Best ICT Trading Strategy that works every time -ICT Setup Part 3

Introduction to Trading Strategies

In this section, the speaker introduces the importance of having a successful trading strategy and how it can enhance profitability and reduce risk exposure in the financial markets.

ABC Pattern

• An ABC pattern consists of three major waves of price in a bullish scenario.

• The pattern includes a rally wave upward, followed by a bearish retracement, and finally an upward C wave.

• A valid bearish ABC pattern occurs when the C wave sweeps the liquidity above the highest point of the A wave with only one candle or wick.

• A valid bullish ABC pattern occurs when the C wave sweeps the liquidity below the lowest point of the A wave with only one candle or wick.

Market Structure Shift

• Market structure levels are created by a series of higher highs and higher lows in a trending market.

• Breaking the last higher high to the upside indicates a break of structure, while breaking the higher low to the downside suggests a change in primary direction.

• A break of structure is valid even if there is a shadow above the previous structure level, but for a change of character, price must break and close below that level.

Fair Value Gaps

• Fair value gaps (FVGs) are zones created by inefficiency in the market where there is less trading activity.

• FVGs represent new trading opportunities and can become targets for entries or act as magnets for price to fill inefficiencies.

• They are formed inside a three-candle sequence and appear as large candles with non-overlapping upper and lower wicks compared to their neighbor candles' bodies.

Conclusion

The speaker concludes by summarizing key points about trading strategies, including understanding ABC patterns, market structure shifts, and fair value gaps. These concepts provide insights into entering and exiting trades in a manner that enhances profitability and reduces risk exposure.

Understanding the Gap Calculation

The gap in trading can only be calculated by considering the impulse up or down of the candle, as well as the candles on either side. Other factors do not contribute to the gap. These liquidity pockets are important and can act as strong entry points in the market.

Calculating the Gap

• The gap is determined by taking into account the impulse up or down of a candle and the surrounding candles.

• Liquidity pockets play a crucial role in determining entry points in the market.

Importance of Liquidity Zones

Liquidity zones above price levels where downward movement is expected can act as potential areas for price to rise. These areas are significant because after testing, if price continues to be bearish with even more strength, it indicates a strong entry opportunity.

Spotting Liquidity Zones

• Price tends to move downward and aims to sweep potential liquidity zones above it.

• These liquidity zones serve as areas where price may rise after testing.

• Traders need to identify valid ABC patterns and look for change of character signals.

Steps of the Trading Strategy

This trading strategy consists of four major steps: spotting a valid ABC pattern on the 15-minute timeframe, zooming into the 1-minute timeframe for a change of character signal, detecting fair value gaps near current price, and setting up buy or sell orders at entry points on the 1-minute timeframe.

Steps of the Strategy

1. Spot a valid ABC pattern on the 15-minute timeframe.

2. Zoom into the 1-minute timeframe and look for a change of character signal.

3. Detect fair value gaps close to current price.

4. Set up buy or sell orders at entry points on the 1-minute timeframe and wait for price activation.

Entry Points and Stop Loss/Take Profit Setup

Before applying the strategy to the price chart, it is important to understand the entry points and how to set up stop loss and take profit margins. The highest fair value gap closest to the liquidity sweep area has a higher priority for trading opportunities.

Entry Method

• Identify valid change of character signals on the 1-minute timeframe.

• Spot fair value gaps near the current price.

• Give priority to the highest fair value gap closest to the liquidity sweep area.

• Set sell limit orders at the lowest point of the fair value gap.

• Set stop loss a few pips above the first candle of the fair value gap.

• Set take profit margin at the lowest point of the B wave.

Moving Stop Loss and Taking Profits

In this trading strategy, it is recommended to move stop loss a few pips above each lower high as price makes lower highs in a bearish scenario. This allows traders to secure profits and minimize potential losses.

Managing Stop Loss and Taking Profits

• Move stop loss a few pips above each lower high as price decreases.

• Close half of your position when price reaches a 1:2 risk-to-reward ratio target.

• By moving stop loss, you can track profits even in a bearish scenario.

Applying Strategy in Real Trade Examples

Let's apply our strategy in real trade examples using different currency pairs on different timeframes. We will identify ABC patterns, change of character signals, fair value gaps, entry points, and observe how prices behave.

Example 1: EUR/USD 15-Minute Timeframe

• Identify ABC pattern (A wave, B wave, C wave).

