[00:02] to ICT trading Concepts this video is a summary of the foundational Concepts found in the ICT method neatly organized for your convenience since the method is quite nuanced and can be overwhelming to some people in the beginning without
[00:17] further Ado let's begin talking about swing points and the idea of liquidity the very first thing we need to understand is the idea of Swing points and their relation to liquidity swing points are either swing lows or
[00:31] swing highs to identify swing points we need three candles in a swing High the candle in the center has a lower high to the left and a lower high to the right in a swing low the candle in the center has a higher low to the left and a
[00:45] higher low to the right the reason the idea of Swing point is important is because many retail Traders place Top orders just above swing highs or just below swing lows meaning that liquidity is deeper in
[00:59] these areas recall that in a long trade the stop- loss and the take-profit targets are sell orders and in a short trade the stop loss and take-profit targets are buy orders this idea leads us directly
[01:12] to the concept of buy side and sell-side liquidity just above a swing High there are a lot of stop orders from short trades which are bu stop orders and there are also a lot of buy stop orders from traders who want to go long if
[01:27] price surpasses the swing high in ICT terms this level represents buy side liquidity just below a swing low there are a lot of stop-loss orders from long trades which are sell stop orders and there are also a lot of sell stop orders
[01:41] from traders who want to go short if price surpasses the swing low in ICT terms this level represents sell-side liquidity the identification of buy side and sell-side liquidity levels is important in many ways in the ICT method
[01:57] let's move on to a real price chart in observe examples of buy side and sell-side liquidity levels in this 5-minute chart of the levels in this 5-minute chart of the mini S&P we currently have a low this is
[02:09] a potential swing low because the candle to the left has a higher low if the next candle produces a higher low the current candle will be classified as a swing low which represents a point of sell-side liquidity moving forward one candle we
[02:23] can see a higher low so we can go ahead and classify this low as a swing low while we were paying attention to the swing low notice that we also have the potential for a swing high in this candle that's because the candle to the
[02:36] left has a lower high if the next candle also produces a lower high this point buy side liquidity moving one candle to the future we can see that this is exactly
[02:49] what happens so we can go ahead and Mark this as a swing high right now we also have the potential to another swing low if the next candle produces a higher low we'll have another swing low at this
[03:02] point going forward one candle we can see that it doesn't happen the new candle forms a lower low now this new candle is a potential candidate for a swing low because it has a higher low to its left in the next candle we can see
[03:17] that a new swing low forms so it can go ahead and Mark it out in the next two candles we can see that price takes out the last swing high and comes back to test it on the other side as support over the next four candles we can see
[03:31] that only higher highs and higher lows are formed eventually price produces a candle with a lower high and renders the previous high as a swing high or buy side liquidity so it can go ahead and Mark it out in the next candle price
[03:46] continues to the downside identifying swing points is very simple but it's a good idea to practice it in replay mode or real time so it becomes second nature to you once we start to Mark swing point in
[03:59] real price charts it becomes clear that certain swing points cluster together while others remain isolated giving rise to two distinct definitions of highs and lows called equal highs and lows and old highs and lows in this chart we can see
[04:14] an example of equal highs notice how three swing highs cluster together roughly in the same level still in the same chart we can spot an example of equal lows in this case three swing lows cluster to form equal lows
[04:30] notice that equal highs and lows don't necessarily happen in the same price level perfectly they simply cluster together in the same area roughly speaking still on the same chart we can see the concept of old highs and old
[04:43] lows which are swing highs and lows that stand out or that are isolated in a way notice that in example of the old low price pierces the old low without closing below it and then it starts to go up that's an important idea not only
[04:58] in ict's method but in the overall idea of Market manipulation meaning the triggering of liquidity in order to deceptively induce retail traders to one side of the market still in the topic of highs and lows we can look at other
[05:12] important types of highs and lows in any price chart namely the previous week price chart namely the previous week higher low previous day higher low sessions high or low or even intraday time frame highs and lows we'll take
[05:25] another look at that when we talk about the concept of daily bias another important Concept in the ICT method is the idea of discount in premium zones to understand that we must first understand the idea of range which is simply the
[05:40] space between a swing low to a swing high or the space between a swing High to a swing low let's take the example of the range from a swing low to a swing high for the sake of illustration first to define the premium in discount zones
[05:54] we divide the range in two equal parts the upper zone is always called Prem in the lower zone is always called discount that's also the case when the range comes from a swing High to a swing low which would be a downward price
