The inner circle trader is one of the most widely studied and used trading strategies today in the market. It is famous not because it is simple but because it explains how and why price moves the way it did and how institutional traders influence the market, how price moves between liquidity pools and how the market structure forms. This helps the trader understand the market better which in turn helps them avoid the institutional controlled market which causes the main losses.
One of the main advantages of this trading strategy is that it is extremely easy to get knowledge on it. It was developed by Michael J. Huddleston and he also educated the traders extensively on his YouTube channel so anyone can look up ICT Strategy and get a wealth of knowledge on it. So it is extremely easy to get into ICT for new traders.
There are other retail indicators in the market but unlike those indicators ICT focuses on identifying the footprints of the whales or the smart money participants which have enough money so they can move the market in their desired direction. It does not promise quick money or any shortcuts to trading, instead it gives traders structured and valuable data to understand the market better so the traders can take trades with intentions rather than emotions. This is one of its strong points and why it got viral is that it removes the randomness from the market and helps traders understand why the price moved in this way.
Understanding Why ICT Exists
Each and every financial market that exists, whether forex or crypto, is shaped by two main factors. One is the retail traders that take trades based mostly on the emotions and the other are the institutional traders that take trades based on statistics and move the market where they are more profitable. Retails traders rely very heavily on the indicators, guesses and the very obvious that every retail trader uses are the support and resistance zones and institutional traders exploit this obvious patterns of the retail traders.
ICT teaches traders to see what institutions target. For example:
- Retail traders often place stop losses above a major high or below a swing low.
- Institutions deliberately drive prices into those areas to collect liquidity before reversing the market.
This repeated cycle of liquidity collection is one of the foundations of ICT market theory.
Important ICT Concepts
Following are the seven important components that build the foundation of the ICT Trading Strategy.
Liquidity:
Liquidity is at the center of the ICT Strategy because price in a market does not move randomly between the candles. It moves from one candle to another to get the large liquidity it requires to fill out the large institutional orders. Liquidity has many forms but ICT focuses primarily on two types. Buy side liquidity and sell side liquidity.
Buy side liquidity is the area on a price chart where short selling traders have their stop losses and sell side liquidity is the area on a price chart where the long buying trailers have their stop losses set up. These zones act like magnets for the price. Prices often move toward these areas back and forth to collect the liquidity required for the large institutional orders.
ICT Trading Strategy helps traders anticipate such moves rather than being the victims of them.
This is how institutional traders engineer the price they want on the map. They push the market into obvious trap areas where the retail traders’ orders are waiting to be fulfilled. Once those orders are triggered the market gains the liquidity it needs to fuel the next major move. This is the reason we sometimes see the price moving past a point making wicks and then reversing instantly.
Displacement:
After the price moves and takes the liquidity it requires it just does not simply drift away to the normal price but a strong and large directional move is formed which is known as displacement. It can be in both directions either upward or downward and it moves in the form of long consecutive candles with minimal wicks and all moving in the same direction.
A displacement candle is not just any large candle. It is a candle that aggressively leaves an imbalance behind. This imbalance zone is known as Fair Value Gap or FVG which is a zone in which the price moves too fast.
ICT Trading Strategy helps traders look for these specific zones because prices often move back to these zones.
Market Structure Shift
The trends in a trading market are defined by higher highs and higher lows in an uptrend and lower highs and lower lows in a downtrend. The Market Structure Shift or MSS occurs when this structure in the market breaks. It is marked by a lower low In an uptrend and in a downtrend, it typically occurs when a higher high is formed.
Unlike retail traders who wait for the indicators to give signals, ICT Traders wait for the exact moment the price takes liquidity and then breaks this structure using displacement. Thai forms one of the strongest reversal structures.
Inducement
Inducements are also known as traps which are created just before a major market move. These are seen at the peaks of the mini counter trends inside a large scale trend. These small peaks pull in the traders who enter early into the market or the traders who have placed their stop losses there. Institutions then sweep these inducements before making the real move. ICT Trading strategy helps these traders so they do not enter too early.
Fair Value Gap
A Fair Value Gap forms when the prices move aggressively in one direction, leaving inefficiency between candles. Normally three candles form a fair value gap in which the middle candle is the displacement candle and the surrounding candles fail to overlap the displacement candle leaving a gap between the candles. This imbalance causes the price to move sharp to these points. ICT Trading helps traders use these fair value gaps as
- Entry zones for their trades
- Point of Interest
- Repricing targets
These gaps act as magnets, even in trending markets the price moves back to these points to fill them up before the price can move forward.
Optimal Trade Entry
The ICT Trading strategy begins when the inducement leads to a strong displacement which in turn creates Market Structure Shift and a Fair Value Gap in the market. To pinpoint the Optimal Trade Entry, ICT Traders uses Fibonacci retracement ranges which are in between 61.8% – 78.6%.
Balanced Price Range
Balanced Price Range is defined by two Fair Value Gaps which is created by two displacements in the opposite directions, one bullish and one bearish. During the Balanced Price Range prices oscillate back and forth testing both extremes in an attempt to rebalance and fill the both fair value gaps. Traders often observe price reacting repeatedly within this zone. Once both fair value gaps are filled and the range is complete, price usually resumes its original trend direction.
How to Use the ICT Trading Strategy
ICT Trading is a combination of many steps ranging from most simplest to most complex methods and since trading doesn’t have to be complicated all the time and you don’t have to use all the concepts together, we will discuss one of the simplest techniques today. The Liquidity Sweep Strategy.
The Liquidity Sweep Strategy contains very few moving parts and is perfect for all the traders that are new to the ICT Trading methodology. Its logic is very straightforward.
- Price takes liquidity on one side.
- A reversal pattern forms.
- Price targets the opposite liquidity pool.
Unlike other setups which require deep data education or multi-timeframe confirmation, this method focuses on the immediate reaction after a sweep is performed in the market.
Is ICT Trading Strategy Profitable?
The strategy is absolutely capable of being profitable. But the truth is simple: profitability depends on the trader, not the method. It boils down to the fact that how the trader applies this strategy in his trading.
ICT gives you the map. You still need consistency to follow it.
Many traders who master ICT concepts report significantly improved accuracy because they stop trading randomly and start trading based on institutional logic. Still, every strategy has losing trades, and ICT is no exception.
