Hey traders! Welcome to Trading PDF, your go-to resource for trading insights. In today’s post, we’ll explore the Candle Range Theory (CRT), a trading concept that’s gaining popularity.
Understanding Candle Range
Before diving into CRT, it’s important to understand what a candle range is. In trading, each candlestick on a higher time frame represents a range on a lower time frame. The high of a candlestick corresponds to the highest point of that range, while the low represents the lowest point.
The high of the candlestick is referred to as CRT-High, and the low is known as CRT-Low. This concept is crucial because CRT is based on how price interacts with these highs and lows.
What is Candle Range Theory (CRT)?
Candle Range Theory revolves around the idea of liquidity movements within the market. It suggests that when the price grabs liquidity below the previous candle’s low, it may move upward toward the previous candle’s high. Conversely, if the price grabs liquidity above the previous candle’s high, it might move downward toward the previous candle’s low.
In simpler terms, CRT focuses on how the price interacts with the highs and lows of previous candles to predict future movements. It’s important to note that while CRT is not an original ICT concept, it is derived from ICT trading strategies like Liquidity Sweeps, Power of 3, and Session High/Low Liquidity.
Bullish CRT Model Explained
When the price is at a key support level on a higher time frame, you can look for a bullish CRT setup.
First, identify the high and low of the candlestick that closed at the support level. Then, wait for the next candlestick to dip below the previous candle’s low (CRT-Low) and close back above it. This action indicates a liquidity grab below the low.
After this, you can wait for the following candlestick to close above the high of the candle that raided the low. Alternatively, you can switch to a lower time frame to look for an ICT Market Structure Shift (MSS) and enter a buy trade on the retest.
This entire setup can sometimes happen within three candlesticks, but the price may consolidate after grabbing the low, so it could involve more candles.
For risk management, place your stop-loss below the low of the candlestick that grabbed liquidity or below the MSS low. For your take profit, aim for the CRT-High or the next significant liquidity levels.
Bearish CRT Model Explained
When the price is at a key resistance level on a higher time frame, you can look for a bearish CRT setup.
First, identify the high and low of the candlestick that closed at the resistance level. Then, wait for the next candlestick to rise above the previous candle’s high (CRT-High) and close back below it. This action indicates a liquidity grab above the high.
After this, you can wait for the following candlestick to close below the low of the candle that raided the high. Alternatively, switch to a lower time frame to find an ICT Market Structure Shift and enter a sell trade on the retest.
As with the bullish setup, this scenario can unfold within three candlesticks, but sometimes more if the price consolidates.
For risk management, place your stop-loss above the high of the candlestick that grabbed liquidity or above the MSS high. For your take profit, target the CRT-Low or the next significant liquidity levels below.
High-Probability CRT Setups
For the best results, look for CRT setups during ICT Kill Zones or ICT Session Raids. These are specific times when market volatility is higher, increasing the likelihood of successful trades due to increased liquidity and movement.
Comparing ICT Power of 3 (PO3) and CRT
Candle Range Theory is closely related to the ICT Power of 3 concept.
ICT Power of 3 suggests that the price will first accumulate, then manipulate by moving in one direction to take out short-term liquidity, and finally distribute by moving in the opposite direction.
Similarly, CRT involves the price accumulating, taking out the CRT-High or CRT-Low (manipulation), and then moving in the opposite direction (distribution). The CRT-High/Low can also coincide with the previous day’s high/low or the previous session’s high/low, aligning with ICT concepts.
Conclusion
Candle Range Theory is not entirely new; it’s a reapplication of principles taught by ICT. While some may present it as a new strategy, it’s essentially based on understanding liquidity movements and price behavior around candlestick highs and lows.
Understanding CRT can enhance your trading by providing insights into potential price movements based on liquidity grabs. Remember to practice proper risk management and consider the overall market context when applying this theory.
Frequently Asked Question (FAQs):
No, Candle Range Theory is not an official ICT concept. However, it is derived from ICT teachings like Liquidity Sweeps, Power of 3, and Session High/Low Liquidity. It applies these principles to the highs and lows of candlesticks to predict price movements.
Yes, CRT can be applied to any time frame. However, it’s often more effective on higher time frames for identifying key support and resistance levels, and then refined on lower time frames for precise entry and exit points.
The ICT Market Structure Shift refers to a change in the market’s direction, indicated by breaks in market structure. In the context of CRT, identifying an MSS on a lower time frame can provide confirmation for entering a trade after a liquidity grab.
CRT is based on the concept of liquidity grabs, where the price moves to take out stop orders placed above highs or below lows. By understanding where these liquidity pools are, traders can anticipate potential reversals or continuations in price movement.
ICT Kill Zones are specific times during the trading day when market activity and volatility are higher, such as the London Open or New York Open. These periods are important for CRT because increased volatility can lead to more pronounced liquidity grabs and price movements, making CRT setups more likely and potentially more profitable.