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Fibonacci retracement tool is quite popular in charting. From traditional to Smart money traders, market technicians have been using fib retracement levels for covering major moves of the market. Although, majority of the portion of technical analysis has been changed but still traditional tools hold importance in technical analysis. One of the new methods of using Fib retracement level is ICT optimal trade entry level.
Fibonacci level from 62% to 79% is known as optimal trade entry zone This article explores its understanding, use of the zone in bullish and bearish, and how the confluence of ICT concepts and strategies can be employed in trading.
Understanding ICT Optimal Trade Entry Zone
ICT and SMC market structure emphasizes on retracement or correction of the trend. Market moves by creating higher highs and higher lows in uptrend and by creating lower lows and lower high in downtrend. In trending market, trader’s often look for continuation pattern. Fibonacci levels are crucial in understanding those zone. For ICT trader 62 to 79% percent of the area is considered as optimal trade entry zone (OTE).
Optimal trade entry helps in trading continuation of the trend. Having the understanding of market structure and direction of the market, ICT optimal trade entry zone is used to look for trend continuation signals after retracement.
In order to use Fibonacci Optimal trade entry setup. You should highlight the 62 to 79 % area. 0.5 is the equilibrium level.
Trading OTE pattern in Bullish Market
In a Bullish market, price creates higher highs and higher lows. This sequence indicates that market is trending in upward direction. Retracement in the market occurs because market participants take profits or market pauses before continuing its direction. During the correction phase of the market, ICT traders use Fibonacci retracement levels to find buy entries in OTE zone.
Traders analyze the market structure and identify the break of structure (BOS) in the market. This helps traders to market recent swing low, and when price retraces, ICT trader marks swing high. The swing high is the highest point reached before retracement begins.
Fibonacci retracement tool is used to draw the levels. Fib levels are drawn from the swing low to swing high. There are series of retracement levels. For ICT trading, the key retracement zone is OTE between 62 % to 79%. OTE is considered as ideal zone because it often serves as an area where the price is likely to retrace and then continue its uptrend.
When price retraces to OTE zone, it is critical to find trend continuation signals. One of the methods is to look for traditional candlestick patterns (bullish reversal). ICT confluence is to look for fair value gaps and the order block and order flow near the OTE zone.
For greater accuracy, plot Fibonacci retracement levels from body to body. Ignore wick while plotting fib. Body-to-body plotting focuses on the opening and closing of the candles. This is because wick are most of the time liquidity grabs and they may vary between different brokers. This is especially in the case of cryptocurrencies. Plotting fib in this case can give misleading information and often leads to incorrect analysis.
Example from market is given below:
Trading OTE pattern in Bearish Market
In a Bearish market, price creates lower lows and lower highs. This sequence indicates that market is trending in upward direction. Retracement in the market occurs because market participants take profits or market pauses before continuing its direction. During the correction phase of the market, ICT traders use Fibonacci retracement levels to find sell entries in OTE zone.
Traders analyze the market structure and identify the break of structure in the market. This helps traders to market recent swing high, and when price retraces, ICT trader marks swing low. The swing low is the lowest point reached before retracement begins.
Fibonacci retracement tool is used to draw the levels. Fib levels are drawn from the swing high to swing low. There are series of retracement levels. For ICT trading, the key retracement zone is OTE between 62 % to 79%. OTE is considered as ideal zone because it often serves as an area where the price is likely to retrace and then continue its uptrend.
When price retraces to OTE zone, it is critical to find trend continuation signals. One of the methods is to look for traditional candlestick patterns (bullish reversal). ICT confluence is to look for fair value gaps and the order block and order flow near the OTE zone.
Again, for greater accuracy, plot Fibonacci retracement levels from body to body. Ignore wick while plotting fib. Body-to-body plotting focuses on the opening and closing of the candles. This is because wick are most of the time liquidity grabs and they may vary between different brokers. This is especially in the case of cryptocurrencies. Plotting fib in this case can give misleading information and often leads to incorrect analysis.
Real market is given below:
Significance of Trading OTE Zones
Its significance lies in finding high-probability trades in financial markets. Not all retracement provides signals of continuation. Key benefits in OTE includes the following:
- It helps in improving accuracy and reduce the risk of early entries in the market.
- It helps in managing risk/reward ratios. It allows trader to place tighter stoploss while targeting larger profit zones.
- OTE usually aligns with overall market structure. It increases the likelihood of success in trending markets.
Final Note
ICT optimal trade entry method is useful in finding high-probability trades during market correction phase. Remember, no strategy guarantees success in the market. It is advised to use proper risk/reward ratio and stoploss. Trading in financial markets involves significant risk and may not be suitable for all investors.
FAQs
What is ICT optimal trade entry?
It is an ICT trading strategy that uses fib retracement levels. They key zone of OTE is 62% and 79%. These zones are used to identify high-probability trade entries when market retraces. These trade entry zones are used equally in bullish and bearish market.
How to use Fib levels for ICT optimal trade entry?
In Bearish market, traders plot Fibonacci levels from swing high to swing low. In Bullish market, traders plot fib levels from the swing low to swing high.
Can ICT OTE be used in both trending and ranging markets?
While ICT OTE is more effective in trending markets, where clear swing highs and lows are established, it can still be applied in ranging markets. However, the key is to identify valid support and resistance levels for the retracement.
I’m Abdullah Shah, a content writer with three years of experience in crafting engaging and informative content. My background in market analysis complements my work, allowing me to create content that resonates with audiences. I’m also a seasoned practitioner in the forex and crypto markets, with a strong foundation and deep interest in finance. My passion for the financial world drives me to produce content that is both insightful and valuable for those interested in understanding market trends and financial strategies.
