Understanding the Concept of ICT Trading in Forex (2024)

Forex trading has come a long way from simple demand-based and minimalistic strategies. The increased global competition has forced traders to develop new and unique tactics to predict possible price movements and acquire a competitive edge. Today, the forex landscape is filled with fascinating strategies with varying levels of complexity and automation.

From margin and social trading to a theta gang strategy and numerous swap option tactics, the traders can adopt seemingly countless approaches to increase their chances of success. This article will dive into one of the most unique trading strategies that has gained popularity recently - the ICT trading strategies.

Initially founded by the first inner circle trader, Michael J Huddleston, the ICT trading methodology is a straightforward and price-oriented approach. This fresh outlook on the forex market states that price action is the only indicator that genuinely matters.

Thus, the ICT strategy promotes disregarding more abstract or indirect market trends and financial ratios since they often could become too theoretical instead of driving results.

In simple terms, the ICT strategy is all about following the price action. The underlying philosophy is that the price drives success regardless of all market concepts, investors' behaviours and intentions.

So, the price movements and swings should naturally be the most important metric to monitor, analyse and act on. Of course, the ICT tactics are much more complicated than following price action swings and similar movements.

Still, the general idea is simple - follow the price action, and you will do better than most.

The ICT trader strategy has gained massive momentum due to its ability to combine numerous useful concepts within the trading field. From trend indicators and price actions to stop-loss orders and mirror trading, ICT has accumulated the best practices in the market and constructed a generally foolproof system.

The flow of ICT is quite simple but demands a lot of technical expertise in the process. Traders must first choose a niche of their preference, where they will monitor the market and determine the tell-tale signs of change.

In simple terms, confluence zones represent the period where several different indicators are activated simultaneously. For example, if the Fibonacci retracement levels and moving averages signal the same market movement, it is classified as a confluence zone. Finally, it is all about setting appropriate stop-loss or take-profit orders, allowing traders to maximise profits and minimise losses wherever possible.

While the above-described system is simplified to grasp the ICT concept, it showcases the elegant relationship of various forex trading mechanisms. This is why ICT trading has transformed into a wildly profitable strategy and garnered popularity across the trading community.

Liquidity levels are vital in any tradable asset industry, and forex is no exception. The liquidity concentration can paint a realistic picture of how the market responds to various signals and what most traders are planning in the immediate future.

High liquidity metrics are mostly found at the very top of the price range, where the market witnesses an apex appreciation of a currency. Conversely, high liquidity can also be present on the selling side, where most traders plan to close their positions and activate stop-loss orders.

Following these patterns will allow ICT traders to stay ahead of the curve and understand where the market is heading in the next few days or weeks. With such information, traders can make profitable deals with significantly reduced risks.

Displacement is a strong price movement that is headed either up or down. This phenomenon is rare in stable markets and more common in emerging industries like crypto. When the price is firmly set on the displacement track, the ICT trading concept indicates that the market is heading toward big changes in either way.

While the displacement occurrence itself is not enough to cultivate strategies, it allows investors to know that the market could showcase the structure shift or the fair value gap. Let’s explore both of these concepts.

As the name suggests, the structure shift is a belief that the law of averages is bound to kick in at some point. When the displacement occurs, the asset prices either go up or down at a rapid clip. No technical analysis is required to understand that any asset is bound to reverse its pace after such a massive momentum boost.

The only exception is if an unprecedented event disrupts the market and causes a currency or an asset to either blow up or go below the historical minimum and stay there. In every other case, it is safe to assume that the prices will reverse quickly.

ICT trading guidelines state that traders should wait for the reversal. After that, they can safely assume that the price reversal will be dramatic and go on for quite a while, creating a ripple effect in the industry.

The fair value gap is another product of structural shifts, allowing ICT traders to benefit from the demand-supply gaps in the market and cultivate successful trades. When a modest value gap is apparent, demand is greater than supply or vice versa.

Once the fair value gap is in effect, there are numerous strategies to employ, enabling traders to put out short or long options to benefit from this market behaviour.

However, it is still important to approach this phenomenon carefully and employ risk management tactics. After all, the forex market is unpredictable, and most of the concepts outlined above could be false positives.

This is why ICT guides investors to follow the big fish in forex trading and wait for the initial signals to hit. This way, the risks connected to benefitting from market structure shifts and other phenomena become much smaller.

ICT trading has gained a lot of steam in recent years, and for good reason. The underlying concepts are strong with this strategy, giving traders the flexibility to execute numerous tactics. The ICT market allows for numerous exciting tactics, from ICT kill zones and silver bullet strategies to other more niche approaches.

So, does ICT trading work? It does, but it requires a lot of experience, industry knowledge and expertise. Thus, if you plan to integrate ICT concepts into your trading regimen, ensure you understand every detail and can comfortably implement all ICT mechanisms within your strategy.