Introduction To ICT

Trading
When Michael J. Huddleston, also known as The Inner Circle Trader or
ICT for short, began introducing his concepts to the public back in
2022, he generated a staggering number of followers and students eager
to learn his concepts.

The challenge new traders face, however, lies in assembling the various
concepts and viewing them as a coherent whole. Order Blocks and Fair
Value Gaps (FVGs) can appear anywhere on the chart. Understanding
what the market is doing and how to trade them using multi-timeframe
analysis can be challenging and is usually where some new traders give
up or decide to trade ICT concepts as patterns rather than price action.

The goal of this site is to stay true to ICT’s teachings as much as possible,
yet explain it in a simpler way. This will be done by breaking down the
concepts and introducing them progressively over series of articles. Each
new article builds upon the previous one. The aim is not to create a
mere collection of information about the various pieces, but
rather to explain what they are and how they all fit together.

ICT Building Blocks

The first section will focus on and establish a solid foundation in ICT
Concepts, to be a ICT trader, a trader must first grasp the fundamental
concepts.

1. ICT Candlestick Fundamentals: This article explains how candlesticks

(often referred to as “candles”) are evaluated and the role they play. It
serves as the foundation for candlestick analysis.
2. Understanding Order Blocks: Here, we delve into how these candles
form what is known as High Probability Order Blocks. We explore their
formation, characteristics, what to look for, and ways to trade them.
3. Order Blocks, Breaker Blocks, and Mitigation Blocks: This section
expands on the previous concepts. We explore other types of Order
Blocks and discuss the relationships between an Order Block, Breaker,
Mitigation Block, and Reclaimed Order Block.
 As new articles are published weekly or biweekly, this page will be
updated to reflect the new additions and how they all fit together.

ICT Candlestick
Fundamentals
Every down candle must support price
up, and
every up candle must support price
down.

Candlesticks’ Role In ICT Trading

The conventional use of candlesticks in trading, often referred to as
“candles,” has traditionally focused on analyzing the shape of each
candle along with its directional movement or color. Traders commonly
recognized candlesticks as Red Hammers, green shooting stars, bullish
engulfing, and the likes. They are commonly traded with lagging
indicators such as moving averages, VWAP, RSI, and so forth.

However, when ICT introduced his concepts to the public, he offered a

much simpler alternative perspective. Rather than fixating solely on
candle shapes, ICT emphasized three key aspects:

1. Directional Move: How the candle moves (bullish or bearish).

2. Size: The range between the open and close.
3. Relative Position: How the candle appears on the chart in relation to
adjacent candles.
 What’s more, ICT’s approach does not rely on any indicators and is traded
purely based on price action. This approach became the cornerstone of
many of ICT’s trading principles and is arguably one of the most powerful
and fundamental concepts within his system. Before diving into ICT’s
Building Blocks, it’s crucial to grasp how candles are interpreted in his
methodology.

Once understood, these concepts, will not only be able to define and
refine entries, targets, and stop losses but also gain insights into
directional support and early signs of potential breakdowns.

Understanding ICT Candlestick Basics

A candlestick comprises four main components: open, high, low, and
close (often abbreviated as OHLC or OLHC).

 Bullish (UP) Candle: When the closing price is higher than the opening
price.
 Bearish (DOWN) Candle: When the closing price is lower than the
opening price.

The conventional methods usually focus on each individual candle. It is

worth noting that there are some traders who look at multiple candles as
one. This method is usually dubbed candle math where the traders will
take the open of the first candle, and the close of the last candle as the
body of a combined candle. If the combination of two or more candles
mimicked a single hammer candle, then they will treat that combination
as a hammer candle.

Series Of Candlesticks As Higher Timeframe Candles

ICT’s first concept covered is to view consecutive candles of the same

color or direction as a single higher timeframe candle. The difference
between ICT’s approach and the candle math approach is that ICT do
require the series of candles to be of the same color and direction.

The rationale behind his approach lies in the fact that buying and selling
activities are not strictly confined to specific timeframes. Institutional
buyers, for instance, do not limit their purchases to a single 5-minute
window; they continue buying until their portfolio requirements are met
regardless of the period of time needed to fulfill their large orders.
 In the example
provided, we see a 5-minute chart where the price action initially moved
upward for 5 minutes and then experienced a subsequent 20-minute sell-
off. Instead of analyzing these movements as separate candles, ICT
concepts treats these consecutive candles as a single higher timeframe
candle. By viewing this sequence as a cohesive 20-minute candle, traders
can gain valuable insights into trend continuation, potential reversals, and
overall market sentiment.

When analyzing a chart, a series of similar directional move candles are

treated as a single higher timeframe candle, with the last candle in the
series representing the current timeframe.

