ICT Candle Range Theory (CRT) Simplified & Explained

TLDR;

This video explains the Candle Range Theory, a trading concept used to identify potential market movements. It involves analyzing a sequence of three candles on the Daily or 4H timeframe to find high-probability trading opportunities. The theory suggests that after the high or low of the first candle is breached (but not closed above/below), the price is likely to move towards the opposite end of the second candle. The video provides real market examples to illustrate the application of this theory, emphasizing the importance of confirming entries on lower timeframes (1 or 5 minutes) using additional technical analysis tools like Fair Value Gaps and Break of Structure.

• Identify key levels of liquidity using a three-candle pattern.
• Look for wick breaches of highs or lows, followed by price action towards the opposite end of the range.
• Confirm entries on lower timeframes using tools like Fair Value Gaps.

Introduction to Candle Range Theory [0:00]

The Candle Range Theory involves a sequence of three candles to determine where the market is likely to move. The first candle is a standard candle with a wick high and low. Key levels are identified by drawing lines at the high and low of this first candle. The most important aspect is to observe if the second candle's wick takes out the high or low of the first candle, but the body does not close beyond that high or low. If the body closes beyond the high or low, the setup is invalidated.

Steps of the Candle Range Theory [0:47]

After the first candle's high is breached by the wick of the second candle, a line is drawn at the low of the second candle. The theory suggests that price will then be attracted to the low of this second candle. This is because the market tends to move from one level of liquidity to another. Breaching the high of the first candle attracts the market to the next level of liquidity, which is the low of the second candle.

Timeframe and Trade Entry [1:30]

This setup should be identified on the Daily or 4-hour time frame. For trade entries, drop down to a lower time frame, such as the 1 or 5-minute chart. An entry is considered when price breaks below the low of the second candle. If price does not break below this low, there is no trade opportunity. All three steps must be complete for the setup to be valid: the wick of the second candle must take out the high of the first, and then price must break below the low of the second candle.

Example 1: NQ Trade Setup [2:07]

On the NQ chart, price wicks above the high of a candle without closing above it. The high and low of this candle are marked. The time frame is then reduced to identify entries for a move down to the low. A break of structure and a Fair Value Gap are observed on the lower time frame. An entry is taken at the Fair Value Gap with a stop-loss above the high, targeting the low of the daily candle. The trade results in a successful move to the target.

Example 2: Identifying Highs as Targets [3:05]

Price wicks below the low of a candle, and the body closes above the low. This indicates that price is likely to move to the high of the candle. A line is drawn at the high of this candle. On a lower time frame, a setup is identified where price breaks liquidity, and a Fair Value Gap is present. An entry is taken at the Fair Value Gap with a stop-loss below the low, targeting the high of the daily candle. The trade results in a move to the targeted high.

Example 3: Combining Liquidity Sweeps and Fair Value Gaps [4:01]

Price wicks above the high of a candle, indicating a potential move to the low of that candle. The high and low of the candle are marked. After dropping to a lower time frame, price breaks below the low of the middle candle. A liquidity sweep and a Fair Value Gap are identified. An entry is taken with a stop-loss above the high, targeting the low of the daily candle. The trade results in a successful move to the targeted low.

Conclusion and Community Engagement [5:00]

The video concludes by encouraging viewers to join the free live classes in the Discord server for further questions and assistance with the concepts discussed. The Discord link is provided in the comments section.