ICT Trading Concepts
Explained Simply

What is ICT?

ICT stands for Inner Circle Trader, a trading methodology created by Michael J. Huddleston. ICT rejects traditional retail trading approaches (indicators, oscillators, simple support/resistance) in favour of understanding how large financial institutions — banks, central banks, hedge funds — actually move price.

The core premise of ICT is that markets are not random. Price is engineered and delivered in a deliberate, fractal manner by institutional participants who need to fill massive orders. Understanding how they do this gives retail traders a significant educational edge in reading charts.

ICT concepts have become widely studied in the retail trading community since Huddleston began publishing educational content in the early 2010s. The methodology covers market structure, liquidity, order flow, time-based trading, and much more.

Market Structure

Market structure is the foundation of ICT analysis. It describes the current state of price through the pattern of swing highs and swing lows on a chart.

Bullish Market Structure

A bullish structure is defined by a series of Higher Highs (HH) and Higher Lows (HL). Each swing high exceeds the previous one, and each pullback holds above the previous pullback low. As long as this pattern is intact, price is considered bullish on that timeframe.

Bearish Market Structure

A bearish structure shows Lower Highs (LH) and Lower Lows (LL). Each rally fails to reach the previous high, and each pullback breaks below the previous low. This pattern signals institutional selling pressure.

Break of Structure (BOS) vs Change of Character (CHOCH)

A Break of Structure (BOS) occurs when price extends beyond the most recent swing point in the direction of the existing trend — confirming continuation. A Change of Character (CHOCH) is the first break of structure in the opposite direction of the trend, signalling a potential reversal. ICT traders use CHOCH as the first signal that institutional bias may be shifting.

Liquidity & Stop Hunts

Liquidity is perhaps the most important concept in the entire ICT framework. Institutions require large amounts of liquidity to fill their orders — they cannot simply buy or sell millions of units at one price without significantly moving the market against themselves.

To solve this problem, institutions engineer price to move toward areas where large clusters of retail orders are waiting. These clusters exist at predictable locations:

• Above swing highs and equal highs — where short sellers place their stop-losses (buy-side liquidity)
• Below swing lows and equal lows — where long holders place their stop-losses (sell-side liquidity)
• At obvious round numbers (1.2000, 1.3000) — where retail clusters orders

A liquidity sweep (or stop hunt) is when price extends briefly beyond one of these levels, triggering the resting orders, and then sharply reverses. The institution has used the retail stops as the other side of their own trade.

Order Blocks

An order block (OB) is the last opposing candle before a significant impulse move. It represents the zone where institutions placed the bulk of their orders that caused the subsequent move.

Bullish Order Block

The last bearish (down) candle before a sharp bullish impulse. When price returns to this zone from above, institutions who placed buy orders here are expected to defend their position, causing a bounce.

Bearish Order Block

The last bullish (up) candle before a sharp bearish impulse. When price retraces up into this zone, institutions who placed sell orders here are expected to add to their short positions, causing a rejection.

Breaker Blocks

When an order block is violated by price (price trades through it rather than bouncing), it becomes a breaker block. Breakers flip polarity — a violated bullish OB becomes resistance; a violated bearish OB becomes support.

Fair Value Gaps (FVG)

A Fair Value Gap is a three-candle formation that creates a visible inefficiency on the chart. The pattern occurs when candle 1 and candle 3 do not overlap — leaving a gap between candle 1's wick and candle 3's wick that the body of candle 2 spans.

FVGs represent zones where price moved so aggressively that it skipped over certain price levels without efficiently trading them. ICT theory states that markets seek to achieve efficient price delivery, meaning they tend to return to fill these gaps.

• Bullish FVG — forms during a bearish three-candle sequence; price tends to retest from below
• Bearish FVG — forms during a bullish three-candle sequence; price tends to retest from above
• Consequent Encroachment (CE) — the 50% midpoint of the FVG; a common partial fill target
• Inversion FVG (IFVG) — a fully mitigated FVG that flips its role

Premium & Discount Zones

ICT divides any price range into two halves relative to the 50% equilibrium level:

• Premium — the upper 50% of the range. Institutions prefer to sell in premium.
• Discount — the lower 50% of the range. Institutions prefer to buy in discount.

The Optimal Trade Entry (OTE) sits between the 62% and 79% Fibonacci retracement of the swing — deep enough in discount (for buys) or premium (for sells) to offer a superior risk-to-reward ratio. ICT considers the OTE zone the highest-probability entry location when trading with the established trend.

Kill Zones & Sessions

Not all times of day are equal. ICT identifies specific time windows — Kill Zones — where institutional participation peaks and the highest-quality setups form.

Power of 3 (AMD)

The Power of 3 model describes how institutions deliver price in three deliberate phases within any trading session or timeframe:

PD Arrays (Price Delivery Arrays)

PD Arrays are a ranked hierarchy of price delivery tools that ICT uses to identify the most precise trade locations. They are ordered from highest to lowest probability:

1. Order Blocks — highest probability; direct institutional footprint
2. Breaker Blocks — flipped order blocks with added confluence
3. Mitigation Blocks — partially mitigated order zones
4. Fair Value Gaps — price inefficiencies seeking to be filled
5. Volume Imbalances — candle-body gaps between consecutive candles
6. Propulsion Blocks — previously tested and confirmed order blocks
7. Rejection Blocks — strong wick rejections leaving an upper/lower zone

The highest-quality trade setups occur when multiple PD Arrays align at the same price level — for example, an order block that coincides with a fair value gap (the Unicorn Model).