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ICT Trading Course
Updated: Jan, 2024
8min ReadI.C.T stands for Inner Circle Trader, an effective forex trading method devised by Michael J. Huddleston. Michael believes that before every significant directional price move, there will be a stop run. In this article, I will provide an overview of the Inner Circle Trader and its opportunities.
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Table of Contents
- Is ICT a good trading strategy?
- ICT Trading Strategy
- What Smart Money looks like in Price Action
- ICT Action Plan
- Stop Hunts
- Market Structure
- Liquidity Based Biased
- Liquidity Pool Manipulation
- Reinforcing Liquidity Concepts and Price Delivery
- Reinforcing Order Block Theory
- Bearish Breaker Block
- Bearish Rejection Block
- Vacuum Block
- ICT Fundamentals
- Smart Money Accumulation and Distribution
- Interest Rate Triad
- Interest Rate Effects on Currency Trades
- What is the Inner Circle Trader strategy?
- Is the Inner Circle Trader strategy suitable for beginners?
- How can I identify liquidity pools in the market?
- What are some risk management techniques in the Inner Circle Trader strategy?
- Can the Inner Circle Trader strategy guarantee profits?
Yes, the Inner Circle Trading strategy is the best out there. It mainly focuses on where price is most likely to reverse which is in the Fair Value Gaps and also explains how liquidity is taken out to help traders pick the highest probable trades. I also use this strategy, mixing it with other technicals to further advance it, as well as confluence.
ICT Trading Strategy
The Inner Circle Trader strategy is based on the belief that large institutional traders, often referred to as “smart money,” manipulate the forex market to their advantage.
These institutional traders have substantial resources at their disposal, allowing them to influence market prices and create profitable trading opportunities.
The Inner Circle Trader strategy aims to identify and align with these institutional traders’ actions to increase the likelihood of successful trades.
The ICT Method was designed by Michael J. Huddleston and has further been developed over the years and simplified by traders such as the YouTuber “Ara”, to suit beginners.
What Smart Money looks like in Price Action
A. The break of the previous low indicates a Market Structure Shift. Once the price posts a market shift lower – your attention moves to this specific low in price action.
B. This short-term rally in price highlights a specific institutional reference point known as the “Mitigation Block”.
C. When price action returns to “A” point of reference – the long positions taken from “A” to “B” price swing will have an opportunity to Liquidate or Mitigate the net loss that occurred when the price dropped from “B” to “C”. This can result in lower price swings to “C” for retesting or significantly lower prices into the support level under market price.
ICT Action Plan
One of the key principles of the Inner Circle Trader strategy is the concept of liquidity pool manipulation.
Institutional traders manipulate liquidity pools by creating false market movements to trigger stop-loss orders and induce panic selling or buying among retail traders.
By understanding and anticipating these manipulations, Inner Circle Traders can position themselves to profit from the subsequent market movements.
Stop Hunts
Stop hunts refer to intentional price movements designed to trigger stop-loss orders placed by retail traders.
Institutional traders exploit these stop hunts to accumulate more significant positions or exit existing positions at favourable prices.
Inner Circle Traders closely monitor these stop hunts and use them as opportunities to enter or exit trades.
Market Structure
Understanding market structure is crucial for successful implementation of the Inner Circle Trader strategy. Inner Circle Traders analyze price charts to identify support and resistance levels, trend lines, and other market patterns.
By aligning their trades with the underlying market structure, they aim to increase the probability of profitable trades.
Liquidity Based Biased
Liquidity Pool Manipulation
When Price Action trades to a Focus Point like a:
• Orderblock
• Liquidity Pool
• Liquidity Void or Fair Value Gap
Refer to the interest rate triad and USDX to confirm Smart Money is behind your trade area. If there is no obvious indication they are moving large funds – pass on the trade idea and look for new ones that do.
Reinforcing Liquidity Concepts and Price Delivery
External Range Liquidity
- The current trading range will have Buy Side Liquidity above the range or High.
- The current trading range will have Sell Side Liquidity below the range or Low.
- Runs on Liquidity – seek to pair orders with the pending order liquidity – Liquidity Pools.
- External Range Liquidity Runs can be Low Resistance or High Resistance in nature.
Internal Range Liquidity
- When the current trading range is likely to remain – Liquidity Voids will fill in the gap Risk.
- When the current trading range is likely to remain – Fair Value Gaps will fill in the gap Risk.
- Orderblocks inside the trading range will be populated with new Buy and sell orders.
- Market Maker Buy & Sell Models will form inside trading ranges.
Reinforcing Order Block Theory
Definition: The Lowest Candle or Price Bar with a Down Close that has the most range between Open to Close and is near a “Support” level.
Validation: When the High of the Lowest Down Close Candle or Price Bar is traded through by a later formed Candle or Price Bar.