In the example above, the entire downward move can be treated as one
20-minute down candle, while the last down candle corresponds to a 5-
minute timeframe. By approaching price action in this manner, traders
have two options:

1. Weighted Approach: Give more significance to the 20-minute move.

This approach considers the broader context of the price action and can
reduce the risk of taking a trade before a higher timeframe narrative had
developed.
2. Higher Risk-Higher Reward Approach: Use the 5-minute candle as a
decision point for an early entry. It provides a higher risk-reward
opportunity since it is contained within the 20-minute selling cycle and
can be used in anticipation for a higher timeframe change in direction.
 Price Action Contained Within Larger Moves

Another crucial concept is that price action can be contained within a

larger move. For instance:

 A strong upward move (represented by one or more up candles) may be

followed by consolidation or a series of smaller up-and-down movements
within its range (its high and low).

In such cases:

 The larger move becomes the main reference point for higher probability
decisions.
 The smaller internal moves serve as temporary pauses or adjustments to
satisfy higher timeframe conditions.
 Traders can choose to trade these internal moves within the context of
the larger move, or in anticipation of larger move reversal especially if
there is strong conviction and bias. They can also wait for the larger move
to develop.

For example, consider a strong 1-hour (1H) upward move followed by a

smaller candle creating what’s known as a Fair Value Gap (FVG). If the
higher timeframe bias is bullish, the expectation is that the next 1-hour
candle will retest the FVG before continuing higher. On a 5-minute chart,
this may appear as an upward move followed by a breakdown lower, only
to reverse and resume the upward trend trapping and stopping out the
traders.

In this example, we observe a sequence of seven consecutive downward

 candles before price action eventually reversed and moved higher
trapping buyers then selling off.

In the
second example, the two up candles are treated as the one candle and
the reversal was not confirmed until a breakdown below their lowest
candle’s low. A retest did not go higher than the lowest low of the two
candles.

How Candlesticks Control Flow

ICT stated that in a trending market, every bullish (up) candle acts as
resistance pushing price down, and every bearish (down) candle acts as
support pushing price up. When price does not respect these two rules,
then the price is either in consolidation or preparing for a potential
reversal.

If bearish one or more candles can act as support, and bullish one or more
candles can act as resistance, then important levels need to be respected
to validate it.

There are three levels to pay attention to:

 High or Low
 If the price moved higher then retraced into a bearish (down) candle, its
high serves as the first support level.
 If the price moved lower then retraced into a bullish (up) candle, its low
acts as the first resistance level.
 Open Price:
 The open price of the bullish or bearish candle acts as the second support
and resistance level respectively.
 Median Threshold (M.T.):
 The M.T. represents the halfway point between the open and close of the
candle, not the high and low, it acts as the third and final support or
resistance level respectively.

With this knowledge, traders can recognize minor retracement and

anticipate where support or resistance could be found either to take a
new trade, validate the health of a trade, or trail a stop loss on an existing
trade.

When looking at a single bearish

candle, the support levels are the high, open, and the middle point
between the open and close, not the middle between the high and low.
 In the case of series of same
direction candle, the support levels are the highest high of the down
candles, the highest open, and the middle point between the highest
open and lowest close.

It is important to keep in mind that these are support and resistance

zones. Price can retrace deep into these zones as long as it closes, at
most, near the middle point and not deeper than that. For example, the
price may drop deep into the support candles then recovers creating a
wick lower than the middle point.

In the case of multiple support candles, if the price does close below
the middle point, a trader could update the trade and base it on the last
candle only rather than the entire series. The logic behind that is that
while the higher timeframe levels did not hold, price might be reaching to
the current timeframe levels.

Improving The Odds of The Trade

When looking at a chart, any trader would notice that there are multiple
instances where the price did not respect the first up or down candles
giving the impression that a reversal is about to happen then finds the
support it needs at the prior area.

To better identify the higher probability levels, additional rules can

enhance the odds in traders’ favor.
 Price Must Move Away From Current Supporting Candle

The first supporting rule is to require a clear move away from the bearish
or bullish candle for it to act as support or resistance. Different traders
may use different requirements, there is no set calculation however, the
following seem to enhance the levels:

distance can be based on the candle’s body size, for example price must
move twice the body of the candle for it to act as support, or at least one
other candle must open and close above it.

 Price must move away twice the distance of the body of the support or
resistance candle. ICT uses this approach.
 A subsequent one or more candles must both open and close above the
high or low of the support and resistance level respectively

Create A Pivot Point

The second supporting rule is the formation of a Short Term Pivot Point
(Short Term Low and Short Term High) by the supporting candle or the
wick of the candle after it. The presence of a pivot point is considered
strong support and a break below the pivot point, or break above a pivot
point, could be an early indication of change in direction.

