ICT / Smart Money Concepts
A Complete Framework for Institutional Order Flow Trading
Introduction: What Is ICT / Smart Money Concepts?
ICT stands for Inner Circle Trader, the online alias of Michael J. Huddleston — a trader and educator who has spent decades studying how institutional players (banks, hedge funds, and large market makers) move markets. His teachings have spawned an entire school of thought known as Smart Money Concepts (SMC), which has become one of the most widely discussed frameworks in retail trading.
The core premise is simple but powerful:
Markets are not random. They are engineered by institutional participants — "smart money" — who deliberately move price to areas where retail traders have placed their stop losses. These stops represent liquidity, and smart money needs that liquidity to fill their massive orders.
Think about it this way: if a bank needs to buy 500 million dollars worth of an asset, they cannot simply click "buy" on a platform. That would spike the price immediately and give them a terrible average fill. Instead, they need sellers on the other side — and the easiest way to find sellers is to push price down into areas where retail traders have their stop losses. When those stops trigger, they become market sell orders, which the institution buys into.
This is the engine behind every concept in ICT/SMC:
| Concept | What It Really Means |
|---|---|
| Liquidity sweep | Smart money pushing price to trigger retail stop losses |
| Order block | The zone where smart money placed their real orders |
| Fair value gap | The imbalance left behind by aggressive institutional buying/selling |
| Break of structure | Smart money confirming their intended direction |
| Change of character | Smart money shifting from one direction to another |
Why should you care?
Because once you understand HOW institutions move price, you can stop being the trader whose stops get hunted — and start being the trader who enters AFTER the hunt, riding the same move smart money is pushing.
What this guide covers:
This is a complete, step-by-step framework. We start with the foundational concepts (market structure, liquidity) and build up to a full trading strategy with entry rules, stop loss placement, and targets. Every concept includes ASCII diagrams, checklists, and practical examples.
A note on realism: ICT/SMC is a framework for reading price action through an institutional lens. Like all trading approaches, it requires practice, discipline, and proper risk management. No strategy wins 100% of the time. The goal is to develop an edge — a repeatable process that puts probabilities in your favor.
1. Market Structure — The Foundation
Before you can identify smart money activity, you need to understand market structure — the sequence of highs and lows that defines trend direction. Market structure is the skeleton that everything else hangs on.
What Is Market Structure?
Market structure is simply the pattern of swing highs and swing lows that price creates as it moves.
BULLISH STRUCTURE: BEARISH STRUCTURE:
HH
/\ HH LH
/ \ /\ /\ LH
/ \ / \ / \ /\
/ \ / \ / \ / \
/ HL \/ HL \ / \ / \
/ \ / LL V LL \
\
HH = Higher High LH = Lower High
HL = Higher Low LL = Lower Low
| Structure | Definition | Trend |
|---|---|---|
| Higher Highs + Higher Lows | Each peak and valley is higher than the last | Bullish (uptrend) |
| Lower Highs + Lower Lows | Each peak and valley is lower than the last | Bearish (downtrend) |
| Mixed / Equal | No clear pattern of HH/HL or LH/LL | Ranging / Consolidation |
Break of Structure (BOS) — Continuation Signal
A Break of Structure (BOS) occurs when price breaks a previous swing point in the direction of the existing trend. It tells you: "The trend is continuing."
Bullish BOS: Price breaks above a previous swing high, confirming the uptrend is intact.
BULLISH BOS:
BOS! (price breaks above prior high)
|
HH v NEW HH
/\ ─ ─ ─ ─ ─ ─ /\
/ \ / \
/ \ / \
/ \ HL /
/ \ /\ /
/ \/ \/
/
/
HL /
/\ /
/ \ /
/ V
Each BOS = trend continuation confirmed
Bearish BOS: Price breaks below a previous swing low, confirming the downtrend is intact.
BEARISH BOS:
\
\ LL
\ /\
\ / \
V \ LH
\ LH /\
\ /\ / \
\/ \ / \
V \
| \
v \
BOS! (price breaks \
below prior low) V NEW LL
Key rules for BOS:
| Rule | Detail |
|---|---|
| Bullish BOS | Price must close above the previous swing high (wicks alone may not count) |
| Bearish BOS | Price must close below the previous swing low |
| Confirmation | A BOS confirms that the current trend direction remains valid |
| Trading implication | After BOS, look for pullback entries in the trend direction |
Change of Character (CHoCH) — Reversal Signal
A Change of Character (CHoCH) is the FIRST sign that a trend may be reversing. It occurs when price breaks a swing point against the current trend for the first time.
Bullish CHoCH (shift from bearish to bullish): In a downtrend, price breaks above a previous swing high for the first time.
BEARISH TREND INTO BULLISH CHoCH:
\
\ LH
\ /\
\ / \
V \ LH
LL \ /\
\ / \
V \
LL \ CHoCH! (breaks above last LH)
\ /\ ─ ─ ─ ─ ─ / ─ ─ ─
\ / \ /
\/ \ /\ /
LL \ / \/
V
(last LL = potential HL now)
Bearish CHoCH (shift from bullish to bearish): In an uptrend, price breaks below a previous swing low for the first time.
BULLISH TREND INTO BEARISH CHoCH:
HH
/\
/ \ HH
/ \ /\
/ \ / \
/ HL \/ \
/ \
/ \ CHoCH! (breaks below last HL)
/ \ /\ ─ ─ ─ ─ ─ ─ ─ ─ ─
/ V \
/ \
V
(first lower low = trend shift)
The difference between BOS and CHoCH is critical:
| Signal | What It Means | Direction Relative to Trend | Implication |
|---|---|---|---|
| BOS | Trend continues | WITH the trend | Look for pullback entries in the same direction |
| CHoCH | Trend may be reversing | AGAINST the trend | First warning — look for entries in the NEW direction |
Internal vs. External Structure
ICT distinguishes between two types of structure:
External structure (swing structure): The major swing highs and lows visible on your primary timeframe. These are the "big picture" moves.
Internal structure (sub-structure): The smaller highs and lows that form WITHIN a swing move. These are visible on lower timeframes.
EXTERNAL vs INTERNAL STRUCTURE:
External (4H):
SWING HIGH
/\
/ \
/ \
/ \
/ \
SWING LOW ───/ \─── SWING LOW
Internal (15m view of the same move):
/\
/\ / \
/\ / \/ \
/\ / V \ /\
/\ / \/ \/ \
\/ \
The 15m shows many small BOS/CHoCH
within the larger 4H swing
Why this matters for trading:
- Use external/HTF structure to determine your bias (long or short)
- Use internal/LTF structure to find precise entries and exits
- A CHoCH on the internal structure, aligned with external structure direction, gives you high-probability entry signals
Higher Timeframe vs. Lower Timeframe Alignment
One of the most important concepts in ICT/SMC is multi-timeframe alignment. The highest probability trades occur when multiple timeframes agree.
| Timeframe Role | Typical Timeframes | Purpose |
|---|---|---|
| Higher Timeframe (HTF) | Daily, 4H | Determine overall bias and key levels |
| Intermediate Timeframe | 1H | Confirm structure and identify setups |
| Lower Timeframe (LTF) | 15m, 5m, 1m | Precision entries and stop loss placement |
The alignment principle:
HTF BULLISH + LTF BULLISH = HIGH PROBABILITY LONG
HTF BEARISH + LTF BEARISH = HIGH PROBABILITY SHORT
HTF BULLISH + LTF BEARISH = WAIT (LTF pullback in progress, watch for CHoCH back bullish)
HTF BEARISH + LTF BULLISH = AVOID (counter-trend, low probability)
Practical workflow:
- Check Daily chart: Is the trend bullish or bearish? (BOS direction)
- Check 4H chart: Does structure agree with the Daily?
