Overview
This lecture introduces core ICT (Inner Circle Trader) trading concepts, covering liquidity, market structure, market maker models, the power of three, and effective entry strategies to create a profitable trading framework.
Liquidity
- Liquidity is the foundation of ICT; price moves toward liquidity pools where stop-losses reside.
- There are two key types of liquidity: external (at swing highs/lows) and internal (at fair value gaps).
- A fair value gap occurs when a large candle creates a gap between the wicks of adjacent candles.
- Price moves from internal to external liquidity, often oscillating between fair value gaps and swing points.
Market Structure
- Market structure is defined by series of highs and lows in price.
- A "low" forms when a candle has higher lows on both sides; a "high" forms with lower highs on both sides.
- True break in structure occurs only with energetic displacement (strong move and close beyond a structure point).
- Market structure shift happens when the market transitions from lower highs/lows to making a new higher high, confirmed by a fair value gap.
- Manipulated lows with no displacement often signal reversals.
Market Maker Models
- Market maker models explain price moves from fair value gaps to liquidity using consolidation, manipulation, and displacement.
- Look for multiple consolidations as price approaches a fair value gap, then manipulation and displacement for entry signals.
- On lower time frames, expect manipulative moves below consolidations before the real trend begins.
- Enter trades after observing manipulation and displacement into a new fair value gap.
The Power of Three
- The "power of three" describes three phases: accumulation (consolidation), stop runs (liquidity grabs), and reversal.
- Expect stop runs to target lows in a bullish scenario, followed by strong moves in the opposite direction after confirmation.
Entry Models & Time Frames
- Only take trades after a key level (liquidity area or fair value gap) is tapped.
- Inverted fair value gap entry: When price closes through a fair value gap against the prior trend at a key level, enter and set stop at the lowest recent low.
- Change in state of delivery: Enter when down move is engulfed by up candles, showing market intent change, ideally with market structure shift confirmation.
- Always aim for a minimum 2:1 risk-to-reward ratio.
- Use higher time frames (like weekly) to identify key levels, then lower time frames (like 4H) for precise entries.
Key Terms & Definitions
- Liquidity — Areas where large volumes of stop-losses are placed, attracting price movement.
- Fair Value Gap (FVG) — A gap between the wicks of candles formed by a large price move.
- External Liquidity — Liquidity at swing highs and lows.
- Internal Liquidity — Liquidity at fair value gaps within the trend.
- Market Structure — The pattern of highs and lows determining trend direction.
- Market Structure Shift (MSS) — A change from lower highs/lows to higher highs, signaling trend reversal.
- Consolidation — A period of sideways price movement before a major move.
- Displacement — Strong directional price movement breaking through structure.
- Market Maker Model — The sequence of consolidation, manipulation, and displacement orchestrated by large players.
- Power of Three — The cycle of accumulation, stop runs, and trend reversal in the market.
Action Items / Next Steps
- Review and screenshot the time frame alignment list for trade setups.
- Practice identifying liquidity pools, market structure shifts, and fair value gaps on charts.
- Apply entry models described to historical or demo charts to reinforce learning.