In trading, one of the most powerful skills is spotting when the market is about to reverse.
If you can detect reversals early, you can enter trades before the big move starts — just like professional traders do.
Michael Huddleston (ICT – Inner Circle Trader) often emphasizes that indicators themselves don’t predict price. Instead, they provide confluence with market structure, liquidity, and order flow.
Let’s break down how common reversal tools like RSI, MACD, and Stochastic fit into ICT-style trading.
1. Relative Strength Index (RSI) – Divergence & Overbought/Oversold
The RSI (Relative Strength Index) measures the speed and strength of price movements.
- Basic idea:
- Above 70 = overbought (possible reversal down)
- Below 30 = oversold (possible reversal up)
But ICT traders don’t use RSI in isolation. Instead, they focus on divergence:
- Bullish divergence: Price makes a lower low, but RSI makes a higher low → suggests weakening selling pressure → potential reversal up.
- Bearish divergence: Price makes a higher high, but RSI makes a lower high → suggests weakening buying pressure → potential reversal down.
ICT twist:
If you see divergence near a liquidity pool (equal highs/lows, stop hunt areas), that’s a strong clue the market is ready to reverse.
Example:
EUR/USD sweeps liquidity below a previous low. Price makes a new lower low, but RSI doesn’t confirm (it’s showing higher lows).
This signals a possible market maker sell-side raid — price is likely to reverse upward.
2. MACD (Moving Average Convergence Divergence) – Momentum Shift
The MACD is another popular tool for spotting reversals. It measures momentum using moving averages.
- MACD line crossing above the Signal line = bullish momentum shift.
- MACD line crossing below the Signal line = bearish momentum shift.
ICT traders, however, care more about momentum exhaustion and displacement:
- If price makes a big run into a liquidity area (say, taking out buy stops), and MACD shows weaker momentum, it suggests the move is fake and a reversal is coming.
- When MACD histogram starts shrinking after a strong move, it often lines up with an ICT concept called displacement retracement — meaning smart money is unloading positions.
Example:
On GBP/USD, price breaks above equal highs with a strong candle. But MACD histogram shows smaller bars (weaker momentum).
This hints at a bull trap → price reverses down after clearing liquidity.
3. Stochastic Oscillator – Timing Extreme Moves
The Stochastic Oscillator compares the closing price to the recent range.
- Above 80 = overbought (potential reversal down).
- Below 20 = oversold (potential reversal up).
ICT-style traders don’t blindly short at overbought or buy at oversold.
Instead, they combine it with liquidity and market structure.
- If Stochastic is overbought after price sweeps liquidity above a high, that’s a strong reversal signal.
- If Stochastic is oversold after price takes out stops below a low, that’s a bullish reversal clue.
Example:
USD/JPY dips below a recent low, taking out sell stops. Stochastic is deep in oversold territory.
ICT traders see this as a sell-side raid → a reversal upwards is likely.
4. How ICT Combines These Tools
ICT always stresses: Indicators don’t move price — liquidity does.
But when combined with ICT concepts like:
- Liquidity grabs (equal highs/lows, stop runs)
- Fair Value Gaps (FVGs)
- Market Structure Shifts (MSS)
…these indicators give confirmation that a reversal is real.
For example:
- Price runs below a key low (sell-side liquidity).
- RSI shows bullish divergence.
- MACD momentum weakens.
- Stochastic is oversold.
- Then, market structure shifts bullish (breaks previous short-term high).
This is an ICT-aligned high-probability reversal setup.
5. Final Thoughts
RSI, MACD, and Stochastic are helpful — but in ICT, they’re secondary tools.
The real focus is where price is on the chart: near liquidity, imbalances, and order blocks.
Think of these indicators as extra confirmation, not the main reason to take a trade.
If you spot divergence, momentum shift, or extreme readings right after a liquidity raid, chances are you’ve just found a high-probability trend reversal.
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