1. The Interbank Price Delivery Algorithm (IPDA)
ICT’s cornerstone is the belief that an algorithm – the IPDA – controls market prices, making them predictable for those who understand its mechanics. The IPDA’s primary goals are to:
- Engineer Liquidity: Manipulate price to target liquidity pools.
- Maintain Market Efficiency: Ensure prices reflect fair value over time.
Price isn’t dictated solely by trading volume but by programmed movements targeting liquidity above old highs and below old lows, as well as areas of inefficient price action.
2. Accumulation, Manipulation, and Distribution (AMD)
These phases illustrate how smart money positions itself:
- Accumulation: Price consolidates, accumulating orders above and below the range.
- Manipulation (Judas Swing): Price spikes to trigger stop orders, creating false signals.
- Distribution: Smart money offloads positions to willing buyers/sellers as price moves out of the consolidation zone.
Understanding AMD helps traders spot where institutions position themselves and anticipate reversals or continuations.
3. Fair Value Gaps (FVGs)
An FVG occurs when price moves too rapidly in one direction, leaving behind an imbalance. This gap between price bars represents a deviation from fair value and signals where price might return tore balance:
- Buyside Imbalance, Sellside Inefficiency (BISI): A rapid up move with insufficient sellside activity.
- Sellside Imbalance, Buyside Inefficiency (SIBI): A rapid down move with insufficient buy sideactivity.
Trading strategies often revolve around the potential for price to revisit and balance these areas.
4. Power of 3 (PO3)
The PO3 concept simplifies identifying potential market direction over a day. It breaks down a daily price bar into:
- Accumulation below the day’s open.
- Manipulation as price deviates from the opening price.
- Distribution where price aligns with its true daily trend.
This approach helps traders identify prime entry points based on where price is likely to gravitate during the trading day.
5. Order Blocks and Mitigation Blocks
Order blocks are significant as they mark areas where large institutional orders have influenced price:
- Bullish Order Blocks: Last down-close candle(s) before an uptrend begins, signaling potential buy zones.
- Mitigation Blocks: Previously invalidated order blocks that price returns to, allowing institutions to mitigate losses or reinforce positions.
These concepts assist traders in identifying strong support and resistance areas.
6. Killzones and Timing
Price moves are not random but influenced by specific times of day. ICT highlights key trading sessions or “killzones,” where significant price moves are likely:
- Asia Killzone: 8 PM – 12 AM EST
- London Killzone: 2 AM – 5 AM EST
- New York Killzone: 7 AM – 10 AM EST
- London Close: 10 AM – 12 PM EST
News and economic releases during these periods can catalyze significant price movements.
7. Premium vs. Discount
The dealing range, formed between new highs and lows, helps define zones:
- Premium (Above 50%): Ideal for selling.
- Discount (Below 50%): Ideal for buying.
This framework guides traders in identifying when to enter long or short positions, ensuring they operate within favorable market conditions.
Conclusion
ICT concepts provide a detailed roadmap for understanding market mechanics beyond surface-level technical analysis. By integrating ideas such as AMD phases, FVGs, and order blocks into trading strategies, traders can anticipate market behavior with higher precision. These tools represent not only the theory but also the essence of smart money trading – a perspective that shifts the focus from traditional indicators to a deeper understanding of price action and liquidity.