Final Notes
When looking at the chart below, it could potentially be viewed as random
price action that difficult to predict.
In this example, price is clearly in a down trend before showing signs of
retracement. Building solid foundation to be able to interpret the price
action can help stay in the trade for longer and move the stop loss to key
levels.

When ICT Candlestick concepts with the supporting rules are applied, the
price action starts to make sense.
After applying ICT concepts with the improved odds rules, price action
becomes much clearer for both the bullish and bearish moves.

Understanding
Order Blocks
The Market Reaches For A Level For A
Particular Reason
The ICT Candlestick Fundamentals section delved into ICT’s Candlestick
Foundation, emphasizing how bearish (down) candles supports price
increases, while bullish (up) candles supports price declines. This section,
explores the identification of high-probability Order Blocks.

When large institutions decide to purchase financial instruments like

commodities or Forex pairs, their actions have a significant impact. These
institutions handle substantial capital and execute large orders. On the
 other side, sellers offer assets at a specific price (the “ask” price) and also
set a stop loss just below recent pivot point lows.

How Large Institutions Buy Financial

Instruments: Ask Price vs. Stop Loss
Institutional buyers have two approaches:

1. Ask Price Purchase: They can buy assets directly from sellers at the ask
price. This approach ensures immediate execution but may not always be
the best deal.
2. Stop Loss Purchase: Alternatively, institutions can wait for the sellers’
stop loss to trigger. When the stop loss is hit, the asset is often available
at a discounted price compared to the initial ask price.

Additionally, sellers’ stop loss orders tend to cluster around recent pivot
point lows. Multiple sellers placing stop orders at similar levels create
a large pool of liquidity below the current market price. When
institutional buyers step in after the stop loss triggers, their demand
drives prices upward.

The same takes place if these large institutions decide to sell or short an
asset but in the opposite direction. They will wait for the buy stops to
trigger to sell performing the same mechanics explained above except in
reverse.

Institutional buyers and sellers strategically balance immediate execution

with waiting for better opportunities near stop loss levels.

Understanding this dynamic helps traders, both buyers and sellers,

navigate the markets effectively by anticipating these transactions that
ICT calls Order Blocks. Traders will need to identify signs of institutional
buyers and sellers stepping into the market to join the trade.

what Are Order Blocks

Order Blocks appear on the chart in the form of bearish (down) candles
followed by a strong upward move or bullish (up) candles followed by a
strong downward move similar to what is explained in ICT Candlestick
Fundamentals.
 Not every bearish (down) candle or bullish (up) candle qualifies as a
tradable order block. Traders will need to identify the high-probability
order blocks in the direction of the bias and base their trades around it.

For an order block to be a high probability order block, it needs to have

certain characteristics:

Key Levels For Strong Buyers and Sellers

High Probability Order Blocks often signaling either a continuation or a

reversal when price has reached a key area where institutional buyers
and sellers most likely to execute their orders. Traders need to keep in
mind that price is fractal and the same concept and approach will work at
any timeframe.

Some of the essential levels to watch:

1. Timeframe-Based Levels:
 Monthly, weekly, and daily high and low points.
 Relative higher timeframes: Consider levels from higher timeframes
highs and lows.
 Session-specific levels: Such as those during the Asia, London, and
New York trading sessions highs and lows.
 Midnight open, 8:30 news embargo lift, and 9:30 market open.
2. ICT PD Arrays:
 Higher timeframe Order Block levels
 Higher timeframe Fair Value Gap and Volume Imbalance levels
 Higher timeframe Rejection Blocks
 Current timeframe PD arrays

Some traders choose to mark their charts (or copies of their charts) with
these levels and patiently wait for order block formations as price reacts
to these critical points. Others prefer to observe an order block forming
first and then investigate whether there was a viable reason for that
reaction by analyzing the higher timeframes.

Some traders may also choose to pay attention to all the levels above,
while others may choose to only take intraday trade reactions based on
higher timeframes levels such as 1-hour and 4-hour FVGs and Order
Blocks.

For example, a trader may decide to mark the 1-hour and 4-hour order
blocks and wait for the price to get to these levels. Once it does, drops to
1-minute to 5-minute timeframe and wait for a high probability setup to
take a trade.

Understanding Liquidity Criteria

When price sweeps liquidity, the common expectation is that the

triggered stop losses will increase the supply, potentially overwhelming
the demand and causing prices to continue to move lower (in the case of
sell stops) or higher (for buy stops).

