Structure

The ICT reading starts where module 6 stopped: of all the swing highs and swing lows, which ones must the market respect for the trend to hold?

The point that must hold

In an uptrend, the swing low that counts is the one the leg that broke the previous swing high started from. As long as it holds, the uptrend is intact; if it gives way on a close, the reading changes.

The small swing lows inside that leg can give way without consequence. In a downtrend, it is the mirror swing high. It is called the protected low (or protected high).

Two filters

• Size: the swing must be clear over at least two candles on each side, and stay visible when you zoom out.
• Consequence: a swing counts because it launched something. A swing low from which a clear move starts, breaking a swing high, showed there were buyers; an hour of hesitation in the middle of the night showed nothing.

Redone with every leg

When the uptrend breaks a new swing high, the swing low that counts moves up: it is now the one this last leg started from. Always know which point would invalidate the current reading.

The whole module depends on it: the break of structure (BOS) is measured against the last swing high that counts, the change of character (CHoCH) against the last swing low. Module 8 will show that stop orders pile up there.

Does the trend go on? The ICT answer is the break of structure (BOS), seen in module 6: a close beyond the last swing high that counts in an uptrend, below the last swing low that counts in a downtrend.

A close, not a wick

A wick that pokes above the swing high and comes back breaks nothing: it only took what sat just above. It is often the opposite of a break (module 8).

On the chart, the 11:30 candle goes 15 points above the 10:00 swing high but closes below it; the 11:45 one closes above: that is the BOS.

A swing the market respected

A BOS is only worth something if it breaks a clear swing, one that produced a visible reaction. On a low timeframe, price breaks small swing highs all the time: count them all and you see breaks everywhere.

A direction, not an entry

The BOS says which way to look, not where to get in. Buying the breaking candle often means buying the top, with a stop below a distant swing low.

The entry is looked for afterwards, on a return of price to a zone left by the move (module 9).

After each BOS, redo the sorting of the previous step: the swing low the breaking leg started from becomes the new swing low that counts, the one the next step watches.

The BOS confirms a trend. The change of character (CHoCH) challenges it: in an uptrend, a candle closes below the last swing low that counts. For the first time, sellers do what the uptrend forbade them.

The right swing low

Everything hangs on that choice. The swing low that counts is the one the leg that broke the last swing high started from.

Take any small swing low and you will see a CHoCH every time the market breathes. That is why step 34 came first.

A possibility, not a reversal

In a strong trend, a CHoCH on a low timeframe is often just a deep pullback. What confirms the reversal is what follows:

• a lower high, a swing high below the previous one;
• then a BOS in the new direction: a close below the swing low the CHoCH left.

On another day, the same sequence stops at the CHoCH and price heads back up.

Two ways to use it

• The prudent one waits for that BOS: it misses the start of the move, but avoids part of the false signals.
• The aggressive one enters at the CHoCH, on the zone left by the break: better price, more failures.

Neither is better in itself. Pick yours before the session, and do not switch with your mood.

A break can drag beyond the level or happen all at once. Displacement is the second case: it says whether a break has conviction behind it.

How to recognise it

It is a fast, wide, clearly directional move. It is measured against the candles before it, on the same timeframe. The Arena game uses:

• a candle at least two and a half times bigger than the average of the twenty before;
• a body of at least 70% of its size, and a close near its extreme;
• three following candles that do not come back beyond its middle.

If you hesitate to call it one, it is not one.

Two traps

• A big candle erased in the following minutes, often around an economic release: a moment of agitation.
• A big candle with a tiny body: a round trip.

What it brings

A BOS carried by displacement crossed the level with force; a BOS by one point, on a small candle, looks more like a liquidity grab.

It also leaves traces, the zones of module 9: the gap ICT calls an FVG (fair value gap), where price had no time to trade both ways, and the order block it starts from.

You do not chase a displacement: you wait, if it comes, for price to return to what it left.

The change of character (CHoCH) waits for a structural swing to give way, which can take a while on a low timeframe, with a stop that is often far. The CISD (change in state of delivery) is read earlier, on candle opens.

A series, then a close

The rule of the site and the Arena:

• a series of at least three candles of the same colour;
• the level to watch: the open of its first candle, where the move started being delivered;
• the CISD: the first candle closing beyond that level the other way; a wick is not enough.

A trigger, in the right place

Because it comes earlier, it is wrong more often: on its own, it is just a candle close. It only counts in the right place, in the direction of the bias:

• right after a liquidity grab;
• on contact with a higher-timeframe zone.

Without displacement behind it, the close often leads nowhere.

It is used as a trigger, on 1 to 5 minutes, once the reading is done. The stop goes beyond the extreme before the CISD, not just behind the candle.

What is still missing

Why does price go for some levels rather than others? That is liquidity, the subject of module 8.

The chart gives a foretaste: the CISD comes right after price took the 9:00 high.