[06:09] movement whenever we look for long trade opportunities we want to enter trades in the discount Zone assuming there are other elements to support the trade idea the lower into discount the greater the risk reward ratio if we place a stop
[06:24] below the swing low and a Target at the swing high for downward price move movements we measure a range from a swing High to a swing low we want to get into short trades in the premium Zone the higher into the premium Zone the
[06:38] better because we are able to extract a greater risk reward ratio assuming the stop loss is at the swing High and the target is at the swing low this notion of discount in premium is very simple but it's something you
[06:52] other Concepts like Optimal trade entries fair value gaps order blocks and generate trade setups directly related to the idea of
[07:05] premium in discount zones we have the concept of OT which is short for optimal trade entry the OT is a specific Fibonacci retracement Zone that will fall in the discount zone for a long trade entry or in the premium zone for a
[07:20] short trade entry this specific Fibonacci retracement zone is from 0.62 to 0.79 the midpoint of this Zone which is 0.75 is also highlighted in this illustration you can
[07:35] highlighted in this illustration you can see the OT for a long trade notice how the Zone falls into the discount Zone it's important to observe how price action reacts to the three levels of this Zone especially the midpoint at
[07:48] 0.75 retracement level in this other illustration you can see the OT for a short trade notice how the Zone falls into the premium Zone it's important to observe how price action reacts the three levels of this
[08:02] Zone especially the midpoint retracement level just like in the case of an OT for a long trade let's take a look at a couple of examples of how the OT Works charts here you can see the four-hour chart of the Euro USD I already marked
[08:18] out an important swing High and a swing low let now Mark out the discount and premium zones generated by this range recall that a range is the distance between a swing High and a swing low let's also Mark out the OT or
[08:33] optimal trade entry for this range notice how the OT falls into the premium Zone if price comes back to that level we want to observe the interaction of price with each of the three levels that compose the OT Zone by moving
[08:48] forward a few candles we can see that price reacts to the 0.62 level of the otte although you can use this as an entry keep in mind that the higher into premium you get the greater the risk reward ratio you will extract from the
[09:02] trade in this next chart we can see that price reacts a little to the downside but then returns back up to the OT closing above the midpoint but still below the 0.79 level in the very next candle the market drops significantly it
[09:18] takes just one more candle for price to reach the swing low Target if a short trade was triggered at the midpoint of the OT would a stop at the swing high in a Target at the swing low the trade would have a 2.4 risk
[09:32] reward ratio in this final image we can see that price continue going down afterwards so even though a 2.4 risk reward ratio is not terrible there was a lot more that could be extracted from
[09:45] this trade let's take a look at a long trade example using the OT here you can see that price just made a swing High let's first draw the discount and premium zones and then plot the OT using the range out line in the
[10:00] chart in this next chart we can see that price returns to the OT into discount and reacts to the lowest level of the Zone by touching it without closing below it right after price begins to rise in the direction of the old high
[10:14] swing high or buy side liquidity level one major Concept in the ICT method is the fair value Gap the fair value Gap is a three candle pattern that hides a gap between the first and third candle Shadows let's first take a look
[10:29] at the bullish fair value gap which is often called BC BC simply stands for buy side in balance and sell side in efficiency the bullish fair value Gap is a pattern where the upper shadow of the first candle doesn't overlap with the
[10:44] lower shadow of the third candle creating a gap between the two let's make a quick comparison between price movements where we can find a fair value movements where we can find a fair value Gap and one where we cannot on the left
[10:56] between the upper shadow of the first candle and the lower shadow of the third candle therefore creating a fair value gap on the right we can see that the overlaps with the lower shadow of the third candle in this case there is no
[11:12] fair value Gap the bearish fair value Gap is often called CB which stands for sells side imbalance and buy side inefficiency the bearish fair value Gap is a pattern where the lower shadow of the first candle doesn't overlap with
[11:27] the upper shadow of the Third candle creating a gap between the two let's candle patterns where we can find a fair value Gap and one where we cannot on the left we can see that there is no overlap between the lower shadow of the first
[11:42] candle and the upper shadow of the third candle therefore creating a fair value lower shadow of the first candle overlaps with the upper shadow of the third candle in this case there is no fair value Gap another important detail
[11:58] about fair value gaps is the idea of consequent encroachment which is simply a fancy expression that means the midpoint of the fair value Gap or the midpoint of the fair value Gap or the 50% retracement of the Gap fa value gaps
[12:11] can be used as zones of support and resistance as is the case with many other types of support and resistance it's important to pay attention to how price reacts to fair value Gap limits and the consequent encroachment line
