Learn ICT Concepts in 30 Minutes!

The ICT trading method is a comprehensive approach that can be complex for beginners. It emphasizes understanding foundational concepts to navigate the intricacies of trading effectively. This guide aims to simplify these concepts, making them accessible and easier to grasp for newcomers in the field.

Swing points, defined as swing highs and lows, are crucial for understanding market liquidity. A swing high is identified by a central candle with lower highs on both sides, while a swing low has higher lows surrounding it. Retail traders often place stop orders near these levels—buy stops above swings and sell stops below them—creating concentrated areas of liquidity. Above the swing high lies buy-side liquidity from short trades' stop orders; conversely, below the swing low exists sell-side liquidity from long trades' stop-losses.

In the ICT method, swing points are crucial for identifying buy-side and sell-side liquidity levels. Observing a 5-minute chart of the mini S&P reveals potential swing lows and highs based on previous candle formations. A low becomes classified as a swing low when followed by higher lows, while lower highs indicate a swing high or buy side liquidity. As price movements unfold, recognizing these patterns helps traders mark significant points in real-time charts effectively.

Equal highs and lows refer to clusters of swing points that group together at similar price levels, indicating potential market behavior. Old highs and old lows are isolated swing points where the price may briefly pierce these levels without closing below them, suggesting manipulation tactics aimed at retail traders. Understanding these concepts is crucial for recognizing liquidity triggers in the market. Additionally, various types of highs and lows exist across different time frames such as previous week or day high/low, which further inform trading strategies.

Understanding discount and premium zones is crucial in the ICT method, which involves analyzing price ranges between swing highs and lows. The range is divided into two parts: the upper zone represents a premium while the lower zone signifies a discount. For long trades, entering in the discount zone enhances risk-reward ratios; conversely, for short trades, targeting entries within the premium zone maximizes potential gains. This concept of discounts and premiums plays an essential role when considering optimal trade entries and other trading setups.

Optimal Trade Entry (OT) is identified within specific Fibonacci retracement zones, particularly between 0.62 and 0.79 for long trades in discount zones or short trades in premium zones. The midpoint at 0.75 serves as a critical level to monitor price action reactions across the three levels of this zone, influencing trading decisions significantly.

In the analysis of the Euro USD four-hour chart, significant swing highs and lows are identified to establish discount and premium zones. The optimal trade entry (OT) is marked within these ranges, specifically in the premium zone where price interactions at various levels can be observed. A reaction occurs at the 0.62 level of OT; although this could serve as an entry point, higher entries increase risk-reward potential. Following a brief downward movement after reaching near midpoint OT levels, prices drop significantly towards swing low targets with favorable risk-reward ratios for short trades.

Understanding Fair Value Gaps in Trading The fair value gap is a three-candle pattern characterized by the absence of overlap between specific candle shadows, indicating potential buy or sell opportunities. A bullish fair value gap occurs when the upper shadow of the first candle does not touch the lower shadow of the third, while a bearish version shows no overlap between their respective lower and upper shadows. These gaps can serve as support and resistance zones; price reactions at these levels provide insights into market behavior.

Price Dynamics: Consequent Encroachment & Volume Imbalances Consequent encroachment refers to observing how prices interact with midpoints within fair value gaps, which often act as significant retracement points. Price movements may respect or disrespect these limits leading to inversions—where bullish patterns turn bearish and vice versa—similar to traditional support/resistance dynamics. Additionally, volume imbalances arise from discrepancies in open-close relationships among adjacent candles while true gaps indicate complete trading inactivity between them.

In the analysis of the dollar index, fair value gaps are identified when there is no overlap between candle shadows. These gaps often lead to price reversals or continuations in their main trajectory. Observing multiple candles reveals repeated formations of these gaps and subsequent reactions from prices as they return to fill them before moving upward again. Additionally, volume imbalances occur when there's a gap between candle closes and opens with trading activity present within that space; this can influence market behavior significantly.

Order blocks are crucial in the ICT method, categorized into high probability and low probability types. High probability order blocks arise from large body candles that sweep liquidity; bullish ones follow a bearish candle leading to a break of structure, while bearish ones come after bullish candles. These occur at the open of significant candles where price often retraces before moving in the anticipated direction. Low probability order blocks consist of small body candles with prominent shadows amidst ongoing price movements; they also have bullish and bearish variations based on their position relative to surrounding larger candlesticks.

A high probability bullish order block is identified by first sweeping sell-side liquidity, marked by a large bearish candle. After this sweep, the price breaks above the latest swing high, indicating potential for upward movement. The order block forms at the opening of that bearish candle and often sees price retrace to it before rising again; multiple touches can provide secondary entry opportunities. Conversely, in a low probability scenario within an uptrend, a small bearish candle indicates another possible setup as price returns to that area before moving higher.

Predicting Market Trends with Daily Bias The daily bias is a method to predict whether the next trading day will be bullish or bearish, based on the previous day's high and low. A bullish bias occurs when price breaks above the prior day's high or fails to close below its low. Conversely, a bearish bias arises if price closes below the previous day's low or does not break above its high.

Practical Application of Daily Bias Analysis Using real-time examples from charts like that of the dollar index illustrates how these biases play out in practice. When prices consistently close beyond established highs or lows, it confirms ongoing trends—either bullish or bearish—for subsequent days. Observations show that once a trend establishes itself through closing patterns at extremes, predictions can become more reliable over time.

Extending Knowledge Beyond Basics Daily biases are effective tools for framing trades even within lower time frames; their principles remain consistent across different chart scales. While this guide covers foundational concepts of ICT methods related to daily biases, further exploration into advanced strategies is encouraged for deeper understanding and application in trading practices.