Zones

Modules 7 and 8 said which way and towards which target. Module 9 looks for where to enter: in a zone, and at a good price. The first filter is the simplest: where is price within its leg?

The dealing range

Take the last clear leg: from a swing low to the high that followed, or from a swing high to the low. That is the dealing range. Its exact middle, at 50%, is the equilibrium.

• Above the equilibrium, price is in premium: expensive.
• Below it, price is in discount: cheap.

Buy cheap, sell expensive

In an uptrend, you look to buy in discount, below the equilibrium; in a downtrend, to sell in premium, above it. Buying in premium means paying the top of the leg, with a stop far away.

A filter, not a signal

Premium and discount do not tell you to enter: they tell you where to look for a zone, and the next steps give those zones.

On the chart, the pullback of a bearish leg climbs back into premium, then price heads down again. On another day, the pullback goes through the equilibrium and the leg does not resume.

A clean move, the displacement of step 37, often leaves a trace: a place price went through so fast it barely traded there. That is an imbalance, and its clearest form is the fair value gap (FVG).

Three candles

An FVG is read on three candles in a row: the first and the third do not touch. The gap between them, left by the middle candle, is the FVG.

• Bullish: the low of the third stays above the high of the first.
• Bearish: the high of the third stays below the low of the first.

Why it matters

Price often comes back into that gap before carrying on. In an uptrend, an FVG in discount is a zone to look for a buy, with a stop below the FVG or below the swing low the move started from.

Open or filled

An FVG price comes back to touch, even with a wick, is filled: it has been used. An FVG crossed on a close switches sides: that is step 47.

The order block is the other zone a displacement leaves: the last candle of the other colour just before it. In ICT, that is where large orders were placed before the move started.

Finding it

• Spot the displacement: a candle at least 2.5 times larger than the 20 before it, mostly body (step 37).
• Go back through the candles of its colour: the first one of the other colour is the order block.
• Its zone runs from its open to its close.

Using it

Like the FVG, the order block is a zone price returns to: in an uptrend, you look for a buy when price comes back into it, ideally in discount. The stop goes below the swing low the move started from.

When it gives way

If a candle closes below that swing low, the structure has changed: the order block has failed. It is no longer for buying; it becomes a breaker, the zone of the next step.

A zone that fails does not vanish: it switches sides. What served buyers now serves sellers, and the other way round. The site names two of them.

The breaker

A bullish order block whose origin swing low is broken on a close: that is a change of character (CHoCH), and the order block becomes a bearish breaker. When price climbs back to touch it, you look for a sell there.

A close inside the zone that does not break that swing low is not enough.

The iFVG

A bullish FVG crossed by a candle that closes below it becomes an inversion fair value gap (iFVG), bearish. A wick through it does not count: it takes the close.

The same idea

In both cases, those who bought in the zone are trapped: when price comes back, many get out, and their sells add up. But a flipped zone fails too, and the close on the other side is sometimes a close call, as on the chart.

The optimal trade entry (OTE) closes the module: it places the entry in the pullback, more precisely than discount alone.

Measuring it

• The leg: from a clear swing low to the high that followed (or the reverse), at least eight average candles tall.
• Its start is 100%, its end 0%.
• The OTE is the band between 62% and 79% of the pullback, measured from the end of the leg.

So it is always in discount in an uptrend, in premium in a downtrend.

Better with a zone

On its own, the band is only arithmetic. It makes sense when an FVG, an order block or a breaker sits in it: two reasons at the same place. The stop goes at the start of the leg, at 100%.

What it does not do

Price does not always stop in the band: it sometimes goes through it to the start of the leg, or turns before reaching it. Module 10 adds the last filter: time.