[12:25] let's look at BS or bullish fair value gaps first the ideal scenario is to see price reacting to the upper limit of the fair value Gap meaning piercing it and closing above it that's one way of
[12:37] knowing that price is respecting the fair value Gap another valid way is to observe the same type of reaction at the consequent encroachment price will pierce the midpoint of the fair value Gap and close
[12:51] above it quite often testing the consequent encroachment again right after it although that is certainly not a requirement in in this other illustration you can see the bearish version of the fair value Gap reversal
[13:03] the principle is the same of course but everything is flipped upside down as it is the case with other types of support and resistance price can disrespect the fair value Gap and tested on the other side in ICT terms this is called a fair
[13:17] value Gap inversion here on the left you can see a hypothetical example of the bullish fair value Gap inversion leading to a bearish movement and on the right you can see a bearish fair value Gap inversion leading to a bullish movement
[13:31] once again this is exactly like the old switch and test of various kinds of support and resistance lines Beyond fair value gaps ict's method also points to other types of related Concepts namely volume imbalances and gaps a volume
[13:47] imbalance happens when there is a gap between the open and close of adjacent candles although there is trading activity within the gaps since candle Shadows overlap a gap occurs when there
[13:59] is a space between highs and lows of adjacent candles meaning there is no trading activity between the high of the first candle and the low of the second candle in the case of a bullish Gap or the low of the first candle and the high
[14:11] of the second candle in the case of a bearish gap in this illustration you can see the bullish version of the fair value Gap volume imbalance and GAP side by side for comparison in this other illustration we have the bearish version
[14:25] of all three patterns keep in mind that you can use fair value gaps volume imbalances and gaps in a similar way let's now observe some real examples of fair value gaps volume imbalances and gaps starting with
[14:41] a very simple example we begin with this one hour chart of the dollar Index moving one candle to the future we can spot the formation of a fair value Gap since the upper shadow of this candle does not
[14:54] overlap with the lower shadow of the current candle it's not uncommon for price to return to the fair value Gap and then continue its main trajectory although this is not the only use of fair value gaps moving one candle
[15:08] forward we can see that price enters the fair value Gap area and then immediately reverses to the upside continuing its main movement notice here that if the lower shadow of the next candle does not overlap with the upper shadow of this
[15:21] overlap with the upper shadow of this candle we have a new fair value Gap in the next candle we can see that this is exactly what happens another fair value Gap is created in the next candle we can see an inside bar
[15:34] formation without entering the latest fair value Gap in the next candle price enters the fair value Gap and closes above it clearly reacting to that zone in a similar way it did with the previous fair value Gap after that price
[15:49] resumes its movement to the upside for a few more candles if we move one more candle to the future we'll observe the formation of a gap as you can see in this chart we can mark it out in the same way that was done with the fair
[16:03] value gaps the principle here is the same this is an area that price can come back to in Reverse we can also observe inversions in some cases in the very next candle we can see price reacting to the Gap in a similar
[16:19] way it did with the previous fair value Gap in this chart we can see how price continued going up after reacting to the upward Gap notice also that the current candle is reacting to a fair value Gap that was formed right after the upward
[16:34] Gap still in the dollar Index but this time in the 4-Hour chart we can see an example of volume imbalance notice there is a gap between the close of the previous candle and the open of the current candle but there is also trading
[16:49] this a volume imbalance in the next few candles we can see how the volume inbalance can hold price and and eventually the market starts to rise from there another important idea in the ICT
[17:04] method is called order block there are a couple of different ways of using order blocks let's divide these two ways into large Body candles which are often referred to as high probability order blocks and small Body candles with more
[17:19] prominent Shadows which are often referred to as low probability order blocks let's explore the high probability order block first the bullish variation of a nder block is formed by the large body bearish candle
[17:33] or series of large-bodied bearish candles that sweep cells side liquidity and then lead to a break of an old high right after it which in this case is called a break of structure the order block occurs at the open of the large
[17:46] boded bearish candle that sweeps sell-side liquidity price will often retrace back to the order block before moving higher the bearish variation of a nder block is formed by the large body bullet bullish candle or series of large
[18:00] body bullish candles that sweep buy side liquidity and then lead to a break of an old low right after it which in this case is called Break of structure the order block occurs at the open of the large body bullish candle that sweeps by
[18:14] liquidity price will often retrace back to the order block before moving lower notice that high probability order blocks come from simple expanding pivot formations where a lower low is followed by a higher high in the case of a