- Check 1H chart: Where are the key order blocks and liquidity levels?
- Drop to 15m/5m: Wait for CHoCH or BOS in the direction of your HTF bias
- Enter on the lower timeframe with a tight stop
2. Liquidity Concepts — The Heart of SMC
If market structure is the skeleton of ICT/SMC, liquidity is the blood. Understanding liquidity is what separates smart money thinking from traditional technical analysis.
What Is Liquidity?
In the ICT/SMC framework, liquidity refers to clusters of pending orders — particularly stop losses — sitting at predictable price levels. These stop losses represent resting orders that, when triggered, create a burst of market orders that institutions can trade against.
The key insight: Retail traders place stop losses in predictable locations:
- Above swing highs (short sellers' stops)
- Below swing lows (long buyers' stops)
- Above/below equal highs and equal lows
- Above/below obvious support and resistance levels
Institutions know where these stops are because the locations are obvious from any price chart. Smart money deliberately pushes price to these levels to trigger the stops and use the resulting order flow to fill their own positions.
WHERE RETAIL STOPS CLUSTER:
─ ─ ─ STOP LOSSES (shorts) ─ ─ ─
|
HH v Retail shorts have SL here
/\ ............................................
/ \
/ \
/ \
/ HL \
/ /\ \
/ / \ \
/ / \ \
/ / \ \
/ HL \ \
............................................
^ |
| v
STOP LOSSES (longs) Retail longs have SL here
─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─
Buy-Side Liquidity (BSL)
Buy-Side Liquidity (BSL) refers to stop loss orders sitting above swing highs. These are the stops of traders who are short.
When a short seller places a trade, their stop loss goes ABOVE recent highs. When price sweeps up to take these stops, those stop losses trigger as buy orders (buying to close the short position). This creates a pool of buy orders that institutions can sell into.
BUY-SIDE LIQUIDITY (BSL):
BSL $$$ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─
Short sellers' stop losses ^^^
|
SH v
/\
/ \ SH
/ \ /\
/ \ / \
/ \ / \
/ \ / \
/ V \
/ \
"BSL" = a pool of resting buy orders above highs
Smart money pushes price UP to trigger these stops
Then uses that buy-order flow to fill SELL positions
Sell-Side Liquidity (SSL)
Sell-Side Liquidity (SSL) refers to stop loss orders sitting below swing lows. These are the stops of traders who are long.
When a long buyer places a trade, their stop loss goes BELOW recent lows. When price sweeps down to take these stops, those stop losses trigger as sell orders (selling to close the long position). This creates a pool of sell orders that institutions can buy into.
SELL-SIDE LIQUIDITY (SSL):
\ /
\ /\ /
\ / \ /
\ / \ /
\ / \ /
\ / \ /
\/ SL V
SL |
v
SSL $$$ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─
Long buyers' stop losses vvv
"SSL" = a pool of resting sell orders below lows
Smart money pushes price DOWN to trigger these stops
Then uses that sell-order flow to fill BUY positions
Equal Highs and Equal Lows — Engineered Liquidity
When price creates equal highs (a double top) or equal lows (a double bottom), it creates a highly visible level that attracts even MORE stop losses. In traditional technical analysis, these are taught as "strong support/resistance." In ICT/SMC, they are seen as liquidity magnets — levels that smart money WILL target.
EQUAL HIGHS (Liquidity Magnet):
MASSIVE BSL $$$$$ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─
|
EQH v EQH
/\ ─ ─ ─ ─ ─ /\ <-- "Double top" = everyone
/ \ / \ sees this as resistance
/ \ / \ and places shorts with SL
/ \ / \ just above
/ \ / \
/ \ / \
/ \ / \
\ /
V
EQUAL LOWS (Liquidity Magnet):
/\
/ \
\ / \ /
\ / \ /
\ / \ /
\ / \ /
\ / \ /
\ / EQL \/ EQL
V ─ ─ ─ ─ ─ ─ V <-- "Double bottom" = everyone
| sees this as support
v and places longs with SL
MASSIVE SSL $$$$$ ─ ─ ─ ─ ─ ─ just below
The ICT perspective: Equal highs and equal lows are NOT strong support/resistance to trade off. They are targets that price is drawn to. Smart money will likely sweep through these levels before reversing.
Liquidity Sweeps / Grabs
A liquidity sweep (also called a liquidity grab or stop hunt) is the act of price reaching into a liquidity pool, triggering the stop losses, and then reversing sharply. This is the moment when smart money fills their real orders.
LIQUIDITY SWEEP (Bullish Example — SSL Sweep):
\
\
\ /
\ /
\ /
\/ SL <-- Swing low (retail longs have SL below here)
|
─ ─ ─ ─│─ ─ ─ ─ ─ ─ SSL Zone ─ ─ ─ ─
|
V <<<< SWEEP! Price plunges below the low
| Stop losses triggered = sell orders flood in
| Smart money BUYS these sell orders
|
/│\
/ │ \ SHARP REVERSAL
/ │ \
/ │ \ Price rockets back up
/ │ \
/ │ \
/ │
│
─ ─ ─ ─│─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─
|
This wick below = the liquidity sweep
The long wick + close above = smart money bought here
LIQUIDITY SWEEP (Bearish Example — BSL Sweep):
|
This wick above = the liquidity sweep
|
─ ─ ─ ─│─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─
|
\ │ /
\ │ / Price drops back down
\ │ /
\ │ / SHARP REVERSAL
\│/
|
^ <<<< SWEEP! Price spikes above the high
| Stop losses triggered = buy orders flood in
| Smart money SELLS into these buy orders
─ ─ ─ ─│─ ─ ─ ─ ─ ─ BSL Zone ─ ─ ─ ─
|
/\ SH <-- Swing high (retail shorts have SL above here)
/ \
/ \
/ \
How to trade liquidity sweeps:
| Step | Action |
|---|---|
| 1 | Identify where liquidity pools exist (above/below swing points) |
| 2 | Wait for price to reach into the pool (wick through the level) |
| 3 | Watch for immediate reversal (strong rejection candle) |
| 4 | Confirm with a Change of Character (CHoCH) on a lower timeframe |
| 5 | Enter in the direction of the reversal with SL beyond the sweep wick |
Liquidity Concepts Checklist
☐ Identified major BSL levels (above swing highs)
☐ Identified major SSL levels (below swing lows)
☐ Marked any equal highs or equal lows (high-priority targets)
☐ Noted which liquidity pool price is likely heading toward
☐ Waiting for sweep + reversal (not front-running the level)
3. Order Blocks (OB) — Where Institutions Place Orders
An Order Block (OB) is one of the most important concepts in ICT/SMC. It represents the zone where institutional participants placed their large orders before an impulsive move. When price returns to an order block, it tends to react — because institutions often have unfilled orders waiting there.
What Is an Order Block?
The technical definition:
An order block is the last opposing candle (or cluster of candles) before a strong impulsive move (displacement) in the opposite direction.
In simpler terms:
- Bullish Order Block: The last bearish (red/down) candle before a strong move UP
- Bearish Order Block: The last bullish (green/up) candle before a strong move DOWN
Why do order blocks work?
When institutions execute a large position, they often do it in stages. The order block is where they started building the position. If the move was strong enough to leave an imbalance (fair value gap), it means not all orders were filled. When price returns, the remaining unfilled orders activate — causing price to react at that zone.
Bullish Order Block
A bullish order block is the last bearish candle before a bullish displacement (strong move up). It marks a demand zone where institutions were accumulating buy orders.
