ICT Dealing Range Theory (DRT) Simplified & Explained - How to Find ICT Dealing Range

Summary

In this video, Ali Khan introduces Dealing Range Theory (DRT), a framework for understanding market trends and identifying key trade opportunities. By analyzing bearish and bullish dealing ranges, traders can determine the most probable market direction. Key concepts include equilibrium levels, liquidity pools, and price action patterns, which help distinguish between continuation and reversal trends. With real-world examples and insights on managing premium and discount markets, the video aims to simplify algorithmic price action for traders looking to improve consistency and decision-making in their trading strategies.

Takeaways

• 😀 DRT (Dealing Range Theory) is a framework designed to help traders identify market continuations and reversals by analyzing price action and key levels.
• 😀 A **dealing range** is the space between a swing high and a swing low, and can indicate whether the market is in a bullish or bearish trend.
• 😀 There are two main types of dealing ranges: **bearish** (when price sweeps old highs then lows) and **bullish** (when price sweeps old lows then highs).
• 😀 In a **bearish dealing range**, the market moves into a **premium market** when price exceeds the 50% midpoint (equilibrium) of the range, signaling potential sell opportunities.
• 😀 A **bullish dealing range** occurs in a higher timeframe bullish environment, where the market moves into a **discount market** below the equilibrium, offering buying opportunities.
• 😀 **Fair value gaps** and **order blocks** play critical roles in determining market direction, with price often rejecting at these levels to continue its trend.
• 😀 **Type 1 dealing ranges** are continuation patterns, where the market moves in the direction of the prevailing trend after a liquidity sweep.
• 😀 **Type 2 dealing ranges** signal potential reversals in the market, where the trend might change direction after the dealing range completes.
• 😀 **Liquidity runs** occur when algorithms sweep previous highs or lows to collect orders, using retail stop losses and triggering market moves.
• 😀 Ali Khan emphasizes the importance of understanding both **premium and discount markets** and their relation to equilibrium in predicting market moves.
• 😀 Time and market conditions dictate when the price will leave a dealing range; understanding this timing is crucial for successful trading.

Q & A

What is Dealing Range Theory (DRT) in trading?

Dealing Range Theory (DRT) is a framework developed by Ali Khan to help traders determine market direction, identify continuation or reversal patterns, and understand the behavior of price sweeps in relation to old highs and lows. It classifies market ranges into bearish and bullish dealing ranges, providing a systematic approach to trading price action.

How does a bearish dealing range form?

A bearish dealing range forms when the market sweeps an old high and then drops below a previous low. This creates a clearly defined range with a high (dealing range high) and a low (dealing range low), and traders aim to sell in the premium market, which is above the equilibrium point (50%) of the range.

What is the significance of the equilibrium line in a dealing range?

The equilibrium line represents the 50% midpoint of the dealing range, marking the transition between discount and premium markets. Prices above the equilibrium line are considered premium, while those below are in a discount. This line helps traders identify potential entry points for trades in line with market conditions.

What is a 'Type 1 dealing range'?

A Type 1 dealing range is a continuation pattern in a trending market. In this case, the market sweeps old highs or lows and continues in the same direction, either bullish or bearish. It involves price moving above or below the equilibrium line, signaling a continuation of the current trend.

How does the market generate liquidity below old lows or above old highs?

The market generates liquidity by targeting retail traders' stop-loss orders. For example, in a bearish market, the algorithm will move price above old highs to trigger stop-loss orders placed by traders expecting support at these levels. Similarly, in a bullish market, the algorithm will target liquidity below old lows, triggering stop-loss orders from those expecting a reversal.

What is a 'bullish dealing range'?

A bullish dealing range forms when the market sweeps an old low and then rises above a previous high. In a bullish market, traders aim to buy at discount prices, which are below the equilibrium line of the dealing range. This is a signal that the market is in a buying phase, with liquidity above old highs being targeted.

How can fair value gaps (FVG) help identify market behavior?

Fair value gaps (FVG) are areas of price consolidation that indicate imbalance in the market. Traders use FVGs to identify potential price points where the market may reject or reverse. For example, in a bearish market, an FVG can signal a point where price may consolidate before continuing lower.

What is a 'Type 2 dealing range'?

A Type 2 dealing range is a reversal profile. It forms when the market moves against the prevailing trend and sweeps old highs or lows in the opposite direction, signaling a potential reversal. Traders use this to identify turning points in the market and anticipate the reversal of the current trend.

How do traders use Type 1 and Type 2 dealing ranges together?

Traders use Type 1 and Type 2 dealing ranges in tandem to identify both continuation and reversal patterns. Type 1 ranges indicate a continuation of the prevailing trend, while Type 2 ranges signal a reversal. By analyzing the higher time frame for market direction and applying lower time frame dealing ranges, traders can create more accurate and reliable trading strategies.

How does liquidity engineering impact price movement?

Liquidity engineering refers to the process by which the market moves in a way that triggers stop-loss orders placed by retail traders. This can create artificial price moves, which smart money can exploit. For example, a sweep of old highs or lows to trigger retail stops provides liquidity that smart money can use to enter or exit positions at favorable prices.