[18:28] bullish order block or when a higher high is followed by a lower low in the case of a bearish order block we also have the low probability order blocks which are formed by small Body candles with more prominent Shadows
[18:42] occurring in the middle of a single price movement this can also be divided into their bullish and bearish variations in the bullish variation of a low probability order block we find a small body bearish candle in the middle
[18:56] of a price movement composed by mostly bullish candles the order block sits in the space between the high and the open of the small body bearish candle price will often retrace to this order block before resuming the movement
[19:09] upwards in a bearish variation of a low probability order block we find a small body bullish candle in the middle of a price movement composed by mostly bearish candles the order block sits in the space between the low in the open of
[19:23] the small body bullish candle price will often retrace to dis order block before downwards let's take a look at an example of a high probability bullish order Block in a real price chart in this chart you can see that I marked out
[19:38] the latest swing low highlighting a sell-side liquidity level recall that in a bullish high probability order block you must identify the sweep of cell side liquidity first in this next chart we can see that cell side liquidity is
[19:51] can see that cell side liquidity is swept by a large body bearish candle notice also that the upper tail of the previous candle for forms a swing High we want price to break this slated swing high that would be the very next step
[20:04] for us to use an order Block in this case moving price forward a few candles we can identify a break of structure meaning that price Rises and breaks the latest swing high in summary we swapped the sell side
[20:19] liquidity and failed to move down after it price comes back up and breaks Market structure this is a setup for a high probability order Block in this case the order block sits in the opening price of the large body bearish candle that swept
[20:35] liquidity price will often retrace back to the order block as you can see here which would be the long trade setup and then price goes to the upside as expected as you can see in this final chart there are a couple of important
[20:49] details in here notice that price touches the order block two times before going to the upside which would be the opportunity for a secondary entry in in case you missed the first touch beyond that we can also see a low probability
[21:02] bullish order block working as you can see in this area a small body bearish movement where we Mark the distance between the high and the open observe how price action comes back to this area right after and goes up from there let's
[21:18] move on now to a real example of a high probability bearish order block where we use another type of Entry called mean threshold instead of using the opening price of a large body bullish candle as the order Block in this chart I marked
[21:32] out the buy side liquidity level and we can see price approaching that level this is the moment you begin to anticipate a liquidity sweep in this next chart you can see that price sweeps by side liquidity and then fails to move
[21:46] higher notice also that a new swing low just formed so if price breaks it to the downside we can look for an order block setup this time looking for the main threshold of the order block in this situation the order block is the large
[22:00] liquidity sweep the main threshold is the 50% Fibonacci retracement from the open to the close of that candle as you can see here in this next chart we can see price breaking the last swing low the setup
[22:15] now consists in waiting for price to retrace back to the mean threshold of the order block advancing a few candles into the future we can see price retracing back up and meeting the mean threshold and right after that price
[22:29] goes down completing the bearish order block setup an interesting detail here is that we can spot that a low probability order block formed in the same level of the main threshold of the high probability order block as is the
[22:42] case with any method the trader must find the intersection of techniques in order to find the best traits the final ICT concept we'll study in this beginner guide is the daily bias the daily bias is exactly what it sounds like it's a
[22:57] way to determine if the next day will be bullish or bearish we can determine that in a very simple way using the previous day's high and low and the observation of what price does at these extremes let's look at the basic idea of the
[23:11] bullish daily bias let's say you begin with this candle and you mark out the high and low of the day in the next candle price breaks and closes above the previous day's high that would generate a bullish bias for the next day another
[23:26] example of bullish bias is when price fails to move below the previous day's low like so notice that price breaks the low but it cannot close lower in the second case we can expect the next day to be bullish or at least the high to be
[23:41] met in the case of a bearish daily bias the rationale is the same if price breaks and closes below the previous day's low we have a bearish bias for the next day if price breaks and fails to close above the previous day's High we
[23:56] also have a bearish bias for the next day in the second case we can expect the next day to be bearish or at least to reach the previous day's low this concept like many others is better understood in practice so let's take the
[24:10] how this works let's say we begin with this current candle the first step is to Mark out the high and low moving on to the next candle we can see that it broke and closed below the previous day low so we