However, if the price reverses and moves strongly in the opposite

direction, it signals that strong buyers (or sellers in the case of buy
stops) have stepped in. They are effectively buying up the additional
supply, leading to a potential shift in market sentiment.
 Highe
r Timeframe swept liquidity

The same setup at a lower timeframe

Market Structure Shift Criteria

For order flow to change direction, it often requires a shift in the behavior
of previous supporting candles. These supporting candles play a crucial
role in maintaining the price move in a particular direction. When they fail
to uphold the price, it signals a Change in State of Delivery. That
Change in State of Delivery takes place when price trades back through
the supporting candle’s open.

Additionally, if an order flow reversal causes a previous high (in a bearish

order flow) or a previous low (in a bullish order flow) to be traded
above or below, it serves as a strong indication of a change in order
flow by cause a Market Structure Shift. These levels act as
significant turning points where buyers or sellers take control.
 Strong Displacement Criteria

For order flow to convincingly change direction, price must exhibit signs
of strong buying (in a bullish scenario) or selling pressure (in a
bearish context). Here’s how it works:

Large candles either a single substantial candle or a sequence of them

indicate significant market activity. After the strong price move, the
formation of a Fair Value Gap (FVG) represents a gap between the
previous fair value and the new price. It suggests that other institutions
have agreed that it is worth buying at that price without waiting for a
pullback for the time being.

Putting it All Together

Using a bearish order flow as an example, when the price is trending
downward, every upward candle is expected to support moving the price
down. As the price reaches an institutional level where buyers may step
in, traders look for signs of a change in direction.

1. Has the order flow reached an institutional level?

2. Did the price sweep liquidity?
3. Did the price result in a Change of State of Delivery?
4. Did the price cause a Market Structure Shift?
5. While it is not always required, did a displacement result in Fair
Value Gap formation?

If the answer is yes, it indicates that a high-probability order block has

formed, and a trade setup can be formulated based on it.

Taking a Trade
There are multiple possible setups when it comes to order block
formations.

Aggressive Entry

A bullish Order Block is formed when the price moves above the high (or
the highest high in the case of a series of bearish candles), while a
bearish Order Block is formed when the price moves below the low (or the
lowest low in the case of a series of bullish candles).

For a bullish Order Block, a trader can take an aggressive entry by placing
a buy stop order at the high of the bearish candles in anticipation of the
Order Block formation. When the price reaches that level, the buy order
will be filled.
This approach is considered aggressive because not all of the probability
order block criteria have been met and price could continue lower.

Less Aggressive Entry

a less Aggressive approach is to wait for the price to break above the high
of the bearish candles then place a buy limitorder at the high of the
bearish candles with the expectation that price will usually drop back and
tap the high before continuing higher.

This approach is still a risky approach since price has not completed the
high probability criteria.
High Probability First Possible Entry

The third entry type is the most commonly used by ICT traders. It is
executed by placing a buy limit order at key Order Block levels
explained in the ICT Candlestick Fundamentals or a Fair Value Gap
(FVG) near the order block after all the high-probability criteria have
been met.
High Probability Second Possible Entry

The third possible entry type is to wait for the price to drop below the
expected entry level, such as the Order Block High, before placing
a buy stop at the top of the Order Block High. This approach risks
missing the entry by having the price wick into the level and then
continue higher. However, it also protects the trader in case the price
continues its bearish move.
Lower Timeframe Entry

A higher reward approach would be to wait for a high-probability Order

Block to form. Once it does, watch for the price as it returns to the Order
Block levels. Then, drop to a lower timeframe and watch for similar
behavior. If a lower timeframe order block forms, same setups described
above can be used for entry on the lower timeframe. This method allows
for a more precise entry while maintaining alignment with the overall
market structure.o
 Order Blocks,
Breaker Blocks, and
Mitigation Blocks
“Breaker Blocks often align with the
overall trend, signaling potential reversals
or significant price shifts.”
 This section builds upon the concepts introduced in the preceding main
sections: ‘ICT Candlestick Fundamentals’ and ‘Understanding Order
Blocks.’ It is advisable to review those earlier sections before
proceeding.

In ‘ICT Candlestick Fundamentals’, we explored how bearish (down)

candles support price increases, while bullish (up) candles act as
resistance, pushing the price down. These are, in fact, also called Order
Blocks. They mainly support trend continuation.

‘Understanding Order Blocks’ delved into the characteristics used to

identify High Probability Order Blocks, which are typically found at
pivot points—both highs and lows—resulting in changes in trend direction.
These characteristics enhance the probability of success for Order Blocks.

There are a few differences between High Probability Order Blocks and
Order Blocks that support trend continuation:

High Probability Order Blocks:

1. Usually occur at key levels, as previously explained, during breakout

failures.
2. Sweep liquidity to establish initial order fills for institutional buyers.
3. Cause a trend reversal at external and internal structures (highs and
lows).

