Basic elements of ICT trading

Basic elements of ICT trading strategy

Earlier, I explained liquidity and its importance in the concept of ICT. Now I'd like to introduce other basic elements needed to establish your own ICT trading strategy.

1. Liquidity Pools:

A liquidity pool refers to a price point where a significant amount of order is concentrated on a chart. It refers to a place where buy or sell orders are concentrated at a specific price point, like a pool of water. Rather than being used as an entry point, these liquidity pools are used as a target point for price movements. In other words, because smart money is more likely to move prices toward this liquidity pool, it helps predict the likelihood of rising or falling to that price point.

2. Inducement:

An attraction refers to the uptake of buy or sell orders that occur in a liquidity pool. This refers to a movement in which smart money deliberately causes a stop loss (hand order) at a certain price point, or temporarily moves prices in the opposite direction to the trend, deceiving retail investors ("bait"). By capturing these incentives, we can identify potential price reversals and market movements.

3. Fair Value Gap (FVG):

FVG is a three-candle pattern that represents market inefficiency. Specifically, it refers to an empty space where the high price and low price of a candle among three consecutive candles do not overlap with the low price and high price of the candles on both sides. These FVGs are used to identify transaction entry signals and potential price reversals because prices tend to come back to fill the space.

4. Order Blocks (Order Blocks, OB):

The order block refers to the price point at which a large volume of trading has entered the market. It can be seen as a sign of large numbers of buy or sell orders in the past, and it is likely to act as a level of support or resistance to future price movements.

5. Balanced Price Range:

The equilibrium price range is an adjustment section formed by an immediate reversal after a strong displacement. In other words, it refers to a section in which the price jumps immediately after a sharp drop, or jumps immediately after a sharp drop and moves sideways within a narrow range. This equilibrium price range can be interpreted as an accumulation or distribution phase leading to a trend reversal or trend continuation.

6. Premium/Discount:

Premium/Discount refers to the price level above or below 50% of the recent price range. In other words, it is used to determine whether the current price is overvalued (premium) or undervalued (decount), based on the median of recent price movements. This allows you to use a strategy of buying at a discount and selling at a premium.

7. Market Structure:

Market structure refers to a pattern of higher highs and higher lows (strong trend) or lower highs and lower lows (weak trend). This is the most basic concept used to identify overall market trends.

8. 변위 (Displacement):

Displacement refers to a significant price movement that represents the intent of the market. In other words, it refers to a large candle that moves strongly in one direction and is used to identify the trend direction after liquidity incentives.

9. KILLZONES:

A kill zone is a specific time zone where the optimal market movement takes place. The kill zone is a period of high volatility and active trading volume, such as around the opening and closing hours of major financial markets. It is used to identify favorable time zones for entering trading and to avoid adverse market conditions.

10. Optimal Trade Entry:

Optimal trading entry refers to the ideal entry zone located between 61.8% and 78.6% Fibonacci reversion levels. This zone serves as the optimal entry point within the premium or discount range. That is, the reference point used to enter the trend direction, but to enter the most favorable price.

By developing and implementing ICT trading strategies by comprehensively considering these factors, you will be able to analyze market conditions more accurately, manage risks, and make profitable transactions. In particular, please remember that understanding liquidity and the movement of smart money is key to ICT trading.