[24:26] have a bearish bias for the next day we Mark out the current high and low two things can happen in the next candle we should see price reaching this low which in this case is very close to the current price or we should see price
[24:39] break this low and close below it in the next day we can see that are bearish bias was correct and since price closed below the previous day's low we continue with the bearish bias for the next day now I Mark out the new high and low we
[24:54] downside or at least reaching the the new low in the next candle we can see that our bias was correct since price closed below the previous day's low we continue with a bearish bias we now Mark the new high and low price is expected
[25:10] to at least reach the new low or break and close below it in the next candle we can see that price moves sharply to the downside once again confirming the daily bearish bias that was anticipated in the previous day we now Mark the new high
[25:24] and low once again we expect price to reach the new low or break and close below it in the next candle we can see that the bearish bias was correct and we Mark out the new high and low in the next candle we can see something new
[25:39] happening notice that we did reach the previous day's low as expected we broke back up into the range this generates a bullish bias for the next day we now Mark the new high and low in other words we should see a
[25:55] bullish candle surpassing the previous day high or at least price reaching the previous day's high in the next candle we see price reaching the previous day's high as expected but a bearish candle appears so our bias was wrong in a way
[26:09] but it was correct about reaching the previous day's High notice also that we broke the previous day's high and failed to close above it this generates a to close above it this generates a bearish bias for the next day we must
[26:22] also update the high and low to the current candle since the bias now is bearish we expect expect price to at least reach this low or break and close least reach this low or break and close below it in the next candle we can see
[26:34] that price does reach the previous day low but failed to close below it generating a bullish bias for the next day before moving on we must update the high and low to the current day now we have a bullish bias for the next day so
[26:48] we should see price at least reaching the previous day's high or producing a bullish candle that surpasses that high in the next candle we see that price did reached the previous day's high and surpassed it creating a bullish daily
[27:01] bias for the next day before moving on WE update the new high and low once again we should see price at least reach the previous day's high or surpassed the previous day's high in a bullish daily bias in the next candle we not only
[27:16] reached the previous day's High we also surpassed it creating a new bullish bias now we update the new high and low we expect price to at least reach the previous day's High or surpass it and close above it in the next day we close
[27:32] above the previous day's High creating a bullish daily bias for the next day and now we update the new high and low expecting price to at least reach the previous day's High the next day we see price closed above the previous day's
[27:44] High generating a new bullish daily bias for the next day updating the new high and low we expect price to at least reach the new high in the next day in the next candle we did reach the previous day's High but price failed to
[27:58] close above it that generates a bearish bias for the next day updating the new high and low we expect price to at least reach the previous day's low now the next day price not only reached the previous day's low but it also closed
[28:13] below it generating a new bearish bias for the next day updating the new high and low we now expect price to at least reach the previous day's low the next day we see that price indeed reach the previous day's low and then created a
[28:28] bullish candle that closed above the previous day's High by the way notice how price reversed at a fair value Gap in here now we have a bullish bias for the next day updating the new high and low we expect price to at least Reach
[28:42] This High the next day moving one candle to the future we see that price did reach the previous day's high but failed to close above it therefore generating a bearish bias for the next day updating the high and low we now expect price to
[28:56] at least reach the previous previous day's low the next day we have an inside bar so we failed to reach the previous day's low and we don't have a bias for the next day now we can update the new high and low and see what
[29:09] happens the next day we close above the previous day's High generating a bullish bias for the next day updating the new high and low we expect price to at least reach the new high in the next day moving forward we can see that we did
[29:23] reach the previous day's high and close above it I guess you can get the idea of how this works by now in all these candles the buyas only failed to meet its condition once when the inside bar appeared in other words it worked most
[29:38] of the time this idea of the daily bias can also be used in intraday charts the principle is exactly the same the daily bias can be used to frame a trade in a lower time frame as well this finishes this beginner's guide to the ICT method
[29:54] the ICT method goes much further than this but these are are the foundational Concepts you can incorporate in your trading right away if you want to go deeper into it you can visit ict's channel in the video description that's
[30:07] it for this video If you enjoyed it please help support the ongoing creation of free videos like this one by clicking the like button subscribing to the channel activating the notifications leaving your feedback in the comment
[30:19] trading Community thank you very much for watching and I hope to see you in the next videos take