Order Blocks that support trend continuation:

1. Occur after High Probability Order Blocks form; they are not the first
Order Blocks to form.
2. Do not have to sweep liquidity, although they may sweep minor liquidity
levels inside the trend.
3. Can occur at key levels as breakout continuations.
 High
Probability Order Block forming after sweeping liquidity (not shown),
provided support at the open level. Last bearish candle is used as
explained in ICT Candlestick Fundamentals.

Order Blocks can appear in price action to support trend continuation.

These Order Blocks are expected to hold and prevent the price from
reversing. All bearish candles are used as explained in ICT Candlestick
Fundamentals. Question, why didn’t the small bearish (down) candle
above the marked Order Block count?
When Order Blocks Fail

At some point, a reversal is bound to happen as a result of the overall

market structure, which will be covered in a later section. For now, the
focus is on Order Blocks and how traders can use them to
understand Order Flow.

When price action starts to change direction, traders should watch and
see if previously formed Order Blocks will provide support to the primary
trend. If price does find support and continues in the primary trend
direction, then the pullback is a small retracement and not a reversal.

Price action pulled

back into an Order Block and found support making this pullback a minor
retracement.
However, if the Order Block fails to support price and the low of a candle
drops below a bullish Order Block or above a bearish Order Block, then
that Order Block has is considered a failed Order Block and now is
evaluated as either a Breaker Block or Mitigation Block depending on
the type of failed Order Block.

Breaker Blocks
 High Probability Order Blocks typically form at well-defined pivot
points, resulting in the establishment of new highs and lows. In simpler
terms, High Probability bullish Order Blocks are the ones responsible
for creating a new high (if bullish) or a new low (if bearish).

Now, when these High Probability Order Blocks fail, they transform
into what we call Breaker Blocks. These Breaker Blocks still function as
Order Blocks, but their role reverses:

1. Bearish Breaker:
 Initially, a High Probability Bullish Order Block acts as support,
pushing prices higher.
 However, if it fails, it becomes a Bearish Breaker—now resisting price
movement and pushing it downward.
2. Bullish Breaker:
 Conversely, a High Probability Bearish Order Block initially acts as
resistance, pushing prices down.
 If it fails, it transforms into a Bullish Breaker, now supporting price
movement upward.

The High Probability Order Block initially supported price, pushing it

higher. However, it later failed and transformed into a Bearish Breaker,
now acting as resistance and forcing the price lower.
 Within a single structure, there can be multiple Breaker Blocks. Price
action is expected to respect each of these blocks as significant levels.
Mitigation Blocks

Mitigation Blocks, on the other hand, typically form from by one of two
scenarios:

1. High Probability Order Block Fails to Form:

 Imagine a situation where a High Probability Order Block begins to
form.
 However, before it can achieve its purpose, it fails to break a previous
high (in a bullish context) or a previous low (in a bearish context).
 This incomplete Order Block becomes a Mitigation Block.
2. Order Block That Supports Trend Failures:
 Within a trend, various Order Blocks contribute to price movement.
 Sometimes, these trend-related Order Blocks don’t provide the expected
support:
 They fail to push prices higher (in a bullish trend).
 Or they don’t prevent prices from going lower (in a bearish trend).
 These underperforming Order Blocks transform into Mitigation Blocks.
 Now, here’s the key difference:

 Breaker Blocks (which also result from failed Order Blocks) tend to align
with the overall trend. They are considered of higher probability.
 In contrast, Mitigation Blocks are contained within specific segments of
the trend. There is a risk of the failure being of less significance and may
reverse and continue within the larger trend.

The $ES weekly chart clearly shows both Breakers and Mitigation
Blocks, illustrating how they have provided support for the market
structure.
Taking a Trade

Some traders choose to trade exclusively when Breaker Blocks form.

Others may prefer a setup where the Breaker Block aligns with a Fair
Value Gap (FVG)—a combination ICT refers to as The Unicorn due to
its higher likelihood of success.
 Traders can apply the same setup techniques described
in ‘Understanding Order Blocks’, tailoring their approach based on risk
tolerance and personal preference. Remember
that Breakers and Mitigation Blocks are essentially variations of Order
Blocks.

What Happens When Breakers and Mitigation Blocks Fail

When we talk about Order Blocks, we recognize that they serve as

critical price levels in the market. These blocks can act as either support
or resistance, influencing price movement. However, not all Order Blocks
perform as expected. Some fail to fulfill their intended role.

