Backtesting ICT Trading Strategy: Achieving High Profits with ICT Mentorship

The ICT Trading Strategy: A Comprehensive Back Test

Hello traders! Today, I want to show you a back test for a trading strategy and methods that are created by ICT. ICT stands for the Inner Circle Trader, and his channel and mentorship playlist can be found in the description below. I found 100 setups that matched the strategy and backtested these with the app Trader Edge, which I highly recommend for backtesting strategies. For the initial account size, I used $10,000. The link to the app can be found in the description, and there’s also a 7-day free trial available. Check it out, it’s great!

I added the backtest for the ICT strategy to my library, where I stored the results. My stop loss is always 2% of the current account size, which means for every winning trade, I multiply the risk-to-reward of the trade by two. But we will see this in a moment.

Understanding the Strategy

Let’s dive into the strategy and how to take trades using it. For this example, we’ll be looking at the EUR/USD pair on the 15-minute timeframe. I like to enable the Sessions Indicator because my preferred session to trade this strategy is London. London is indicated by a green background, while New York is indicated by a red background.

The first thing we want to see in this strategy is a level of liquidity. This means we’re searching for equal lows or highs, which are zones where retail traders place their orders. Retail traders see these zones as areas of resistance or support and place their orders accordingly. However, institutions often perform a stop hunt to grab this liquidity before making a move. Identifying this liquidity grab before entering a trade is one of the core aspects of the strategy.

Before placing an order, we also want to identify where we can take profit. In this case, since we want to sell, we’re looking for a significant move to the upside. We search for levels to trade into, such as order blocks or imbalances. An order block can be identified by marking the last red candle before the lag to the upside. Another way to search for take profits is to use imbalances, which I’ll explain in a moment.

Entering the Trade

After identifying the liquidity grab and potential take profit levels, we move to the 2-minute timeframe. Here, we can use an indicator called Fractal Break Imbalance Fair Value Gap to see a shift in market structure and the fair value gap. This indicator helps us identify the imbalance and enter the trade.

On the 2-minute timeframe, we look for a low that needs to be broken. Once it’s broken, price often comes back to the yellow and red rectangles that mark imbalances. The higher the price comes, the better the risk-to-reward ratio. We wait for the price to come up to this zone again, and if it does, we have a good risk-to-reward ratio. We can enter the trade at the close of the candle or use a limit order at 50% of the zone. The stop loss is set to the previous high, and the take profit is set at the identified zone or 50% of the imbalance candle.

Let’s see how this strategy plays out on the 15-minute chart. As you can see, we reach the take profit level, and the risk-to-reward ratio is excellent. Another way to define the take profit is to use an imbalance. For example, at a specific candle, if there’s a large imbalance, we can plan the take profit to be 50% of that imbalance zone. These levels are often reached.

Backtesting the Strategy

Now, let’s move on to backtesting the strategy. We’ll aim to find 100 trades for a comprehensive backtest. As you can see, the win rate may not be very high, but due to the high risk-to-reward ratios, the profit is extreme. However, I found that most of the losses occurred because I was wrong in identifying the liquidity grab. Using the line chart can help spot equal lows or highs, and it’s important to ensure that the levels of liquidity are significant.

In the example I provided, we have two equal highs that are also session highs of London and New York. We then see a clear liquidity grab where the level is broken, but price immediately comes down. By switching to the 2-minute timeframe and using candlesticks and the indicator, we can see the shift in market structure and the fair value gap. This helps us identify the entry point for the trade.

For this strategy, we go short inside the imbalance, with the stop loss set to the previous high and the take profit at 50% of the imbalance candle to the upside. The risk-to-reward ratio is excellent, even if we enter the trade at a different point. For example, if we entered somewhere else, it would still be a 10R trade.

I hope you found this article interesting and useful. If you did, please don’t forget to subscribe to the Trading Guide if you haven’t already. If you have any questions, feel free to add them to the comments below. Also, hit the notification bell to be notified when new videos are online. Follow me on Twitter, and I’ll see you in the next one here on the Trading Guide!

Frequently Asked Questions

1. What is the ICT trading strategy?

The ICT trading strategy is a method created by the Inner Circle Trader. It involves identifying levels of liquidity, spotting equal lows or highs, and using imbalances and fair value gaps to enter trades with a high risk-to-reward ratio.

2. How can I backtest the ICT trading strategy?

You can backtest the ICT trading strategy using the app Trader Edge, which is highly recommended for backtesting strategies. It allows you to input your account size, set stop losses, and analyze the results of your trades.

3. What is the significance of liquidity in the ICT strategy?

Liquidity is significant in the ICT strategy because it represents zones where retail traders place their orders. Institutions often perform a stop hunt to grab this liquidity before making a move. Identifying and understanding these liquidity grabs is crucial for successful trading using this strategy.

4. How do I identify take profit levels in the ICT strategy?

In the ICT strategy, you can identify take profit levels by looking for significant moves in the opposite direction. These moves can be seen as order blocks or imbalances. You can mark the last red candle before the lag to the upside as an order block or use imbalances to determine potential take profit levels.

5. What is the risk-to-reward ratio in the ICT strategy?

The risk-to-reward ratio in the ICT strategy is typically high. The stop loss is set to the previous high, while the take profit is set at the identified zone or a percentage of the imbalance candle. This allows for a potentially large profit compared to the risk taken.