BULLISH ORDER BLOCK:
/
/
/\ /
/ \/
/
┌──────/──────┐
│ BULLISH │
│ DISPLACEMENT│ <-- Strong impulsive move up
│ (Big green │ (must have momentum/FVG)
│ candles) │
└────/────────┘
/
┌────────/──┐
│ ┌──┐ / │
│ │xx│ / │
│ │xx│/ │ <-- ORDER BLOCK = Last bearish candle
│ │xx│ │ before the impulsive move up
│ └──┘ │
└───────────┘
/
/
/ (prior price action)
/
When price returns to this zone:
BULLISH OB RETEST:
/\
/ \
/ \
/ \
/ \
/ \ EXPECT REACTION HERE
/ \ (bounce / reversal)
/ \ |
/ \ v
/ ┌────\────────────┐
│ \ OB │
│ \ ZONE /│
│ \/ / │ <-- Price returns to OB
│ / │ and bounces
└─────────────/───┘
/
/
/ (continuation up)
Bearish Order Block
A bearish order block is the last bullish candle before a bearish displacement (strong move down). It marks a supply zone where institutions were distributing sell orders.
BEARISH ORDER BLOCK:
\
\ (prior price action)
\
┌────\──────┐
│ \ ┌──┐│
│ \ │██││
│ \│██││ <-- ORDER BLOCK = Last bullish candle
│ │██││ before the impulsive move down
│ └──┘│
└────────\───┘
\
┌────\────────┐
│ BEARISH │
│ DISPLACEMENT│ <-- Strong impulsive move down
│ (Big red │ (must have momentum/FVG)
│ candles) │
└──────\──────┘
\
\ /\
\/ \
\
\
When price returns to this zone:
BEARISH OB RETEST:
\
/ (price rising back to OB)
/
┌────────/────────┐
│ / OB │
│ / ZONE │ <-- Price returns to OB
│ / \ │ and gets rejected
│ \ │
└─────────────\───┘
EXPECT REACTION HERE \
(rejection / reversal) \
| \
v \ /\
\ / \
\ /
\ /
\/
How to Identify VALID Order Blocks
Not every candle before a move is a valid order block. The order block must meet specific criteria:
| Criteria | Why It Matters |
|---|---|
| Displacement must follow | Without a strong impulsive move, there is no institutional footprint |
| Must create a Fair Value Gap (FVG) | An FVG proves the move was impulsive, not gradual |
| Must break structure (BOS) | The displacement should break a previous swing high/low |
| The OB candle is the LAST opposing candle | Only the final candle before displacement counts — not earlier ones |
| Must not be fully overlapped | If a subsequent candle fully engulfs the OB before displacement, it is invalidated |
Valid vs. Invalid Order Block:
VALID OB: INVALID OB:
┌──┐ ┌──┐
│xx│ <-- Last bearish candle │xx│ <-- Bearish candle
│xx│ │xx│
└──┘ └──┘
┌────┐ ┌──┐
│████│ │██│ <-- Only a small move up
│████│ <-- STRONG displacement │██│ No FVG created
│████│ with FVG └──┘ No structure broken
│████│ Breaks structure ┌──┐
└────┘ │██│ <-- Gradual, not impulsive
└──┘
= VALID ORDER BLOCK = NOT a valid order block
Order Block Refinement
Refinement means narrowing down the order block zone to increase precision. A full-candle OB can be a wide zone. You can refine it by:
- Using the candle body only (ignore wicks) for a tighter zone
- Dropping to a lower timeframe to find the specific candle within the OB that has the strongest reaction
- Looking for the 50% level (midpoint) of the OB — this is often where price reacts
OB REFINEMENT:
Full OB (1H candle): Refined OB (15m view):
┌─────────────────┐ ┌─────────────────┐
│ │ │ ┌──┐ │
│ Wick │ │ │ │ ┌──┐ │
│ ┌──────┐ │ │ │ │ │xx│ │
│ │ BODY │ │ ──> │ └──┘ │xx│ │ <-- This small
│ │ │ │ │ │xx│ │ bearish candle
│ └──────┘ │ │ ┌──┐ └──┘ │ = refined OB
│ Wick │ │ │██│ │
│ │ │ │██│ │
└─────────────────┘ └────┴──┴─────────┘
|
Displacement begins here
4. Fair Value Gaps (FVG) — Imbalances in Price
A Fair Value Gap (FVG) is an imbalance created when price moves so aggressively that it leaves a gap between candle wicks. This gap represents an area where one side of the market (buyers or sellers) was completely dominant, and the other side had no participation.
What Is a Fair Value Gap?
An FVG is a 3-candle pattern where:
- The wick of candle 1 and the wick of candle 3 do NOT overlap
- The space between them (covered by candle 2's body) is the "gap"
This gap exists because candle 2 moved so fast that price was never properly "auctioned" in that zone. Markets tend to return to fill these gaps because they represent inefficiency.
Bullish Fair Value Gap
A bullish FVG forms during an impulsive move UP:
BULLISH FVG (3-candle pattern):
┌───┐
│ │ Candle 3
│ 3 │
─ ─ ─┴───┴─ ─ ─ Candle 3 LOW
═══════════════ ← BULLISH FVG
═══ THE GAP ═══ ← (between C1 high
═══════════════ ← and C3 low)
─ ─ ─┬───┬─ ─ ─ Candle 1 HIGH
│ │
│ 2 │ Candle 2 (the big mover)
│ │
┌────┴───┴────┐
│ │
┌───┐│ │
│ ││ │
│ 1 ││ │
│ │
└───┘
The FVG = the space between Candle 1's HIGH and Candle 3's LOW
This zone was never properly traded — expect price to return here
Bearish Fair Value Gap
A bearish FVG forms during an impulsive move DOWN:
BEARISH FVG (3-candle pattern):
┌───┐
│ │
│ 1 │ Candle 1
│ │
┌─────────────┐
│ │
┌───┐│ │
│ ││ │
│ 2 ││ │ Candle 2 (the big mover)
│ │
─ ─ ─┬───┬─ ─ ─ Candle 1 LOW
═══════════════ ← BEARISH FVG
═══ THE GAP ═══ ← (between C1 low
═══════════════ ← and C3 high)
─ ─ ─┴───┴─ ─ ─ Candle 3 HIGH
│ │
│ 3 │ Candle 3
│ │
└───┘
The FVG = the space between Candle 1's LOW and Candle 3's HIGH
This zone was never properly traded — expect price to return here
How FVGs Act as Support/Resistance
After an FVG forms, price tends to return to fill the gap before continuing in the original direction. The FVG acts as:
- Support (for bullish FVGs) — price pulls back into the gap and bounces up
- Resistance (for bearish FVGs) — price rallies into the gap and gets rejected down
FVG AS SUPPORT (Bullish FVG Fill):
/\
/ \
/ \
/ \
/ \
/ \
/ ══════\════════ ← Bullish FVG zone
/ ══════ \═══════
/ ════════\══════ Price pulls back into FVG
/ \ / and BOUNCES
\/ <-- Reaction at FVG
/
/
/ (continues up)
/
Consequent Encroachment (CE)
Consequent Encroachment (CE) is the 50% midpoint of a Fair Value Gap. ICT teaches that price often reacts at the CE level rather than filling the entire FVG. This is a more precise level for entries.