1. Breaker Blocks:
 When an Order Block fails to support the trend, it becomes a Breaker
Block.
 These Breaker Blocks often align with the overall trend.
 They signal potential reversals or significant shifts in price direction.
2. Mitigation Blocks:
 Another type of failed Order Block is the Mitigation Block.
 These blocks don’t fully support the trend but are contained within
specific segments.
 They offer institutional buyers a chance to exit or mitigate their position

Now, back to your question: What happens when Breaker and

Mitigation Blocks fail?

 Reclaimed Order Blocks:

 When Breaker Blocks or Mitigation Blocks fail, they revert to their original
state as Order Blocks.
 We call them Reclaimed Order Blocks.
 Essentially, they return to their fundamental role as support or resistance
levels.

Final Note

Traders encounter a significant challenge: identifying the right blocks to

trade. Sometimes, these blocks overlap or clash, leading to confusion
during analysis. In such moments, referencing higher timeframes can
offer clarity, especially regarding the trend direction. Remember, as
traders, it’s wisest to follow the trend and, when uncertain, err on the side
of caution.
 Wicks Require
Special
Consideration
Wicks In ICT Methodology
When applying ICT’s Candlestick Fundamentals, traders often focus on
the body of the candles—the area between the open and close—since it
encapsulates the bulk of the volume and transaction activity.

However, the wicks (also known as shadows) play a significant role in

ICT’s methodology. Long wicks are treated as volume inefficiencies,
akin to Fair Value Gaps (FVG). The underlying expectation is that price
may seek to revisit the Consequent Encroachment (C.E.), which
corresponds to the middle point of the wick. As traders, we must pay
special attention to these wicks and remain open to the possibility of
unexpected reversals.

To identify the C.E. point, traders can draw a Fibonacci retracement from
the bottom to the top of the wick and identify the 50% mark.
 Using The Wicks To Identify Points Of Interest
When analyzing a trade, one of the goals of the analysis to find potential
reversal points. Long wicks C.E. Can be one of these areas. This does not
mean price will reach that exact point and reverses, but rather think of it
as a potential target and watch the reaction. Partials can be taken, a
trade can be exited, or if looking for a good reversal setup, it can be
considered an area where price may reverse and look for one like any
other PD array.

When analyzing a trade, one of the primary goals is to identify potential

reversal points to enter or set as a target. Long wicks and
their Consequent Encroachment (C.E.) can serve as such areas.
However, it’s essential to understand that this doesn’t guarantee that
price will precisely reach that point and reverse. Instead, think of it as
a potential target zone and closely observe how price reacts.

Traders could:

 Partial Profits: Take partial profits as price approaches these areas.

 Exiting Trades: If a trade is already open, consider exiting or adjusting
positions near these levels.
 Reversal Setups: For those actively seeking reversal opportunities, view
these zones as areas where price may reverse, similar to any other pivot
or price distribution (PD) array.
 Consider
the Consequent Encroachment (C.E.) of prior days within the current price
location on the daily timeframe. Traders can use this C.E. as a potential
price target for the daily range, especially if the daily bias aligns with that
direction. In the first instance, Price exceeded the C.E. by a small margin
and then reversed. The second instance fell short by $0.25 on a $4000
price. The third instance surpassed the C.E. by $0.50.

Price Action Strength

The C.E. of a wick serves as a valuable tool for assessing the strength of
price action. Traders can leverage this information in several ways.
Assuming a trader is evaluating a higher timeframe to find setups on a
lower timeframe:

1. Trade Entry:
 When considering potential trade entries, observing how price interacts
with the C.E. can provide insights.
 If price approaches the C.E. and shows signs of reversal or continuation, it
may signal an opportune entry point.
2. Setting Stop Loss:
 Traders can use the C.E. as a reference level for setting stop-loss orders.
 If price breaches the C.E., it could indicate a shift in momentum,
prompting an exit from the trade.
3. Trade Management:
 While waiting for a target to be reached, monitoring the C.E. helps traders
assess ongoing price strength.
 If price stalls near the C.E., it may be prudent to manage the trade—
either locking in profits or adjusting stop levels.

However, not all wicks are equally relevant:

 Choppy Markets:
 As price moves, it leaves behind numerous candles with wicks of varying
sizes, especially in choppy or indecisive markets.
 In such situations, multiple overlapping candles with upper and lower
wicks indicate choppy price action.
 Traders should exercise caution during these setups and wait for clearer
price movement.

Understanding the C.E. and wick dynamics allows traders to make

informed decisions, adapt to market conditions, and enhance their overall
trading strategy.

Price entered a phase characterized by candles exhibiting significant

wicks both upward and downward. Analyzing such price action during its
development can be extremely challenging.

