ICT Beginners Guide

Intro:
ICT has essentially shown everyone how to "trade like the banks." As we all know, the
markets are driven by major players like banks and financial institutions. As individual
traders, our trades are far too small to influence the market. Instead, we capitalize on the
moves created by these big players. Since we know that banks are the ones moving the
market, our goal is to trade in line with them. The key is figuring out where they’re likely to
push price next, so we can follow suit. That’s exactly what ICT concepts teach -
understanding why price moves the way it does and how to catch those moves using his
strategies.

ICT has crafted a TON of concepts and you definitely do not need to know all of them. I
always state that you need to be keeping trading simple. Pick a few concepts that you fully
understand and also enjoy using and formulate these into a strategy. Whether that be an
already existing strategy that you see others using, or one that you have made. All that
matters is that you test this strategy across 500+ trades to know whether or not it’ll be
profitable over a long period of time.

KEY CONCEPTS:
Liquidity:

Liquidity is the most important concept in trading. It is the framework for all of mine and the
majority of trader’s trades.

Liquidity is essentially ‘resting orders’ in the form of buy and sell stops. Meaning that where
there is liquidity, there are tons of stop losses resting there. This is super important as the
market movers seek and take liquidity out. And of course, we know that we want to be
trading like the banks therefore we have to be able to spot liquidity. The banks and
institutions need liquidity to move the markets, so it makes perfect sense for them to take
stop loss orders out so that they can fill their own orders.

Where to find liquidity?

So we know that liquidity is where resting orders are. But how do we actually know where
it is? Liquidity is found at the highs and lows in the market. Super easy to spot. For
example:
Here we can see the prominent high and low in this chart example. The highs are called
buy side liquidity as this is where ‘buy stops’ rest. The lows are called sell side liquidity as
this is where ‘sell stops’ rest.
So above the high for example, there are tons of stop losses from where people have
entered short around that area and placed their stop loss above the high as that is the
most logical place to put it. And the same for the low, there are stop losses below the low
from where people have entered long around that area and placed their stop loss below
the low.

That is exactly why banks like to target these areas of liquidity as they can take traders out
of the market whilst filling their orders to then go and push price in the opposite direction.

So in the example, the market movers may push price below sell side liquidity, taking out
many stop losses and then they place long positions to go and target buy side liquidity
next. These are the types of moves that us as ICT traders capitalise on, i.e. we wait for
one side of liquidity to get taken out, then wait for some sort of reversal, and then place a
trade and target the opposing side of liquidity. E.g. if sell side liquidity gets taken then we
will most likely be looking for long positions up to buy side liquidity and vice versa.

In that chart example above, you’ll notice that I only marked out one high and one low.
However, liquidity is found at all highs and lows (the higher the time frame, the more
liquidity).

All of these highs and lows in this example are yet to be taken out, meaning they have all
got resting orders either below or above the wicks.
I previously mentioned about how the market movers tend to take liquidity out (either buy
or sell side) and then send price to the opposite direction to take the other one out. So
here is an example of when liquidity gets taken out:

Now, looking at this example, do you see that in the bottom left, we had these lows get put
in. So this is our sell side liquidity. Price then later came and took this liquidity out by
pushing below the low and then pushed price towards buy side liquidity. When price takes
out liquidity it is known as a ‘liquidity sweep’ and these are one of the main confluences
that I use in my trading. They tell a huge story, i.e. if a major sell side liquidity point gets
taken out, then there is now a high chance that price reverses and heads towards buy side
liquidity. Do you see how important using liquidity is now? Liquidity literally fuels the
market. every single move is going towards liquidity, whether that be buy or sell side.

So all you need to know is to mark out highs and lows and treat them as liquidity, because
that is exactly where it is.

Fair Value Gaps:

A fair value gap is essentially an imbalance in the market. They form when price quickly
moves in one direction. This causes there to be an inefficient amount of buyers vs sellers.
So, if price quickly moves to the downside, sellers are clearly stronger than the buyers
meaning that these FVG’s (imbalances) are left behind. These imbalances then tend to get
traded back into before moving in its original direction.

So for example, if price moves quickly to the downside, and a FVG is left behind. The
market movers may push price back into the FVG to fill the imbalance and then send price
back into the original intended direction (the downside). This would be the exact same if
price moved to the upside and left a FVG behind, we can expect price to fill the FVG
before carrying on pushing to the upside. This all occurs due to imbalances always having
to be filled and rebalanced.

What do they look like:

The fair value gap is a 3 candle formation in which the first and last candles wick’s do not
overlap with each other, and a gap is left in the middle. Example:

This is a bearish example. The first candles low does

not overlap with the third candles high. The gap left in
the middle is known as a fair value gap, an imbalance
or a liquidity void (all mean the same thing).

Now, in this example, notice that the first candles low DOES
overlap with the third candles high. This is not a fair value gap as
there is no gap in the middle.
Bullish example:

This is an example of a bullish FVG. The first candles high does NOT
overlap with the third candles low, leaving behind the gap which is
the fair value gap.

(Note that all 3 candles have to be fully closed before marking out the FVG. Whatever
timeframe you are on, ensure that you wait for the candles to fully close).

FVG’s being respected:

Here is the order that tends to happen with fair value gaps:

Up/Downtrend > FVG left behind > Price moves into the fvg to fill any orders > price
respects the fvg and carries on moving in the same trend.

Let’s take a look at an example of FVG’s in action;

Here we can see that price heavily displaced downwards. As a result, there was a FVG left
behind outlined by the grey rectangle. This FVG would have had orders waiting to get filled
inside, meaning the market movers push price into the FVG which fills the orders and then
as a result of these order being filled, price gets sent back into its original direction (the
downside).

The opposite would occur for a bullish example. I.e. there would be displacement to the
upside, with these ‘gaps’ left behind. Price comes back up, respects/fills them and then
carries on upwards.

Outro
Liquidity & FVG’s together are POWERFUL. In my opinion, all strategies should be
including them. Liquidity will always be the staple in any strategy.

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