CONSEQUENT ENCROACHMENT:
─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ FVG TOP (Candle 3 low)
═══════════════════════════════
═══════════════════════════════
═ ═ ═ ═ ═ CE (50%) ═ ═ ═ ═ ═ ═ <-- Consequent Encroachment
═══════════════════════════════ Price often reacts HERE
═══════════════════════════════ (not at the full FVG top/bottom)
─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ FVG BOTTOM (Candle 1 high)
Trading application:
- For bullish FVGs, place limit buy orders at or near the CE (50% of FVG)
- For bearish FVGs, place limit sell orders at or near the CE (50% of FVG)
- Use the far edge of the FVG as your invalidation (stop loss) level
FVG Inversion
An FVG inversion occurs when a Fair Value Gap that previously acted as support gets broken and now acts as resistance (or vice versa). This is similar to the concept of "broken support becomes resistance" but applied specifically to FVG zones.
FVG INVERSION (Bullish FVG becomes Bearish):
BEFORE (FVG acts as support):
/\
/ \
/ \
══════/══════\══════ ← Bullish FVG
══════════════\═════ (price bounces here)
/ \ /
/ \/
AFTER (FVG gets broken and inverted):
/\
/ \
═════════/════\═════ ← SAME FVG now acts as RESISTANCE
════════/══════\════ (price rejected here)
/ \
/ \
/ \ (price broke through FVG and
/ \ now it resists from below)
When does FVG inversion happen?
- When the trend changes direction
- When a stronger opposing force overpowers the original FVG
- Often occurs after a Change of Character (CHoCH)
How to trade FVG inversions:
- Mark FVGs that were previously respected as support/resistance
- If price breaks through them convincingly, anticipate a retest from the other side
- The inverted FVG becomes a new zone for entries in the opposite direction
5. Breaker Blocks — Failed Order Blocks That Flip
A Breaker Block is an order block that failed — price returned to the order block zone, broke through it, and now the zone has "flipped" from support to resistance (or vice versa). Breakers are powerful because they represent areas where trapped traders will be looking to exit.
How Breaker Blocks Form
BREAKER BLOCK FORMATION (Bullish Breaker):
Step 1: Bearish OB forms (last bullish candle before drop)
┌──────┐
│ OB │ <-- Bearish Order Block
│ (Bull│ (should act as resistance)
│candle│
└──────┘
\
\
\ (price drops = displacement)
Step 2: Price returns and BREAKS THROUGH the OB
/
/
/
┌──/───┐
│ / OB │ <-- Price breaks THROUGH the OB
│/ ZONE│ (OB FAILED as resistance)
/ │
/───────┘
/
Step 3: The broken OB is now a BREAKER BLOCK (support)
/\
/ \
/ \
/ \
/ \
┌────\─┐
│ BRKR │ <-- BREAKER BLOCK
│(now │ Now acts as SUPPORT
│supp) \ (the flip!)
└──────/\
/ \
/ (bounces off breaker)
Bullish Breaker Block
A bullish breaker forms when:
- A bearish order block exists (supply zone)
- Price breaks UP through that order block with displacement
- The broken bearish OB now becomes a demand zone (support)
Why it works: Traders who sold at the original bearish OB are now trapped. When price returns to the level, they close their losing shorts (buying to cover), which provides buying pressure that supports price.
Bearish Breaker Block
A bearish breaker forms when:
- A bullish order block exists (demand zone)
- Price breaks DOWN through that order block with displacement
- The broken bullish OB now becomes a supply zone (resistance)
Why it works: Traders who bought at the original bullish OB are now trapped. When price returns to the level, they close their losing longs (selling to exit), which provides selling pressure that resists price.
How to Trade Breaker Blocks
| Step | Action |
|---|---|
| 1 | Identify a valid order block that was previously respected |
| 2 | Watch for price to break through the OB with displacement (strong move + FVG) |
| 3 | Mark the broken OB as a breaker block |
| 4 | Wait for price to return (retest) the breaker zone |
| 5 | Enter in the direction of the break (if bullish break, go long at the breaker) |
| 6 | Place SL on the opposite side of the breaker zone |
| 7 | Target the next liquidity pool or opposing order block |
Breaker blocks are high-probability zones because they combine:
- Trapped traders exiting (providing order flow in your direction)
- Institutional interest (the break required smart money participation)
- Clear invalidation (if price breaks back through the breaker, the thesis is wrong)
6. Optimal Trade Entry (OTE) — Fibonacci-Based ICT Method
The Optimal Trade Entry (OTE) is ICT's method for finding the best price to enter a trade within a pullback. It uses Fibonacci retracement levels to identify the "sweet spot" where price is most likely to reverse and continue in the trend direction.
The OTE Zone: 0.618 to 0.786 Fibonacci Retracement
ICT teaches that the optimal area to enter a trade during a pullback is between the 61.8% and 78.6% Fibonacci retracement levels. This zone represents the area where institutional participants commonly reload their positions.
OTE ZONE (Bullish Example — buying the pullback):
Swing High ─────────────── 0.0 (0%)
│
│ 0.236 (23.6%)
│
│ 0.382 (38.2%)
│
│ 0.5 (50%)
│
│ ┌──────────────┐ 0.618 (61.8%)
│ │ │
│ │ OTE ZONE │ ← ENTER HERE
│ │ (Sweet Spot) │
│ │ │
│ └──────────────┘ 0.786 (78.6%)
│
│ 0.886 (88.6%)
│
Swing Low ──────────────── 1.0 (100%)
The OTE zone (0.618 - 0.786) is where institutions
typically re-enter after an impulsive move.
If price goes beyond 0.786, the setup weakens.
If price goes beyond 1.0 (100%), the setup is INVALID.
How to Use OTE in Practice
Step-by-step for a bullish OTE entry:
- Identify a bullish impulsive move (displacement up with FVG)
- Wait for price to pull back
- Draw Fibonacci from the swing low to the swing high of the move
- Look for price to reach the 0.618-0.786 zone
- Look for confluence with order blocks or FVGs in that zone
- Enter long with SL below the swing low (or below the 0.786 level)
Step-by-step for a bearish OTE entry:
- Identify a bearish impulsive move (displacement down with FVG)
- Wait for price to pull back UP
- Draw Fibonacci from the swing high to the swing low of the move
- Look for price to reach the 0.618-0.786 zone
- Look for confluence with order blocks or FVGs in that zone
- Enter short with SL above the swing high (or above the 0.786 level)
Combining OTE with Order Blocks and FVGs
The highest probability entries occur when the OTE zone overlaps with an order block or fair value gap. This is called confluence.
OTE + OB + FVG CONFLUENCE:
Swing High ─────────────── 0.0
0.382
0.5
┌────────────────┐ 0.618
│ ═══ FVG ═══ │
│ ┌──────────┐ │ ← OTE zone + FVG + OB
│ │ ORDER │ │ = TRIPLE CONFLUENCE
│ │ BLOCK │ │ = HIGH PROBABILITY ENTRY
│ └──────────┘ │
│ ═══════════ │
└────────────────┘ 0.786
Swing Low ──────────────── 1.0
When OTE zone, OB, and FVG all overlap:
This is the BEST possible entry location.
Place your limit order in this zone and wait.
| Confluence Level | Components | Probability |
|---|---|---|
| Single | OTE zone only | Moderate |
| Double | OTE + OB, or OTE + FVG | Good |
| Triple | OTE + OB + FVG | Excellent |
| Quad | OTE + OB + FVG + HTF level | Outstanding |
7. ICT Kill Zones — Time-Based Setups
ICT places significant emphasis on time — not just price. Institutional activity is concentrated during specific windows of the trading day, known as Kill Zones. Trading during these windows dramatically increases the probability of catching real institutional moves.
Why Time Matters
Institutions don't trade randomly throughout the day. Major banks and hedge funds are most active during their business hours, particularly during session opens and overlaps. The largest volume and most significant price moves happen during predictable windows.