Using The Wick In A Stop Loss decision

When a buy setup presents itself, and a long wick is part of the pivot
low where a stop loss would be placed, traders can use the wick’s
 Consequent Encroachment (C.E.) to refine the stop loss and gauge the
setup’s strength.

Here’s how it works:

 Retracement Expectation: As price retraces back into the buy setup,

the expectation is that it should not retrace more than 50% of the long
wick.
 Indicator of Weakness: If price retraces more than 50%, it often signals
weakness. In such cases, price could continue downward and drop below
the wick’s low before reaching its target.
 Stop Loss Placement: While it’s acceptable (though not required) to
place the stop loss just below the C.E. of the wick, what matters most is
for the price to close around the C.E., even if the wick extends beyond
it.

If the price reaches only 25% of the candle and reverses, it strongly
suggests that price has reached a reversal point. However, this doesn’t
guarantee reaching the ultimate target; it simply indicates that at this
level, price wants to balance higher.

A buy
setup was presented with a large wick. The subsequent candle retraced
50%. Although this retracement was not required for this setup, it is
reassuring to see it respect the level. Traders can establish a buy setup
by placing a buy stop either at the top of the Fair Value Gap (FVG) or at
the C.E. of the FVG, with a stop loss below the C.E. of the wick. Notably,
when price revisited the area, it did not exceed 25% of the wick,
indicating a strong move is expected.

Using The Wick As Part Of FVG Entry

When analyzing retracements into a Fair Value Gap (FVG), traders can
draw a Fibonacci retracement from candle #2’s high to candle #1’s low,
which formed the FVG. The expectation is that price should not exceed
the 50% Fibonacci level, creating what’s known as the Balanced Price
Range, which means that the price range measured between the low of
candle #1 and candle #2 is considered “efficient” or “balanced”, as it
encompasses both buy and sell options due to the price movement going
down and then up. Once this occurs, price should avoid revisiting this
level within the current leg of the price action. Although rare, if price does
reach the high of candle #2 , an assessment of the trade is necessary,
and traders may need to consider exiting the trade.

The price (3) reached the halfway point between candle #1 and candle
#2 and retraced away. When this occurs, price is not expected to go
beyond that level, and an entry can be taken the next time price revisits
the Fair Value Gap (FVG) (4).
Wicks Balancing Price Range
A balanced price range occurs when price provides both buy and sell
opportunities. This balance can manifest as one candle moving down,
followed by another moving up, or even within the wick of a single candle.

When a balanced price range is presented, the expectation is that the

body of the price will not exceed the halfway point, referred to as
the Mean Threshold (M.T.) or thereabouts. If it does, it may indicate
weakness, but it does not necessarily require an immediate exit if you’re
already in a trade.

In the example above, the price exhibited both buy-side and sell-side
movements in the form of a wick and a down candle. The expectation is
that the price will not retrace more than 50% (M.T.) of the balanced
range.

ICT Balanced And

Imbalanced Price
Ranges
Another core concept introduced by ICT is that the market is always
seeking to balance the buy side and sell side within any price range on
the chart.

The term buy side is used to describe only the buying or bullish (up)
movement. Price is moving in a single direction without a counter bearish
(down) move. Similarly, the term sell side refers to the selling or bearish
(down) movement side of price action.

For a price range to be considered balanced, the market must offer both
buy and sell sides. If only one side is offered at any given price range,
then it is considered imbalanced, and it is expected that the market will
seek to return to that price range to rebalance it.

Every individual candlestick contains both balanced and imbalanced price

ranges. For example, when examining a bullish (up) candle, the wicks are
considered a balanced price range because a wick offered both buying
and selling, whereas the body of the candle is imbalanced because it only
offered the buy side.

After the candle opened, it initially moved

lower, offering sell side. It then reversed direction, providing buy side,
before retracing. Finally, it closed by once again offering sell side.
How Price Ranges Balance

If the market is always seeking to balance price ranges then when a news
event triggers a rapid rally or sell-off, leaving behind price range
imbalances, what are known as Fair Value Gaps (FVG) in ICT
terminology, that creates an opportunity for traders to anticipate future
market movements. These gaps represent areas where the price has
moved too quickly, without the usual trading activity that would fill in the
price range.

In such scenarios, traders can expect one of two things to happen:

 The market may return to the area of the Fair Value Gap to ‘fill’ it, either
partially or completely, as part of its natural tendency to rebalance. This
is often seen when the initial news impact fades and the market
reassesses the value at those price levels.
 Alternatively, the market might await a reversal or a change in the overall
trend direction. When this occurs, the price will naturally pass through the
previously unbalanced price points, effectively rebalancing them as part
of the broader market shift.

