In Inner Circle Trader (ICT) trading, identifying Higher Highs (HH) and Higher Lows (HL) is essential for understanding market structure and trend direction.
These are key concepts in recognizing bullish market trends, where price moves upward in a consistent pattern.
A Higher High occurs when the price reaches a new peak that is higher than the previous one, while a Higher Low is when the price retraces but does not fall below the previous low, indicating a continuing upward trend.
1. What are Higher Highs and Higher Lows in ICT?
1. Higher High (HH):
This refers to a peak or swing high that is higher than the previous peak, indicating that buyers are willing to push the price to higher levels.
2. Higher Low (HL):
This refers to a swing low that is higher than the previous swing low, showing that sellers are unable to push the price as low as before, indicating strength in the market.
In the context of ICT, these higher highs and higher lows are seen as signs of institutional involvement, often driven by liquidity hunts, where the market is pushing into areas of liquidity (buy stops, sell stops) to fuel further upward movement.
2. Why Are Higher Highs and Higher Lows Important in ICT?
Higher highs and higher lows are crucial in ICT because they signal a bullish market structure.
This helps traders align with the prevailing trend and provides opportunities to enter trades in the direction of institutional flow.
- Market Structure Shift: When price consistently forms HHs and HLs, it confirms that the market is in a bullish structure, giving traders confidence to look for long entries.
- Trend Continuation: These patterns are strong indicators of a trend that is likely to continue, especially when institutional activity drives the moves.
3. How to Identify Higher Highs and Higher Lows in ICT?
Step 1: Start with a Bullish Trend
First, observe if the market is trending upward. In an uptrend, price generally moves in waves or swings.
Each swing higher should result in a new Higher High, followed by a Higher Low during retracement.
Step 2: Identify the Higher High (HH)
A Higher High forms when price rallies and breaks the previous swing high, indicating that buying pressure is stronger than selling pressure.
This new peak marks the Higher High.
1. Example:
Assume the price of GBP/USD is in an uptrend.
The price rises from 1.3050 to 1.3100, then retraces to 1.3070 before rising again to 1.3150.
The peak at 1.3100 is the first high, and when price breaks above that to 1.3150, this forms the Higher High.
Step 3: Identify the Higher Low (HL)
Once price reaches the Higher High, it typically retraces or pulls back as sellers try to push the price lower.
A Higher Low forms when the price retraces but stays above the previous swing low, showing that sellers are losing strength.
2. Example:
Continuing from the previous example, after reaching 1.3150, the price retraces to 1.3120.
Since this low is above the previous low of 1.3070, we have identified a Higher Low at 1.3120.
Step 4: Validate the Pattern
Once the price has formed a Higher High followed by a Higher Low, the next movement is typically a continuation of the upward trend.
Traders then look for price to break the previous Higher High, forming yet another Higher High, which further confirms the bullish market structure.
3. Example:
After identifying the Higher Low at 1.3120, the price moves upward again and breaks the previous high of 1.3150, reaching 1.3200.
This confirms the trend is still intact with another Higher High at 1.3200.
4. Practical Example: Higher High and Higher Low in ICT
Let’s use the EUR/USD pair in an example:
- The price initially moves from 1.2000 to 1.2050 (first high).
- It retraces to 1.2025 (low), and then pushes upward, breaking the previous high of 1.2050, and rises to 1.2100. This creates a Higher High.
- The price then retraces again but only to 1.2075. Since this low is higher than the previous low of 1.2025, it forms a Higher Low.
- Finally, the price breaks above 1.2100, forming another Higher High at 1.2150, confirming the bullish trend.
5. Using Higher Highs and Higher Lows to Enter Trades in ICT
1. Identifying Entry Points
Traders using ICT concepts will typically look to enter long positions during the formation of a Higher Low, betting that the price will continue the upward trend and form a new Higher High.
This strategy involves waiting for a retracement to enter at a more favorable price.
1. Entry Point:
After the Higher Low forms, place a buy order near this low with a stop loss below it, anticipating that price will rise to form a new Higher High.
2. Identifying Exits
The exit strategy could involve taking profits at the previous Higher High or waiting for the price to form a new Higher High before closing the position.
Traders could also use ICT concepts like liquidity pools or institutional reference points to identify targets.
1. Exit Point:
Set a take-profit target just below the previous Higher High or near significant liquidity zones, where price might reverse or consolidate.
6. Conclusion
In ICT, identifying Higher Highs and Higher Lows is fundamental to understanding market structure and recognizing bullish trends.
These patterns are not only indicative of institutional participation but also signal where traders can enter and exit the market in alignment with the dominant trend.
Mastering this skill allows traders to capitalize on market momentum and trade with confidence, using the power of price action and liquidity-driven movements.
By understanding and applying these principles, traders can improve their accuracy in identifying trend continuations and capitalize on the strength of institutional order flow in the market.
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