The four key sessions and their kill zones:
24-HOUR TRADING DAY (GMT):
00:00 ─────── ─ ASIAN SESSION ──────── 09:00
├─ Asian Range ─┤
00:00 06:00
(Accumulation / Range-building)
07:00 ──── LONDON KILL ZONE ──── 10:00
(First major expansion)
12:00 ──── NEW YORK KILL ZONE ── 15:00
(Highest volume period)
14:00 ──── LONDON CLOSE ──────── 16:00
(Reversals / profit-taking)
Asian Session (Accumulation Phase)
| Time (GMT) | 00:00 - 06:00 (approximately) |
|---|---|
| Character | Low volatility, range-bound, consolidation |
| What happens | Smart money builds positions quietly while most Western traders sleep |
| Your action | Mark the Asian session high and low — these become liquidity targets for London |
ASIAN SESSION RANGE:
Asian High ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ BSL (liquidity above)
┌──────────────────────────┐
│ │
│ Price consolidates │ Low volatility
│ in a tight range │ Building liquidity
│ during Asian hours │ on both sides
│ │
└──────────────────────────┘
Asian Low ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ SSL (liquidity below)
London will likely SWEEP one side before trending the other way
London Open Kill Zone (07:00 - 10:00 GMT)
| Time (GMT) | 07:00 - 10:00 |
|---|---|
| Character | First major expansion of the day — high volatility |
| What happens | London traders sweep the Asian session range (take liquidity), then establish the day's direction |
| Your action | Watch for a sweep of the Asian high or low, then enter in the opposite direction |
This is where the Judas swing often happens (see Power of Three section below). London may fake out one direction by sweeping the Asian range, then reverse sharply.
New York Open Kill Zone (12:00 - 15:00 GMT)
| Time (GMT) | 12:00 - 15:00 |
|---|---|
| Character | Highest volume period — London/NY overlap |
| What happens | NY traders enter, often continuing London's direction OR creating a reversal |
| Your action | Best setups occur when NY confirms London's direction; be cautious of reversals at this overlap |
The New York Kill Zone is the most liquid period of the day. This is where the biggest moves happen and where institutions move the most capital.
London Close (14:00 - 16:00 GMT)
| Time (GMT) | 14:00 - 16:00 |
|---|---|
| Character | Profit-taking, reversals, reduced momentum |
| What happens | London traders close positions, often causing price to retrace |
| Your action | Use this for taking profits on intraday trades; can also catch reversal setups |
Kill Zone Summary Table
| Kill Zone | Time (GMT) | Best For | Avoid If... |
|---|---|---|---|
| Asian | 00:00-06:00 | Marking range highs/lows | You want to trade — usually too slow |
| London Open | 07:00-10:00 | Catching the daily direction after a liquidity sweep | You missed the sweep |
| NY Open | 12:00-15:00 | High-probability continuation or reversal trades | Major news events are imminent |
| London Close | 14:00-16:00 | Taking profits, counter-trend scalps | You are trying to start new swing positions |
8. Power of Three (AMD) — ICT's Daily Template
The Power of Three is ICT's model for how price moves within a single trading day (or session). It describes three phases: Accumulation, Manipulation, and Distribution. Understanding this pattern helps you avoid entering during the manipulation phase and instead trade during the distribution phase.
The Three Phases
A = Accumulation: Smart money quietly builds positions (usually during the Asian session). Price consolidates in a tight range.
M = Manipulation: Smart money pushes price in the WRONG direction to trigger stop losses and trap retail traders. This is the Judas swing — a fake move designed to create liquidity.
D = Distribution: The REAL move. After grabbing liquidity during manipulation, price moves strongly in the intended direction. This is where smart money distributes their position into profit.
POWER OF THREE — BULLISH DAY:
Price
^
| D
| /
| /
| /
| / DISTRIBUTION
| / (Real move UP)
| /
| A /
| ┌─────┐ /
| │ │ /
| │ ACC │──────────/
| │ │ /
| └─────┘ /
| \/ M
|
| MANIPULATION
| (Fake move DOWN
| to grab SSL)
|
└──────────────────────────────────────> Time
Asian London New York
POWER OF THREE — BEARISH DAY:
Price
^
| MANIPULATION
| (Fake move UP
| to grab BSL)
| /\ M
| ┌─────┐ /
| │ │/
| │ ACC │──────────\
| │ │ \
| └─────┘ \
| A \
| \
| \ DISTRIBUTION
| \ (Real move DOWN)
| \
| \
| \
| D
└──────────────────────────────────────> Time
Asian London New York
The Judas Swing
The Judas swing is ICT's term for the manipulation phase. Named after the biblical betrayal, the Judas swing is a deceptive move that tricks retail traders into entering the wrong direction.
How the Judas swing works:
- Asian session creates a range (accumulation)
- At London open, price breaks out ONE side of the range (manipulation)
- Retail traders see the "breakout" and enter in that direction
- Price immediately reverses, stops out the retail traders, and moves the OTHER way (distribution)
JUDAS SWING (Bullish Day):
Asian Range
┌────────────┐
│ │
│ Quiet │
│ range │ London sweeps BELOW the range
│ │ (Judas swing)
└────────────┘ |
| v
| \
| \ / ← SSL swept (retail longs stopped)
| \/ ← Smart money BUYS here
| |
| /
| /
| / ← Real move begins (distribution)
| /
| /
| /
/ ← Price runs ABOVE the Asian high
/ and continues trending up all day
How to trade the Judas swing:
| Step | Action |
|---|---|
| 1 | Mark the Asian session high and low before London open |
| 2 | At London open, watch for a sweep of the Asian low (for bullish) or high (for bearish) |
| 3 | Wait for reversal confirmation (CHoCH on 5m/15m) |
| 4 | Enter in the opposite direction of the sweep |
| 5 | Target: the opposite side of the Asian range, then beyond |
AMD on Different Timeframes
The Power of Three pattern does not only apply to daily candles. It appears on every timeframe:
| Timeframe | Accumulation | Manipulation | Distribution |
|---|---|---|---|
| Weekly | Monday-Tuesday range | Wednesday sweep/reversal | Thursday-Friday trending |
| Daily | Asian session | London open sweep | NY session trend |
| 4H | First 4H candle range | Second candle sweep | Third+ candle trending |
| 1H | First 15-20 min range | Sweep outside range | Trending for rest of hour |
9. Step-by-Step ICT/SMC Trading Strategy
Now we bring everything together into a complete, actionable trading strategy. Follow these steps in order for every trade setup.
Step 1: Identify Higher Timeframe Bias (Daily / 4H)
Goal: Determine whether you should be looking for longs or shorts today.
Open your Daily chart and answer:
☐ What is the current market structure? (HH/HL = bullish, LH/LL = bearish)
☐ Has there been a recent BOS? In which direction?
☐ Has there been a recent CHoCH? (Potential reversal?)
☐ Where are the nearest BSL and SSL pools?
☐ Where are unfilled FVGs on the Daily?
☐ Is price above or below key moving averages?