• Confirm validity by checking if C wave sweeps below A wave's lowest point.

• Zoom into the 1-minute timeframe for change of character signal.

• Look for fair value gaps near current price.

• Set up sell limit order at the lowest point of the fair value gap.

• Set stop loss a few pips above the first candle of the fair value gap.

• Set take profit margin at the lowest point of the B wave.

Example 2: EUR/GBP 15-Minute Timeframe

• Identify ABC pattern (A wave, B wave, C wave).

• Confirm validity by checking if C wave sweeps above A wave's highest point.

• Zoom into the 1-minute timeframe for change of character signal.

• Look for fair value gaps near current price.

• Set up buy limit order at the highest zone of the fair value gap.

• Set stop loss a few pips below the first candle of the fair value gap.

• Set take profit margin at the highest point of the B wave.

Validating ABC Pattern and Market Structure Shift

To validate an ABC pattern, we need to ensure that price breaks a line drawn from A wave's highest point to current price. Additionally, we look for market structure shifts or changes in character to confirm trade setups.

Validating ABC Pattern

• Draw a line from A wave's highest point to current price.

• Price should break this line through upside movement and sweep liquidity above A wave with one candle or wick above it.

• Price should then drop below this line to confirm validity.

Market Structure Shift

• Look for broken structures caused by price touching and reversing from lines drawn from previous swing points.

• Validate market structure shift before setting up entry orders.

Setting Up Entry Order and Stop Loss/Take Profit

Once we have identified a valid ABC pattern and market structure shift, we can set up our entry order at the lowest fair value gap near the current price. Stop loss is placed a few pips below the first candle of the fair value gap, and take profit is set at the highest point of the B wave.

Entry Order Setup

• Identify lowest fair value gap near current price.

• Set up entry order at the highest zone of the fair value gap.

• Place stop loss a few pips below the first candle of the fair value gap.

• Set take profit at the highest point of the B wave.

Trade Example: EUR/USD

Let's analyze a trade example using EUR/USD on a 15-minute timeframe. We will follow all steps of our strategy, including identifying ABC pattern, market structure shift, fair value gaps, setting up entry orders, and observing price movement.

Trade Example Steps

1. Identify ABC pattern (A wave, B wave, C wave).

2. Confirm validity by checking if C wave sweeps below A wave's lowest point.

3. Zoom into 1-minute timeframe for change of character signal.

4. Look for lowest fair value gap near current price.

5. Set up entry order at highest zone of fair value gap.

6. Place stop loss a few pips below first candle of fair value gap.

7. Set take profit at highest point of B wave.

Trade Example: EUR/GBP

Let's analyze another trade example using EUR/GBP on a 15-minute timeframe. We will go through all steps of our strategy to identify ABC pattern, market structure shift, fair value gaps, set up entry orders, and observe price movement.

Trade Example Steps

1. Identify ABC pattern (A wave, B wave, C wave).

2. Confirm validity by checking if C wave sweeps above A wave's highest point.

3. Zoom into 1-minute timeframe for change of character signal.

4. Look for lowest fair value gap near current price.

5. Set up entry order at highest zone of fair value gap.

6. Place stop loss a few pips below first candle of fair value gap.

7. Set take profit at highest point of B wave.

The transcript is in English, so the summary and study notes are also provided in English.

New Section

The speaker discusses a change in market structure and identifies the highest fair value gap for placing a sell order. They explain how to set stop loss and take profit levels based on the fair value gap and B wave. The importance of canceling orders if price reaches certain points is emphasized, and the need for backtesting trading strategies is mentioned.

Identifying Market Structure Shift

• Price breaks and closes below the structure, indicating a valid change of character or market structure shift.

• Look for the highest fair value gap above the change of character level to place a sell order.

Placing Sell Order

• Set sell order at the lowest point of the fair value gap.

• Place stop loss a few pips above the first candle of the fair value gap.

• Determine take profit level by zooming into the 15-minute timeframe and selecting the lowest point of the B wave (around 0.882).

Canceling Orders

• If price reaches the highest or lowest point of the B wave without triggering buy or sell orders, cancel those orders as they become invalid.

Backtesting Strategies

• Before using trading strategies in a real account, backtest them for at least 100 trades and one year.

The transcript was provided in English, so all notes are written in English.