Discipline builds traders, money management keep them alive
1.ICT (Inner Circle Trader) Framework
Founder: Michael J. Huddleston (ICT)
Concept: Focuses on how smart money — banks and institutions — move the market.
Key ICT Concepts You Need to Know About
The ICT trading strategy is built on the following six important components:
1. Liquidity
Liquidity in the ICT Trading Strategy comes in two distinct forms: buy-side and sell-side. Buy-side liquidity refers to the area on a price chart where short-selling traders are likely to have their stop orders placed. Conversely, Sell-Side Liquidity identifies the zones where bullish traders’ stop orders are concentrated.
Both Buy-Side and Sell-Side Liquidity zones are typically found at the extremes of price volatility, often near the tops and bottoms of price patterns. This is because retail traders commonly set their stop-loss orders or decide to close their positions in these areas. Liquidity plays a vital role in the ICT trading methodology
2. Displacement
Displacement is characterized by a sudden and forceful price movement, either upwards or downwards. On a price chart, it typically appears as a sequence of consecutive long candles with minimal wicks, all moving in the same direction.
Two key points to remember about Displacement, according to ICT, are that it often signifies a sudden surge in buying or selling pressure, frequently occurring when the price reaches a Liquidity level. Additionally, Displacement almost invariably results in two significant outcomes: a Market Structure Shift and a Fair Value Gap.
3. Market Structure Shift
Trends are defined by higher highs and higher lows in an uptrend and lower highs and lower lows in a downtrend. A Market Structure Shift is a level on the chart where the existing trend is disrupted. In an uptrend, it is marked by a lower low, while in a downtrend, it typically occurs when a higher high is established. These shifts usually
follow a Displacement.
After a price breach through a Market Structure Shift level, Inner Circle Traders begin looking for additional signals confirming a change in trend, using this level as a reference point for their trades.
4. Fair Value Gap
When a liquidity level is breached and a trend reversal occurs, traders often observe a“gap” on their charts—this is referred to as a Fair Value Gap by ICT traders. Specifically, aFair Value Gap consists of three candles, with a larger one at the center and a gapbetween its wicks and those of the surrounding candles.
Fair Value Gaps tend to be filled at some point in the future, and this is the concept that ICT traders leverage when setting their orders.
5. Inducement
Inducements are seen at the peaks of mini-counter-trends within a larger-scale trend.
According to ICT, these movements are often the result of Smart Money engaging instop-loss hunting activities in lower time frames.
ICT traders base their strategies on the belief that once an Inducement level is reachedand additional liquidity has entered the market, the price will reverse course andcontinue its original trend.
6. Optimal Trade Entry
After an Inducement triggers a Displacement, which subsequently results in a MarketStructure Shift and a Fair Value Gap, ICT traders use Fibonacci levels to pinpoint their Optimal Trade Entry points before executing trades. These entry points typically fall within the range of 61.8% to 78.6% retracement of an expansion range.
2.SMC (Smart Money Concept) Framework
Smart Money is all about supply, demand, and market structure. Market makers, or the “smart money,” often leave footprints of their trading decisions on the chart, and smart money concept traders are to follow these footprints.
SMC Key Concepts
Rather than being just a theory, SMC is a complete trading methodology with its uniqueterminologies and concepts. Let’s take a closer look at some of SMC’s concepts and
trading techniques.
1. Order Blocks (OB)
This concept is fundamental to understanding SMC. Essentially, order blocks refer to amarket condition when central banks, governments, and large financial institutions accumulate or distribute large quantities of an asset through several big orders. They do so to be able to purchase the asset without creating panic and high volatility in themarket. On a price chart, order blocks typically appear as a ranging market (as seen in the chart below). However, to properly identify order blocks in the market, you must use additional tools, such as level 2 market data and volume indicators.
2. Breaker Blocks
These are order blocks that fail to hold the price level in a given trend. They represent price levels where market makers intentionally break through support or resistance levels to trigger stop-loss orders from retail traders
3. Fair Value Gaps (FVG)
Fair value gaps, also referred to as FVGs, are a unique trading concept that occurs when the market moves quickly from one price level to another, often leaving gaps on price charts. SMC traders pay close attention to these gaps as they can indicate significant shifts in market sentiment.
4. Break of Structure (BOS)
The break of structure is a concept that focuses on identifying shifts in the market’s overall trend. A break of structure is said to have taken place when the price sets a new high or a new low while breaking the former ones.
5. Change of Character (Choch)
Change of Character, often abbreviated as Choch, refers to a situation where the market’s behavior shifts abruptly. It is a sudden change in volatility, volume, or price action, suggesting a weakness in the current trend and a possible reversal.
6. Liquidity
Liquidity is a crucial factor in SMC trading. It is a point in the price of an asset where orders are either sitting above or below, waiting to be collected. There are different types of liquidity, e.g., trendline liquidity, buy-side liquidity, sell-side liquidity, double tops, and double bottoms, etc.
3. Price Action
A Price Action Framework is a comprehensive trading methodology that analyzes and makes decisions based primarily on:
Raw price movements
Candlestick patterns
Chart patterns
Support and resistance levels
Market structure
The Most Important Price Action Patterns