Decision matrix:
| Daily Structure | 4H Structure | Your Bias |
|---|---|---|
| Bullish (HH/HL) | Bullish (HH/HL) | Strong bullish — only look for longs |
| Bullish | Pulling back (making LH/LL) | Bullish with caution — wait for 4H CHoCH back bullish |
| Bearish (LH/LL) | Bearish (LH/LL) | Strong bearish — only look for shorts |
| Bearish | Pulling back (making HH/HL) | Bearish with caution — wait for 4H CHoCH back bearish |
| Ranging | Either | No clear bias — wait or trade range edges only |
Step 2: Mark Key Liquidity Levels
On your 4H and 1H charts, identify and mark:
☐ Major BSL levels (swing highs where shorts have stops)
☐ Major SSL levels (swing lows where longs have stops)
☐ Equal highs (double/triple tops = high-priority BSL)
☐ Equal lows (double/triple bottoms = high-priority SSL)
☐ Previous day/week high and low (key liquidity levels)
☐ Untapped order blocks (bullish and bearish)
☐ Unfilled Fair Value Gaps
MARKED CHART EXAMPLE:
BSL $$$ ─ ─ ─ ─ ─ ─ Previous Week High ─ ─ ─ ─ ─ ─
BSL $$$ ─ ─ ─ ─ ─ ─ Equal Highs ─ ─ ─ ─ ─ ─ ─ ─ ─
┌──────┐ ← Bearish OB (potential resistance)
│ B-OB │
└──────┘
══════ Bearish FVG ══════
~~~~~~~~~~~~~ Current Price ~~~~~~~~~~~~~
══════ Bullish FVG ══════
┌──────┐ ← Bullish OB (potential support)
│ B-OB │
└──────┘
SSL $$$ ─ ─ ─ ─ ─ ─ Equal Lows ─ ─ ─ ─ ─ ─ ─ ─ ─
SSL $$$ ─ ─ ─ ─ ─ ─ Previous Week Low ─ ─ ─ ─ ─ ─
Step 3: Wait for a Liquidity Sweep
This is where patience is required. You are waiting for price to sweep a key liquidity level — taking out stops before reversing.
What to watch for:
| Signal | Description |
|---|---|
| Price approaches a marked liquidity level | Switch to lower timeframe (15m/5m) |
| Wick through the level | Price pokes through, triggering stops |
| Strong rejection | Quick reversal candle with a long wick |
| Volume spike | High volume on the sweep candle = institutional activity |
Do NOT enter yet. The sweep alone is not enough. You need confirmation on the lower timeframe.
Step 4: Find CHoCH on Lower Timeframe (15m / 5m)
After the liquidity sweep, drop to your 15m or 5m chart and look for a Change of Character (CHoCH) — the first break of structure against the sweep direction.
LIQUIDITY SWEEP + LTF CHoCH (Bullish Example):
15m Chart after SSL sweep:
\
\ LH
\ /\
\ / \ LH
\/ \ /\
LL \ / \
SSL ─ ─ ─ ─ ─ ─ V ─ ─\─ ─ ─ ─ ─ ─ <-- Sweep occurs here
LL \
\ CHoCH!
\ /\ ─ ─ ─ ─ (breaks above last LH)
\ / \
\/ \ /\
LL \ / \
\/ \ /
HL \/
HL
Sweep + CHoCH = Smart money has reversed
NOW you can look for entry
CHoCH confirmation checklist:
☐ Liquidity was swept (wick through key level)
☐ Price reversed sharply (strong rejection candle)
☐ First break of structure against sweep direction occurred (CHoCH)
☐ A BOS follows the CHoCH (double confirmation)
Step 5: Identify Order Block + FVG Confluence
After the CHoCH, look for an order block and/or fair value gap that formed during the reversal. This is where you will enter.
What to look for:
| Element | How to Find It |
|---|---|
| Order Block | The last opposing candle before the CHoCH displacement |
| Fair Value Gap | The gap between candle 1 and candle 3 wicks in the displacement |
| Confluence | Does the OB sit within or overlap with the FVG? |
FINDING YOUR ENTRY ZONE:
After the sweep and CHoCH:
/
/ BOS (continuation)
/
/\ /
/ \/ <-- Pullback
/
─────/────── CHoCH level
/
┌──/─────────┐
│ / ══FVG═══ │ <-- Entry zone:
│/ ┌─────┐ │ OB + FVG in OTE zone
/ │ OB │ │ = high confluence
/ └─────┘ │
/──────────────┘
/
/ <-- Displacement from sweep
V
SWEEP
Step 6: Entry at OTE Zone
Draw your Fibonacci retracement from the swing low (the sweep wick) to the swing high (the CHoCH point or the BOS high).
Enter when price pulls back into the OTE zone (0.618-0.786) and this zone aligns with your identified order block and/or FVG.
ENTRY EXECUTION:
CHoCH / BOS High ────── 0.0 (Fib top)
│
│ 0.382
│
│ 0.5
│
│ ┌────────────┐ 0.618
│ │ OTE ZONE │
│ │ + OB + FVG │ ← LIMIT BUY ORDER HERE
│ │ = ENTRY │
│ └─────────── ─┘ 0.786
│
Sweep Low ──────────── 1.0 (Fib bottom)
Entry methods:
| Method | How | Risk | Reward |
|---|---|---|---|
| Limit order at OTE | Place a limit order at the 0.618-0.705 level | Lower risk of missing entry | Better price, better R:R |
| Market order on LTF confirmation | Wait for a bullish candle to form at OTE level | May get slightly worse price | More confirmation, fewer fake-outs |
Step 7: Stop Loss Below/Above Order Block
Your stop loss goes beyond the order block and beyond the sweep wick. If price reaches past these levels, your entire thesis is invalidated.
For longs (after SSL sweep):
SL PLACEMENT (Long):
Entry ──────── OTE zone (0.618-0.786)
│
OB Low ─────── Bottom of order block
│
Sweep Wick ─── The lowest point of the liquidity sweep
│
│ (buffer = 0.5 x ATR or a few pips)
│
STOP LOSS ──── Below the sweep wick + buffer
If price reaches your SL:
= The sweep was NOT a reversal, it was a real breakdown
= Your analysis was wrong — accept the loss
For shorts (after BSL sweep):
SL PLACEMENT (Short):
STOP LOSS ──── Above the sweep wick + buffer
│
│ (buffer = 0.5 x ATR or a few pips)
│
Sweep Wick ─── The highest point of the liquidity sweep
│
OB High ────── Top of order block
│
Entry ──────── OTE zone (0.618-0.786)
Step 8: Target the Next Liquidity Pool
Your take profit should be at the next significant liquidity pool in the direction of your trade. Smart money is moving price FROM one liquidity pool TO another.
TARGETING (Long Example):
TARGET 2 ─ ─ ─ ─ BSL above equal highs ─ ─ ─ (close remaining)
│
TARGET 1 ─ ─ ─ ─ BSL above recent swing high ─ (close 50%)
│
│ ← Direction of trade (UP)
│
ENTRY ──────── OTE + OB + FVG zone
│
STOP LOSS ──── Below sweep wick
│
SSL (swept) ── This was the fuel for the move
Target selection priority:
| Priority | Target Type | Probability of Being Hit |
|---|---|---|
| 1 | Nearest opposing order block | Highest |
| 2 | Nearest unfilled FVG (opposite side) | High |
| 3 | Next swing high/low (BSL/SSL) | High |
| 4 | Equal highs/lows | Moderate-High |
| 5 | Previous day/week high or low | Moderate |
| 6 | Measured move (1:1 of the displacement) | Moderate |
Risk Management Rules
| Rule | Guideline |
|---|---|
| Risk per trade | 1-2% of account balance maximum |
| Maximum daily loss | 3-5% — stop trading if hit |
| Maximum concurrent trades | 2-3 (fewer in correlated markets) |
| Minimum R:R | 1:2 (ideally 1:3 or better) |
| Always use a stop loss | No exceptions — ever |
| Move SL to breakeven | After price moves 1R in your favor |
| Scale out | Take partial profits at each target |
Position size formula:
Position Size = (Account Balance x Risk %) / (Entry - Stop Loss)
EXAMPLE:
Account = $10,000
Risk = 1% = $100
Entry = 1.0850 (forex pair)
SL = 1.0820
Distance = 30 pips = $300 per standard lot
Position Size = $100 / $300 = 0.33 lots
10. ICT/SMC Trading Checklist
Use this checklist before EVERY trade. Print it out or keep it next to your trading screen.
