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What is ICT in Trading?

ICT in Trading

Highlights:

  • ICT has revolutionised online retail trading by integrating technical price action, fundamentals, and supply and demand into cohesive strategies. 
  • It is made up of various concepts, the full knowledge of which is essential in carving success. 

In the world of forex trading, ICT is a prominent and popular concept. Anyone associated with forex trading must have come across this term at least once. In fact, this term has been used in the industry for many years. However, it has become trendy in the last 2-3 years. Short for Inner Circle Trader, this style of trading is popular in the Strat community. It focuses only on price action and does not use trend-following or momentum indicators. Therefore, let us take a look at the various aspects of this trending forex trading concept.

Understanding ICT

The ICT trading methodologies and strategies were the first of their kind in online retail trading. Before its arrival, traders mostly focused on technical price action, fundamentals, or supply and demand. ICT combines all these elements cohesively. It focuses on finding good prices and using institutional footprints to follow market movers.

ICT strategies are used at certain times of trading sessions to ensure high trading volume, with a preferred “killzone” for placing trades. These methods use supply and demand intelligently, more so than seen before in retail trading. While many claims to read institutional order flow, ICT traders seem to back up their claims. Although the strategies are subjective, there are enough rules and methodologies for traders to build robust systems from this style.

Key Concepts 

The ICT trading methodology includes key concepts essential for traders to utilize effectively. Here’s a brief overview and how to apply them using the TrendSpider platform.

  • Liquidity: This is crucial in ICT. It identifies buy-side (stops for short sellers) and sell-side (stops for long-biased traders) levels near market extremes where traders exit positions.
  • Displacement: This powerful price action move shows strong buying or selling pressure, often seen after breaching liquidity levels, forming Fair Value Gaps and Market Structure shifts.
  • Market Structure Shift: It marks a trend change point where the price sets a new high or low, typically following displacement, signalling potential trade opportunities.
  • Inducement: These refer to the targets short-term highs or lows within trends, where stop placements lead to price movement aligned with longer-term trends.
  • Fair Value Gap: Created within price displacements, these gaps indicate market imbalances and can attract price action.
  • Optimal Trade Entry: It is identified using Fibonacci retracements (typically 61.8% to 78.6% of the range), providing strategic entry points after market shifts.
  • Balanced Price Range: It refers to results from rapid up and down movements, forming double Fair gaps that often precede significant price movements.

The Silver Bullet Strategy

ICT teaches several trading strategies that prepare traders for various market conditions and times. One prominent strategy is the ‘silver bullet’ strategy. It is known for its high win rate and favourable risk-to-reward ratio.

This strategy is most effective during periods of high market volume, such as 10 am-11 am ET or 3 am-4 am ET. To implement the strategy, traders wait for the price to breach the high or low of the previous one-hour candle. After this occurs, they look to trade back into the candle’s range. Traders then establish their bias and find an entry using order confluences taught by ICT, simplifying the entry process.

Once entered, traders set their stop loss and take profit levels, allowing the trade to unfold. When determining the take profit level, traders consider several factors, like daily, session, and weekly highs and lows, as well as movements towards and away from the New York Open Gap (NWOG).

Question of Profit

ICT methodology itself is a set of trading concepts and strategies rather than a singular entity or trader. The profitability of using ICT methodologies depends on various factors, including:

  1. Skill and Experience: The traders’ ability to understand and effectively apply ICT strategies plays a crucial role. Experienced traders who can interpret market conditions and execute trades based on ICT principles may find it profitable.
  1. Market Conditions: Like any trading strategy, ICT methodologies perform differently in various market conditions. Adapting to changing market dynamics and understanding when to apply specific ICT techniques is essential for profitability.
  1. Risk Management: Successful implementation of ICT involves rigorous risk management practices. Traders need to manage position sizes, set appropriate stop losses, and maintain a disciplined approach to trading to mitigate risks and maximize profits.
  1. Learning Curve: Learning and mastering ICT strategies can be challenging due to their complexity and the depth of analysis involved. Traders may need time and practice to fully grasp and effectively implement these methodologies.
  1. Individual Trading Style: Each trader may interpret and apply ICT concepts differently based on their trading style, risk tolerance, and personal preferences. Adapting ICT to fit one’s own trading approach can contribute to profitability.

Learning The ICT Style

The primary and recommended option is to learn directly from Michael at Inner Circle Trading. Since these are his concepts and strategies, learning from him directly provides a deep understanding of how to apply them in the markets. However, learning from Michael may not be straightforward as the content is reportedly not organised in an easy-to-digest format. This can make the learning process lengthy as traders navigate through the complexities of applying these methodologies effectively.

Another option is to learn from some of Michael’s successful students who have become profitable traders and developed their own courses. These courses are designed to offer a more streamlined and accessible approach, leveraging their experiences to help new traders avoid common pitfalls. Ultimately, while learning directly from ICT offers comprehensive insights, it may require a significant time investment to grasp and implement effectively.

Final Words

Therefore, ICT is a prominent aspect of forex trading which numerous traders are following now. However, there are numerous factors which play a determining role in deciding the profit in this case. Therefore, it is always advisable that before engaging in this , proper training has to be taken. One has to be aware of the various intricacies involved in the process. It is only then that the process becomes profitable. 

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