successful trade.
5. Manage Risk:
Place stop-loss orders outside the vacuum block range to protect against false moves or continuation of the trend.
6. Conclusion
The ICT Vacuum Block is a vital concept in price action trading that highlights areas of market inefficiency created by sharp, rapid price movements.
Understanding how and why these blocks form allows traders to capitalize on price rebalancing opportunities, offering high-probability trades when the market seeks to correct itself.
By recognizing vacuum blocks and using them in combination with other ICT strategies, traders can gain an edge in identifying institutional order flow and avoiding common retail traps.
Leave a Reply