Pre-Trade Checklist
| # | Check | Status |
|---|---|---|
| 1 | HTF Bias determined (Daily/4H market structure analyzed) | ☐ |
| 2 | Key liquidity levels marked (BSL, SSL, equal highs/lows) | ☐ |
| 3 | Order blocks identified (bullish and bearish OBs on HTF) | ☐ |
| 4 | Fair Value Gaps marked (unfilled FVGs on HTF and LTF) | ☐ |
| 5 | Kill Zone timing (trading during London or NY kill zone) | ☐ |
| 6 | No major news in the next 30 minutes | ☐ |
| 7 | Mental state check (calm, focused, not emotional) | ☐ |
Entry Checklist
| # | Check | Status |
|---|---|---|
| 1 | Liquidity swept (price took out BSL or SSL) | ☐ |
| 2 | CHoCH confirmed on LTF (15m/5m structure shift) | ☐ |
| 3 | Order block identified (last opposing candle before displacement) | ☐ |
| 4 | FVG present (imbalance confirms displacement) | ☐ |
| 5 | OTE zone (entry at 0.618-0.786 retracement) | ☐ |
| 6 | Confluence (OTE + OB + FVG overlap) | ☐ |
| 7 | Aligned with HTF bias (not counter-trend) | ☐ |
Trade Management Checklist
| # | Check | Status |
|---|---|---|
| 1 | Stop loss placed below/above OB and sweep wick | ☐ |
| 2 | Position size calculated (1-2% risk maximum) | ☐ |
| 3 | R:R confirmed at least 1:2 | ☐ |
| 4 | Target 1 set at nearest opposing liquidity/OB/FVG | ☐ |
| 5 | Target 2 set at next liquidity pool | ☐ |
| 6 | Plan for SL to breakeven after 1R move | ☐ |
| 7 | Trade journaled (screenshot, reasoning, levels) | ☐ |
Quick Decision Flowchart
START
│
v
Is HTF bias clear? (Daily/4H structure)
│
├── NO ──> WAIT. No trade today.
│
YES
│
v
Is price near a key liquidity level?
│
├── NO ──> Set alerts and WAIT.
│
YES
│
v
Has liquidity been swept? (Wick through level)
│
├── NO ──> WAIT for the sweep.
│
YES
│
v
Is there a CHoCH on LTF? (15m/5m)
│
├── NO ──> WAIT for structure shift.
│
YES
│
v
Is there an OB + FVG in the OTE zone?
│
├── NO ──> Look for at least OB OR FVG.
│ If neither, SKIP this setup.
│
YES
│
v
Is R:R at least 1:2?
│
├── NO ──> SKIP. Risk too high for the reward.
│
YES
│
v
ENTER THE TRADE
│
v
Set SL, TP1, TP2 ──> Manage according to plan
11. Common Mistakes and Advanced Tips
Common Mistakes (and How to Fix Them)
| # | Mistake | Why It Happens | The Fix |
|---|---|---|---|
| 1 | Trading every OB and FVG | Seeing patterns everywhere without context | Only trade OBs/FVGs that align with HTF bias AND have liquidity sweep |
| 2 | Ignoring HTF structure | Wanting to trade on LTF without checking the bigger picture | ALWAYS start from Daily/4H before dropping to 15m/5m |
| 3 | Entering before the sweep | Anticipating the liquidity grab instead of waiting for it | Wait for the WICK through the level — never front-run |
| 4 | No CHoCH confirmation | Entering at OB/FVG without structural confirmation | Require CHoCH before looking for entry — no exceptions |
| 5 | Trading against HTF trend | Trying to catch reversals on LTF | Only trade in the direction of HTF bias (unless HTF CHoCH occurs) |
| 6 | Stop loss too tight | Placing SL at the edge of the OB instead of beyond the sweep | SL must go BELOW the sweep wick (for longs) + buffer |
| 7 | Chasing price after missing entry | FOMO when OTE pullback was missed | If you missed OTE, wait for the NEXT setup — never chase |
| 8 | Overtrading | Taking 5-10 trades per day | Aim for 1-3 high-quality setups per day maximum |
| 9 | Ignoring kill zones | Trading during low-volume periods | Restrict entries to London Open and NY Open kill zones |
| 10 | Not journaling | Thinking journaling is a waste of time | Every trade teaches something — journaling is how you extract the lesson |
Advanced Tips
1. Look for liquidity to liquidity moves:
Smart money moves price FROM one liquidity pool TO another. Once SSL is swept, the next target is BSL (and vice versa). Your trade is simply riding this movement.
LIQUIDITY TO LIQUIDITY:
BSL $$$ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ── TARGET (take profit here)
^
|
| Smart money moves price
| from SSL to BSL
|
|
SSL $$$ ─ ─ ─ ─ ─ ─ ─ ─ ─ ─ ── SWEPT (enter after sweep)
2. Use the "Turtle Soup" concept:
When a liquidity sweep happens on one timeframe, drop to a lower timeframe and look for the same pattern fractal. A sweep on the 1H might show as an entire AMD cycle on the 5m chart.
3. Pay attention to displacement quality:
Not all displacements are equal. The BEST displacements have:
- Multiple consecutive candles in one direction (3+ candles)
- Large candle bodies with small wicks
- Fair Value Gaps created during the move
- Structure broken (BOS)
- Significant volume increase
4. The "First Presented FVG" is often the best:
After a liquidity sweep and CHoCH, the FIRST fair value gap that forms is usually the most reliable. This is the initial institutional push, and price tends to return to fill this gap before continuing.
5. Mitigation vs. Continuation OBs:
| Type | Context | How to Trade |
|---|---|---|
| Mitigation OB | The OB from the LOSING side (the move that created the sweep) | Use for REVERSAL entries (after sweep) |
| Continuation OB | An OB that forms during the new trend AFTER CHoCH | Use for PULLBACK entries (with the new trend) |
6. Multi-timeframe FVG stacking:
When FVGs on multiple timeframes overlap (e.g., a Daily FVG and a 4H FVG in the same zone), this creates an exceptionally strong level. Price is very likely to react at these stacked imbalances.
7. Session liquidity sweeps as daily bias:
If London sweeps the Asian low (SSL), the daily bias is likely bullish (expect price to target BSL above). If London sweeps the Asian high (BSL), the daily bias is likely bearish (expect price to target SSL below).
12. Practice Exercises
These exercises will help you develop your eye for ICT/SMC concepts. Use a charting platform like TradingView and apply these on any liquid market (forex majors, indices, crypto, etc.).
Exercise 1: Market Structure Identification
Goal: Practice identifying BOS and CHoCH on real charts.
Instructions:
- Open a 1H chart of any forex pair (e.g., EUR/USD)
- Go back 2 weeks in time
- Identify and label every swing high and swing low
- Mark every BOS (continuation) with a horizontal line and label "BOS"
- Mark every CHoCH (reversal) with a horizontal line and label "CHoCH"
- Answer: How many trend changes occurred in 2 weeks? How many continuation signals?
What to look for:
☐ Did BOS signals correctly predict continuation?
☐ Did CHoCH signals correctly predict reversals?
☐ Were there any false CHoCH signals (price reversed back)?