Entry Techniques: When Price trades Higher away from the Bullish Order Block and then Returns to the Bullish Order Block Candle or Price Bar High – This is Bullish.
Defining Risk: The Low of the Bullish Order Block is the location of a relatively safe Stop Loss placement. Just below the 50% of the Order Block total range is also considered to be a good location to raise the Stop Loss after Price runs away from the Bullish Order Block to reduce Risk when applicable.
Bearish Breaker Block
Ideal setup in major to intermediate-term downtrends
The bearish breaker block is a bearish range or down close candle in the most recent swing low prior to an old high being violated. The buyers that buy this low and later see the same swing low violated – will look to mitigate the loss. The opposite is true for the Bullish Breaker Block.
Bearish Rejection Block
Ideal setup: In major to intermediate-term downtrends
A bearish rejection block is when a price high has formed with long wicks on the high(s) of the candlestick(s) and the price reaches up above the body of the candle(s) to run buy-side liquidity out before the price declines.
Ideal setup: In major to intermediate-term uptrends
A bullish rejection block is when a price low has formed with long wick(s) on the low(s) of the candlestick(s) and the price reaches down below the body of the candle(s) to run sell-side liquidity out before the price rallies higher.
Vacuum Block
Vacuum Block is a “gap” created in Price Action as a result of a volatility event. The gap is formed by a “vacuum” of liquidity directly related to an event. NFP [Nonfarm Payroll] can create a Vacuum Block or in Futures a session opening can.
Liquidity Void is a range in Price Delivery where one side of the Market Liquidity is shown in wide or “long” one-sided ranges or candles. Price typically will want to revisit this “porous range” or void of contrarian liquidity.
Fair Value Gap is a range in price delivery where one side of the market liquidity is offered and typically confirmed with a liquidity void on the lower time frame charts in the same range of price. Price can actually “gap” create a literal vacuum of trading thus posting an actual price gap.
Liquidity is the “open interest” of buyers and sellers in the market and can be further defined by those entities at or near specific price levels
ICT Fundamentals
Smart Money Accumulation and Distribution
30 Year T Bond Market
10 Year Note Market
5 Year Note Market
Overlaying these three markets will highlight when Accumulation & Distribution in the Interest Rate Market takes place – from a “Smart Money” perspective.
The three Interest Rates should confirm each higher high or lower low – at moments when the USDX is at a significant Price point. Failure swings highlight Smart Money participation in the markets & trading opportunities are validated.
Interest Rate Triad
Bearish Conditions
Bullish Conditions
- 30-Year Bond – Key Long-Term Interest Rate.
- 10-Year Note – Intermediate Term Interest Rate.
- 5-Year Note – Short-Term Interest Rate.
- Overlaying or Comparative Analysis of these three Interest Rates unlocks Price Action.
- Failure Swings at opportunistic times can validate Institutional Order Flow.
Interest Rate Effects on Currency Trades
- Interest Rates are the single most influential driving force behind market moves.
- Understanding Interest Rate Shifts & changes can assist you in selecting trades.
- Technical Analysis of key Interest Rates can unlock professional money movement.
- Interest Triads provide a visual depiction of Smart Money Accumulation and distribution.
Conclusion
The Inner Circle Trader strategy provides a unique approach to forex trading by leveraging the behavior of institutional traders.
By understanding liquidity pool manipulations, stop hunts, and market structure, traders can potentially identify profitable trading opportunities. However, it is important to apply effective risk management techniques and acknowledge the limitations of the strategy.
With proper analysis and careful execution, the Inner Circle Trader strategy can be a valuable tool for experienced forex traders.
Frequently Asked Questions
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What is the Inner Circle Trader strategy?
The Inner Circle Trader strategy is a forex trading approach that focuses on understanding and leveraging the behavior of institutional traders to identify profitable trading opportunities.
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Is the Inner Circle Trader strategy suitable for beginners?
The Inner Circle Trader strategy is more suitable for experienced traders who have a solid understanding of market dynamics and chart analysis. Beginners may find it challenging to grasp the nuances of this strategy initially.
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How can I identify liquidity pools in the market?
Liquidity pools can be identified by analyzing price charts and looking for areas of accumulation or distribution. These areas often indicate the presence of liquidity and potential market manipulation.
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What are some risk management techniques in the Inner Circle Trader strategy?
Risk management techniques in the Inner Circle Trader strategy include setting stop loss and take profit levels, managing position sizes, and monitoring market conditions to adapt trading strategies.
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Can the Inner Circle Trader strategy guarantee profits?
No trading strategy, including the Inner Circle Trader strategy, can guarantee profits. The forex market is inherently unpredictable, and there are risksinvolved in trading. The Inner Circle Trader strategy aims to increase the probability of profitable trades by aligning with institutional traders' actions, but it is important to manage risks and understand that losses are a possibility.
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