How to spot balanced and imbalanced Ranges

In a trending price range where price is moving higher or lower, the

market typically keeps price ranges balanced by revisiting every price
point at least once before resuming the trend. Sometimes, the move is
strong enough that it creates a Fair Value Gap.

Traders aiming to identify these patterns should train their eyes at

looking at candlesticks in sets of three, examining them in sequential
order. Begin by analyzing an individual candlestick, then compare the
high and low of the candle before it and after it. If the high and low points
of these two candles overlap or meet, the price range is considered
balanced. If there is no overlap, a Fair Value Gap (FVG) exists,
measured by the distance between the non-overlapping high and low
points. This technique is essential for traders to master, as it can reveal
potential market movements and areas of interest.
 Price
action always seeks to move in a balanced way by offering both buying
and selling opportunities at each price point. If the third candle does not
reach the first candle in a three-candle formation, then the gap between
the first and third candle is called a Fair Value Gap (FVG).
How To Use Balanced and Imbalanced Price Ranges in Trading

Understanding that the market constantly seeks to balance price ranges,

traders can integrate this insight with Candlestick Fundamentals across
different timeframes to determine the next most probable price
movement. For instance, if yesterday’s daily candle closed near the high
of the previous day’s candle, it is highly likely that today’s candle will, at
the very least, move lower to attempt to close that imbalance.
 Today’s candle closed above
yesterday’s, creating an imbalance where only the buy side was
presented between the previous day’s high and yesterday’s close.

It is therefore highly probable

that Today will attempt to revisit and rebalance that buy side imbalance
by offering a counter sell side.
The pressing question is whether the market will attempt to rebalance
the buy side imbalance and continue to higher, or if it will reverse and
proceed lower. An imbalance or a Fair Value Gap (FVG) alone does not
provide a definitive answer to this question, and traders should not solely
rely on this logic for their trading decisions.

Traders must take into account the overall market structure and assess
the most probable direction of the market, considering both the higher
timeframe structures and imbalances, as well as those on the lower
timeframes.

On the other hand, If yesterday’s daily candle closed significantly higher

than the previous day’s, it is highly probable that today’s market activity
will not close that gap, thereby forming a Fair Value Gap.

Yesterday’s close was significantly higher

than the previous day’s high, leaving a substantial range to rebalance.
The process to rebalance this range could require multiple days or
attempts.
 Today, the price provided a
retracement in the form of a lower wick, but it could not rebalance the
entire range.
Traders should recall that price action is fractal in nature. The example
above, although provided in the context of the daily timeframe, is
applicable across all timeframes. Savvy traders can predict daily price
movements by analyzing the monthly chart. However, it’s crucial to
acknowledge that the market might not seek immediate rebalance and
could address the imbalance at a later stage, irrespective of the gap’s
magnitude.

Quick Look at Fair Value Gaps

Fair Value Gaps and Volume Imbalances require an extensive discussion.

However, for a comprehensive understanding of balanced price ranges, a
brief discussion is necessary.

As previously mentioned, a Fair Value Gap results from a strong market

move that creates an imbalance between the buy and sell sides. ICT
introduced the terms Buy-side Imbalance Sell-side Inefficiency
(BISI) to denote a bullish Fair Value Gap, where the market only offered
the buy side within a certain range, leading to a bullish imbalance that
lacks the sell side. Conversely, Sell-side Imbalance Buy-side
Inefficiency (SIBI) describes a bearish Fair Value Gap.

The mere presence of a Fair Value Gap is not a reliable basis for trading
decisions, as the market may rebalance by filling the gap and reversing,
or by continuing right through it. For a rebalance to occur, the market
simply needs to offer the missing buy or sell side. Nevertheless, Fair
Value Gaps can still be strategically utilized to frame a trade.

Using Fair Value Gap When Market Structure Shifts

After the market has reached a higher timeframe level and reversed,
resulting in a market structure shift (see Candlestick Fundamentals),
traders can look for the presence of Fair Value Gaps as both an indication
of market reversal strength as well as a spot to place a trade on.

A Fair Value Gap indicates that the market is in a hurry to move away
from that level, giving a trade setup additional confirmation. Knowing that
the market will most likely wants to seek to rebalance all or part of that
imbalance, traders can avoid chasing and picking random spots to place a
trade entry. Instead, they can wait for the market to revisit that Fair Value
Gap to join the move higher.

Overlapping Fair Value Gaps

There are instances when the market may make strong move in one
direction, leading to the formation of a Fair Value Gap until a key level is
reached. Subsequently, the market may reverse, creating an
overlapping Fair Value Gap in the opposite direction.

These overlapping gaps are viewed as strong indication of

a possible reversal, as the market not only balanced a previous
imbalance, it created a new imbalance in the opposite direction.