☐ How many candles after CHoCH did the new trend confirm?
Exercise 2: Liquidity Sweep Journal
Goal: Build pattern recognition for liquidity sweeps.
Instructions:
- Open a 15m chart of any market during London or NY kill zone
- Mark the previous session's high and low
- Watch for price to sweep above the high or below the low
- Record every sweep in a journal with:
Date: _______
Market: _______
Session: London / NY
Level Swept: High / Low
Wick size (pips/points): _______
Did price reverse after? Yes / No
How many candles until CHoCH? _______
Was there an FVG on the displacement? Yes / No
Would this have been a valid entry? Yes / No
Screenshot: [attach]
Do this for 2 weeks (10 trading days). By the end, you will have a strong sense of how often sweeps lead to reversals and what the best sweeps look like.
Exercise 3: Order Block and FVG Mapping
Goal: Practice identifying valid order blocks and fair value gaps.
Instructions:
- Open a 4H chart and find a strong impulsive move (3+ candles in one direction)
- Identify the order block (last opposing candle before the move)
- Identify any Fair Value Gaps within the impulsive move
- Mark the OTE zone (0.618-0.786 Fibonacci retracement)
- Check: Does the OB overlap with the FVG? Does either fall within the OTE zone?
- Wait and observe: When price pulls back, does it react at these levels?
Record your findings:
| # | Market | OB Level | FVG Range | OTE Zone | Confluence? | Price Reacted? |
|---|---|---|---|---|---|---|
| 1 | Y/N | Y/N | ||||
| 2 | Y/N | Y/N | ||||
| 3 | Y/N | Y/N | ||||
| 4 | Y/N | Y/N | ||||
| 5 | Y/N | Y/N |
Do this for 10 impulsive moves. Analyze the results: How often does confluence improve the reaction rate?
Exercise 4: Power of Three Daily Template
Goal: Understand the AMD (Accumulation-Manipulation-Distribution) cycle on daily charts.
Instructions:
- Open a 5m or 15m chart
- Mark the Asian session range (00:00-06:00 GMT) for each day
- Observe what happens at London open (07:00 GMT):
- Does price sweep the Asian high or low?
- How many minutes after the open does the sweep occur?
- After the sweep, observe:
- Does price reverse?
- Does it trend for the rest of the session?
- Record the AMD pattern:
Day: _______
Asian High: _______ Asian Low: _______
London swept: High / Low / Neither
Time of sweep: _______
Reversal occurred? Yes / No
CHoCH time: _______
Did distribution (trend) continue through NY? Yes / No
Do this for 5 consecutive trading days. Identify the success rate of the Power of Three template in your chosen market.
Exercise 5: Full Strategy Simulation (Paper Trade)
Goal: Execute the complete ICT/SMC strategy without risking real money.
Instructions:
- Choose one market and one kill zone (e.g., EUR/USD during London Open)
- Before the session, complete the pre-trade analysis:
- HTF bias (Daily/4H)
- Key liquidity levels marked
- Order blocks and FVGs identified
- During the kill zone, follow the step-by-step strategy:
- Wait for liquidity sweep
- Confirm CHoCH on LTF
- Find OB + FVG in OTE zone
- Enter with proper SL and TP
- Record EVERYTHING:
PAPER TRADE JOURNAL:
Date: _______
Market: _______
Kill Zone: _______
PRE-TRADE:
HTF Bias: Bullish / Bearish / Neutral
Key BSL levels: _______
Key SSL levels: _______
OBs marked: _______
FVGs marked: _______
EXECUTION:
Liquidity swept: BSL / SSL at level _______
CHoCH at time: _______
Entry: _______
SL: _______
TP1: _______
TP2: _______
Position size: _______
R:R: _______
RESULT:
Hit TP1? Y/N at time _______
Hit TP2? Y/N at time _______
Hit SL? Y/N at time _______
Final P&L: +___% / -___%
REVIEW:
What I did well: _______________________
What I would change: ___________________
Grade (A-F): _______
Do this for 20 trades minimum before considering live trading. Analyze your results:
☐ What is your win rate?
☐ What is your average R:R on winners?
☐ Which kill zone performs best?
☐ Which confluence pattern has the highest win rate?
☐ What is the most common mistake you make?
Glossary of ICT/SMC Terms
| Term | Abbreviation | Definition |
|---|---|---|
| Break of Structure | BOS | Price breaks a swing point in the direction of the current trend (continuation) |
| Change of Character | CHoCH | Price breaks a swing point AGAINST the current trend for the first time (reversal signal) |
| Buy-Side Liquidity | BSL | Stop loss orders resting above swing highs |
| Sell-Side Liquidity | SSL | Stop loss orders resting below swing lows |
| Order Block | OB | Last opposing candle before a strong impulsive move |
| Fair Value Gap | FVG | 3-candle imbalance where candle 1 and candle 3 wicks do not overlap |
| Consequent Encroachment | CE | The 50% midpoint of a Fair Value Gap |
| Optimal Trade Entry | OTE | The 0.618-0.786 Fibonacci retracement zone |
| Displacement | — | A strong impulsive move that creates FVGs and breaks structure |
| Breaker Block | — | A failed order block that flips from support to resistance (or vice versa) |
| Liquidity Sweep | — | Price reaching into a liquidity pool, triggering stops, then reversing |
| Kill Zone | KZ | High-probability time windows for institutional activity |
| Power of Three | AMD | Accumulation-Manipulation-Distribution daily cycle |
| Judas Swing | — | The manipulation phase — a fake move before the real move |
| Mitigation | — | When price returns to an OB or FVG to fill remaining orders |
| Higher Timeframe | HTF | The larger timeframe used for bias (Daily, 4H) |
| Lower Timeframe | LTF | The smaller timeframe used for entries (15m, 5m, 1m) |
| Equal Highs | EQH | Two or more swing highs at the same level (liquidity magnet) |
| Equal Lows | EQL | Two or more swing lows at the same level (liquidity magnet) |
| Smart Money | SM | Institutional participants (banks, hedge funds, market makers) |
| Internal Structure | — | Sub-structure within a larger swing move |
| External Structure | — | The major swing highs and lows on the primary timeframe |
| FVG Inversion | — | When a filled/broken FVG flips from support to resistance (or vice versa) |
| Market Structure Shift | MSS | Another term for Change of Character (CHoCH) |
Final Notes
1. Patience is the strategy. ICT/SMC is not about trading every candle. It is about waiting for specific conditions to align — liquidity sweep, structural shift, and confluence entry. Most days, the best trade is no trade.
2. The sweep is everything. If there is no liquidity sweep, there is no setup. Smart money needs liquidity to fill orders. Without the sweep, you are guessing.
3. Confluence increases probability. A single order block is decent. An order block inside an FVG inside the OTE zone is excellent. Stack as many factors as possible before entering.
4. Time and price must agree. The best setups occur during kill zones (London, NY). A perfect price setup during the Asian session is far less reliable than the same setup during London open.
5. Risk management is survival. No matter how confident you are in a setup, never risk more than 1-2% of your account. The market can be irrational longer than you can stay solvent.
6. Journal everything. The difference between a struggling trader and a consistently profitable one is often the journal. Review your trades weekly, identify patterns in your wins and losses, and iterate.
7. This is a skill, not a secret. ICT/SMC concepts are not a magic formula. They are a framework for understanding institutional order flow. Like any skill, proficiency comes from hundreds of hours of chart time, deliberate practice, and honest self-assessment.
This guide is for educational purposes only. Trading involves significant risk of loss. Past performance does not guarantee future results. Always practice with a demo account before risking real capital, and never trade with money you cannot afford to lose.