ICT Trading Basics¶
This page covers the foundational ICT (Inner Circle Trader) concepts used in the RQF-ML system.
Glossary¶
Market Structure¶
| Term | Definition |
|---|---|
| BoS | Break of Structure - price breaks a swing point, continuing trend |
| MSS | Market Structure Shift - price breaks structure against trend (reversal) |
| CHoCH | Change of Character - early sign of potential reversal |
| HH | Higher High |
| HL | Higher Low |
| LH | Lower High |
| LL | Lower Low |
Liquidity Concepts¶
| Term | Definition |
|---|---|
| EQH | Equal Highs - multiple swing highs at similar price (liquidity pool) |
| EQL | Equal Lows - multiple swing lows at similar price (liquidity pool) |
| Sweep | Price wicks beyond a level, closes back (liquidity grab) |
| Raid | Aggressive move to grab liquidity |
| Stop Hunt | Move designed to trigger stop losses |
Order Flow¶
| Term | Definition |
|---|---|
| OB | Order Block - last opposing candle before impulsive move |
| FVG | Fair Value Gap - imbalance in price delivery (3-candle gap) |
| Breaker | Failed Order Block that becomes opposite zone |
| Mitigation | Price returns to fill an imbalance |
Price Levels¶
| Term | Definition |
|---|---|
| PDH | Previous Day High |
| PDL | Previous Day Low |
| PWH | Previous Week High |
| PWL | Previous Week Low |
| PMH | Previous Month High |
| PML | Previous Month Low |
Fibonacci¶
| Level | Meaning |
|---|---|
| 0.0 | Entry extreme (Sweep low/high) |
| 0.236 | Shallow retracement |
| 0.382 | Edge of discount zone |
| 0.5 | Equilibrium |
| 0.618 | Edge of premium zone |
| 0.786 | Deep retracement |
| 1.0 | Origin (range extreme) |
Order Blocks Explained¶
An Order Block (OB) is the last candle of opposing color before an impulsive move.
Bullish Order Block¶
The last bearish (red) candle before a bullish move:
▲
╱│
╱ │
╱ │
┌───┐ ╱ │
│ │ ← Bullish OB ╱ │
│ ▼ │ (Last red before ╱ │
│ │ the move up) ╱ │
└───┘───────────────────╱───────┘
Why it matters: Institutions placed buy orders in this candle. When price returns, those orders may still be there.
Bearish Order Block¶
The last bullish (green) candle before a bearish move:
┌───┐───────────────────╲───────┐
│ │ ← Bearish OB ╲ │
│ ▲ │ (Last green ╲ │
│ │ before down) ╲ │
└───┘ ╲ │
╲ │
╲ │
╲│
▼
Fair Value Gaps Explained¶
A Fair Value Gap (FVG) is an imbalance created when price moves too fast, leaving a gap.
Bullish FVG¶
Bar 1 Bar 2 Bar 3
┌───┐ ┌───┐ ┌───┐
│ │ │ │ │ │
│ │ │ │ │ │
└───┘ Low │ │ │ │
▲ │ │ └───┘ High
│ │ │ │
│ │ │ │
│ └───┘ │
│ │
└───────────────────┘
FVG
(Gap between Bar 1 low
and Bar 3 high)
Significance: Price often returns to "fill" these gaps before continuing.
Liquidity Pools¶
Equal Highs (EQH)¶
Multiple swing highs at similar prices create a liquidity pool:
H H H
╱╲ ╱╲ ╱╲
╱ ╲ ╱ ╲ ╱ ╲
╱ ╲ ╱ ╲ ╱ ╲
╱ ╲ ╱ ╲ ╱ ╲
════════════════════════════════════ EQH Level (liquidity)
│
│ ← Stop losses above
▼
Why it matters:
- Retail traders place sell stops above equal highs
- Institutions sweep these to fill their orders
- After the sweep, price often reverses
Equal Lows (EQL)¶
Same concept, but at swing lows:
════════════════════════════════════ EQL Level (liquidity)
│
│ ← Stop losses below
▼
╲ ╱ ╲ ╱ ╲ ╱
╲ ╱ ╲ ╱ ╲ ╱
╲ ╱ ╲ ╱ ╲ ╱
╲╱ ╲╱ ╲╱
L L L
Sessions & Kill Zones¶
Daily Sessions (NY Time)¶
┌──────────────────────────────────────────────────────────────────────┐
│ │ │ │ │ │ │ │
│ ASIA │ LONDON │ OVERLAP │ NY AM │ NY LUNCH│ NY PM │ CLOSE │
│ 20:00 │ 02:00 │ 07:00 │ 08:30 │ 12:00 │ 13:30 │ 16:00 │
│ -00:00 │ -05:00 │ -08:30 │ -11:00 │ -13:00 │ -16:00 │ │
│ │ │ │ │ │ │ │
│ 🔵 │ 🔴 │ 🟣 │ 🟢 │ 🟡 │ 🟣 │ │
│ Low │ Good │ Best │ Best │ Avoid │ Good │ │
└──────────────────────────────────────────────────────────────────────┘
Best Times to Trade¶
| Session | Quality | Notes |
|---|---|---|
| NY AM (08:30-11:00) | Highest | Best setups, most volume |
| London (02:00-05:00) | High | Good reversals |
| NY PM (13:30-16:00) | Medium | Continuation moves |
| Asia (20:00-00:00) | Low | Range-bound, avoid |
| NY Lunch (12:00-13:00) | Avoid | Choppy, whipsaws |
Displacement¶
Displacement is aggressive, impulsive price movement that shows institutional participation.
Characteristics¶
- Multiple consecutive candles in same direction
- Large body candles (small wicks)
- Creates FVGs
- Often follows a sweep
Regular Move Displacement
┌─┐ ┌───┐
│ │ ┌─┐ │ │
└─┘ │ │ ┌─┐ │ │
└─┘ │ │ ┌─┐ │ │┌───┐
└─┘ │ │ │ ││ │
└─┘ │ ││ │
│ ││ │┌───┐
(Choppy, no intent) │ ││ ││ │
└───┘└───┘└───┘
(Strong, intentional)
Premium vs Discount¶
Price oscillates between premium (expensive) and discount (cheap) zones:
┌────────────────────────────────────────┐
│ PREMIUM │ ← Sell zone
│ (Above 0.618 Fib) │ (overvalued)
├────────────────────────────────────────┤
│ EQUILIBRIUM │ ← Fair value
│ (0.5 Fib) │ (wait)
├────────────────────────────────────────┤
│ DISCOUNT │ ← Buy zone
│ (Below 0.382 Fib) │ (undervalued)
└────────────────────────────────────────┘
Trading Rule:
- Buy in discount (below 0.382)
- Sell in premium (above 0.618)
- Avoid equilibrium (0.382 - 0.618)
Smart Money vs Retail¶
| Aspect | Smart Money | Retail |
|---|---|---|
| Size | Huge orders | Small orders |
| Entry | Buy low, sell high | Chase price |
| Stops | Hidden, flexible | Obvious levels |
| Intent | Accumulate/distribute | Quick profits |
| Tools | Order flow, dark pools | Technical indicators |
The RQF system identifies smart money footprints (OBs, FVGs, sweeps) to trade with institutions, not against them.
Next Steps¶
Now that you understand the basics:
- Market Structure - BoS and MSS in detail
- RQF Pattern - The complete setup sequence
- State Machine - How the indicator logic works