ICT and SMC concepts, drawn and explained

Order blocks, fair value gaps, sweeps and structure — each with a chart, a worked trade and the ways traders disagree about it. Then: how to find your own win rate on it.

• Order block OB

  An order block is the last opposite candle before a strong move that breaks structure: the last down-close candle before a rally, or the last up-close candle before a drop. Traders expect price to react when it comes back to that candle’s range.

• Breaker block Breaker

  A breaker block is an order block that failed: price swept the liquidity beyond it and then broke the structure the other way. The failed zone flips — a broken bearish block becomes support, a broken bullish block becomes resistance.

• Fair value gap FVG

  A fair value gap is a three-candle pattern where the first and third candles do not overlap, leaving a gap inside the large middle candle. Price often comes back to fill part of it; the gap’s midpoint is called consequent encroachment.

• Inverse fair value gap iFVG

  An inverse fair value gap is a fair value gap that failed: a candle closed through it, and the gap flipped. A bearish gap that price closes above becomes support; a bullish gap that price closes below becomes resistance.

• Liquidity sweep Liquidity sweep

  A liquidity sweep is a quick move beyond an obvious high or low — where many stop orders sit — that closes back inside. It takes those stops as liquidity and often comes before a move the other way.

• SMT divergence SMT

  SMT divergence is a disagreement between two correlated markets at a key high or low: one makes a new low while the other does not. ICT traders read it as a sign that the move is running out and a reversal may follow.

• Break of structure BOS

  A break of structure is a close beyond the last swing high in an uptrend, or beyond the last swing low in a downtrend. It confirms the trend is continuing, and traders then look to buy the next pullback.

• Change of character CHoCH

  A change of character is the first close against the current trend: in a downtrend, the first close above the last lower high. It suggests the trend may be turning, and traders then look for the first higher low to buy.

• Optimal trade entry OTE

  The optimal trade entry is the zone between the 62% and 79% retracement of the last swing. ICT traders wait for a pullback into it, often around 70.5%, to join the move with a closer stop.

• Equal highs and lows EQH

  Equal highs (EQH) and equal lows (EQL) are two or more swing points at about the same price. So many stops sit just beyond them that ICT traders treat them as a magnet: price often runs through them before turning.

• Mitigation block Mitigation block

  A mitigation block forms when price fails to make a new low, then breaks structure up. The up-close candle at the swing high before that failed low becomes support — like a breaker, but without the liquidity sweep.

• Premium and discount Discount

  Premium and discount split a dealing range at its 50% level, called equilibrium. Above 50% price is “expensive” (premium) and ICT traders look to sell; below it price is “cheap” (discount) and they look to buy.

• Market structure shift MSS

  A market structure shift is a break of the last swing against the trend, made with displacement — a strong move that leaves a fair value gap. ICT reads it as the sign that the direction has changed.

• Displacement Displacement

  Displacement is a sudden, strong move — several large candles with small wicks — that leaves fair value gaps behind. ICT reads it as large orders entering the market, and uses it to confirm structure breaks and to find entries.

• Inducement Inducement

  Inducement is a small, obvious swing — usually a minor low inside a pullback — that tempts traders to enter early. Price sweeps it to take their stops, then reaches the real zone, such as an order block, where the move resumes.

• Power of three AMD

  The power of three describes a session or a day in three phases: accumulation (a quiet range), manipulation (a false move out of it) and distribution (the real move the other way). Traders enter after the manipulation.

• Judas swing Judas swing

  The Judas swing is a false move early in the London or New York session: price runs one side of the Asian range, traps breakout traders, then reverses into the day’s real direction.

• Silver bullet Silver bullet

  The silver bullet is a time-based ICT setup: inside a one-hour window — 03:00–04:00, 10:00–11:00 or 14:00–15:00 New York time — wait for a liquidity run, then enter on the first fair value gap in the other direction.

• Rejection block Rejection block

  A rejection block is the area covered by long wicks at a swing high or low — from the extreme body level to the wick tip. Price was pushed away from there, and ICT traders expect the same zone to reject price again.

• Balanced price range BPR

  A balanced price range is the overlap between a bearish fair value gap and a later bullish one at the same prices. Price has moved fast through that area in both directions, and ICT traders treat the overlap as a strong zone.