If you’re diving into the world of trading, you might have come across the term ICT, which stands for Inner Circle Trader. ICT concepts are trading strategies and principles that many experienced traders use to navigate the markets effectively. In this guide, we’ll explore the key ICT abbreviations and concepts in simple terms, helping you grasp these ideas whether you’re new to trading or have years of experience.
Accumulation, Manipulation, and Distribution (AMD)
One of the foundational concepts in ICT trading is Accumulation, Manipulation, and Distribution (AMD), also known as the ICT Power of Three. This idea explains how big market players accumulate positions, manipulate prices to trigger stop losses, and then distribute their holdings for profit. Recognizing these phases can help you anticipate market movements.
Buy Side and Sell Side Imbalances (BISI and SIBI)
- Buy Side Imbalance Sell Side Inefficiency (BISI) refers to a bullish Fair Value Gap (FVG) where there’s more buying pressure than selling.
- Sell Side Imbalance Buy Side Inefficiency (SIBI) is a bearish FVG with more selling pressure than buying.
Understanding these imbalances can signal potential trading opportunities.
Balanced Price Range (BPR)
A Balanced Price Range (BPR) is where two Fair Value Gaps overlap. This area indicates a zone of agreement between buyers and sellers, often leading to price consolidation before a significant move.
Liquidity Concepts: Buy Side Liquidity (BSL) and Sell Side Liquidity (SSL)
- Buy Side Liquidity (BSL) represents buy stops placed at or above old highs, typically where sellers have set their stop losses.
- Sell Side Liquidity (SSL) refers to sell stops placed at or below old lows, where buyers have placed their stop losses.
These liquidity zones are crucial as the market often moves to these areas to trigger stops before reversing.
Break of Structure (BOS)
A Break of Structure (BOS) happens when the price breaks above a previous high or below a previous low, indicating a potential shift in market trend. For example, a break above a prior high may signal the continuation of an uptrend.
Consequent Encroachment (CE)
Consequent Encroachment (CE) is the midpoint, or 50% retracement level, of a Fair Value Gap. Traders watch this level closely as the price often reacts here, providing entry or exit opportunities.
Fair Value Gap (FVG) and Inversion Fair Value Gap (IFVG)
An FVG is a gap in price action between three candles, where the price hasn’t retraced, indicating an imbalance. An Inversion Fair Value Gap (IFVG) occurs when the price moves beyond an existing FVG, suggesting a strong market momentum.
Time Frames: Higher Time Frame (HTF) and Lower Time Frame (LTF)
- Higher Time Frames (HTF) include charts like the 1-hour, 4-hour, daily, weekly, or monthly. They help identify overall market trends.
- Lower Time Frames (LTF) like the 1-minute, 5-minute, or 15-minute charts provide detailed entry and exit points.
Using multiple time frames can enhance your trading analysis.
Interbank Price Delivery Algorithm (IPDA)
The IPDA is the mechanism through which prices are delivered across banks and institutions, reflected on our charts. Understanding this can help you anticipate market movements influenced by large financial entities.
Swing Points: Short, Intermediate, and Long Term Highs and Lows
- Short Term High (STH) and Short Term Low (STL) are minor swing points in the market.
- Intermediate Term High (ITH) and Intermediate Term Low (ITL) are significant points between short-term swings.
- Long Term High (LTH) and Long Term Low (LTL) are major market turning points.
Recognizing these helps in identifying trends and potential reversal areas.
Market Structure Shift (MSS)
An MSS indicates a change in the market’s direction, either short-term or long-term. Spotting an MSS can alert you to adjust your trading strategy accordingly.
Mean Threshold (MT) and Order Blocks (OB)
- The Mean Threshold (MT) is the 50% level of an Order Block.
- An Order Block (OB) is a price area where significant buying or selling occurred, often leading to market moves. Traders look for OBs to find trade entries.
Optimal Trade Entry (OTE)
OTE is a strategy using Fibonacci retracement levels, focusing on entering trades between the 62% and 79% retracement levels in the direction of the trend.
Previous Day High (PDH) and Previous Day Low (PDL)
- PDH is the highest price of the previous trading day.
- PDL is the lowest price of the previous trading day.
These levels act as support and resistance and are essential in planning trades.
Power of Three (PO3)
The ICT Power of Three (PO3) concept explains the daily price movement through accumulation, manipulation, and distribution phases. Understanding PO3 can help you predict daily market behavior.
Liquidity Zones: External and Internal Range Liquidity (ERL and IRL)
- External Range Liquidity (ERL) is liquidity outside a defined price range.
- Internal Range Liquidity (IRL) is liquidity within a price range.
Identifying these zones helps in anticipating price movements towards liquidity pools.
Premium & Discount (PD) Array
The PD Array is a method of identifying overbought (premium) and oversold (discount) areas in the market, guiding traders on where to enter or exit trades.
Breaker Blocks (BB) and Mitigation Blocks (MB)
- A Breaker Block (BB) is a previous Order Block that the price has broken through, potentially acting as support or resistance.
- A Mitigation Block (MB) is where the price returns to a previous OB to fill unfilled orders.
These blocks are key areas to watch for trade setups.
New Week Opening Gap (NWOG)
The NWOG is the gap between the previous week’s closing price and the new week’s opening price. Traders often look for the price to fill this gap.
Liquidity Pool (LP)
A Liquidity Pool (LP) is an area with a high concentration of stop orders. The market tends to move towards these pools to fill large orders.
Thank God It’s Friday (TGIF)
In trading, TGIF refers to market patterns observed on Fridays, often involving profit-taking and reduced volatility before the weekend.
Do ICT Concepts Work?
Yes, ICT concepts can be effective when learned and applied correctly. They provide insights into market mechanics, helping you make informed trading decisions. Like any strategy, success depends on proper education and consistent practice.
Conclusion
Mastering ICT trading concepts can enhance your trading by providing a deeper understanding of market movements and institutional behaviors. By studying these principles and applying them diligently, you can improve your trade entries, risk management, and overall performance.
Frequently Asked Questions (FAQs)
The Fair Value Gap (FVG) is a gap in price action between three candles, where the second candle doesn’t overlap with the first and third. It represents an imbalance in the market due to rapid price movement. Traders watch FVGs as potential areas where the price may retrace, providing entry opportunities.
The Optimal Trade Entry (OTE) strategy uses Fibonacci retracement levels to find ideal entry points within a trending market. By targeting the 62% to 79% retracement zone, traders aim to enter trades with a favorable risk-to-reward ratio, aligning with the overall market direction.
Liquidity Pools (LPs) are areas with many stop-loss orders. The market often seeks these areas to fill large institutional orders. Understanding where LPs are located helps traders anticipate potential price movements towards these zones, allowing for better trade planning.
A Break of Structure (BOS) occurs when the price breaks a significant previous high or low, indicating a potential trend change or continuation. Recognizing a BOS helps traders confirm market direction and adjust their strategies accordingly.
Yes, beginners can learn ICT concepts by starting with the basics and gradually building their knowledge. It’s important to study each concept thoroughly, practice on demo accounts, and be patient. Over time, applying ICT strategies can enhance trading skills and confidence.
