Only 3 ICT Confirmations - Market Structure Shift, Displacement & Fair Value Gap

Summary

In this video, the presenter explains three key concepts for confirming trades as an ICT (Inner Circle Trader) trader: market structure shift, displacement, and fair value gaps. They emphasize how to use these principles to confirm trades, especially when working with higher timeframes. The video outlines two entry methods: setting a limit or confirming a trade through lower time frame shifts and displacement. Additionally, it highlights the importance of backtesting, using tools like Trader Edge, and timing strategies. The focus is on understanding market structure and using fair value gaps for entry, with a clear approach to maximizing trade success.

Takeaways

• 😀 ICT traders confirm trades using three main principles: market structure shift, displacement with body closure, and fair value gaps (FEG).
• 📈 Market structure shifts occur when primary highs or lows are breached, signaling potential entry points for trades.
• 🔄 Displacement is defined as a sharp market move followed by a body closure past the market structure high or low, providing confirmation of market momentum.
• ⏳ A body closure (as opposed to just a wick) increases the probability that the market move is genuine and reduces the likelihood of false breakouts or manipulation.
• 📉 After displacement, traders look for fair value gaps (FEGs) to enter the market, with the entry typically at the midpoint of the gap.
• 🛑 Stop-loss placement is crucial and should cover the entire fair value gap to protect from unexpected market reversals.
• 📊 Backtesting and journaling are highly recommended to improve trading strategies and track progress over time.
• 💡 Traders should understand the difference between primary and secondary structural highs and lows to avoid misinterpreting market shifts.
• ⚠️ Traders should avoid entering trades too early, as improper timing can result in getting stopped out even if the market direction is correct.
• 🕒 Timing is critical, especially during the London session, when price action is more active, and traders can expect smoother price movement.
• 🔍 For better accuracy, it's essential to rely on both higher and lower timeframes to confirm structural shifts and displacement for trade entries.

Q & A

What are the three main concepts to understand when confirming a trade as an ICT trader?

The three main concepts are Market Structure Shift, Displacement, and Fair Value Gaps (FEG).

How can you enter a trade on a higher time frame?

On a higher time frame, you can either set a limit order or wait for a confirmation by analyzing a market structure shift, displacement, and fair value gap on a lower time frame.

What is the benefit of confirming trades on lower time frames?

Confirming trades on lower time frames allows for more accurate entries and helps avoid being stopped out prematurely, increasing the probability of a successful trade.

What is a market structure shift?

A market structure shift occurs when a market's trend changes, typically marked by a break of a primary structural high or low. This signals a potential shift in the market direction.

Why is body closure important in identifying displacement?

Body closure is important because it indicates a stronger, more reliable move than a wick closure. A wick closure can often signal price manipulation or liquidity sweeps, which can lead to false signals.

What are fair value gaps (FEGs), and how are they used in trading?

Fair value gaps are areas on a chart where there is a price imbalance between two candles. Traders use them to identify potential entry points, as these gaps often attract price action to fill them.

What role do fair value gaps play when entering a trade?

Fair value gaps provide potential entry points after confirming a displacement. Traders may enter at the 50% level of the gap to increase their probability of success while managing risk effectively.

What is the significance of backtesting and journaling for traders?

Backtesting and journaling are essential for improving trading skills. Backtesting allows traders to evaluate strategies, while journaling helps track performance, refine strategies, and identify patterns.

How should stop losses be placed when trading using fair value gaps?

Stop losses should be placed beyond the fair value gap, and often, it is recommended to place them beyond the primary market structural high or low to account for price fluctuations.

How can traders manage risk when reacting to a fair value gap?

To manage risk, traders can enter at the higher zone of a fair value gap and use a stop loss that covers both gaps. This ensures the trade has room to react to potential price movements without getting stopped out prematurely.