Candle Range Theory Explained: Liquidity Sweeps and Trade Entries

And the basics. What is candle range theory CRT?

The theory works on the premise that every candle forms a trading range which forms a pool of liquidity above the highs and below the lows.

Here is how it works. First, we mark the candle range high and the candle range low.

Above the candle range high and below the candle range low, there is a pool of liquidity in form of buy stops, sell stops, and stop losses.

If price sweeps the candle range high and closes below it, there is a high probability that price will expand lower to seek the liquidity nested below the candle range low.

On the flip side, if price sweeps below the candle range low and closes within the range, there is a high chance that the market will rally up to seek liquidity nested above the candle range high.

Point to note. We don't mark any random candle in the market and apply this strategy.

However, we follow strict rules and conditions for this model to work.

We shall break down the conditions step by step in this episode.

Once we have identified the candle range high and low, we zoom down to the lower timeframe for trade opportunities and entry confirmations.

Let's look at examples. Here we have a daily candle.

We wait for either side of the range to be swept.

As you can see, price swept the high and closed below it.

Now that the CRT high has been swept, we anticipate that the price will seek for a sweep of the CRT low.

We now drop to the one-hour chart. Here, we can see a break of this recent structure low, creating a market structure shift.

Now, the question is: Where do we sell at?

Applying smart money concepts, we can see this fair value gap which acts as a magnet to price.

We place our sell limit at the fifty percent of the fair value gap, stop loss above the swing high, and target below the candle range low.

As you can see, price expands lower as anticipated and hits our target.

Before we look at a bullish scenario, please take a minute and give this video a thumbs up, subscribe and share with us the topics you would like us to explore in our future videos.

Let's get back to the charts. First of all, we can see that price swept the recent structure low and sharply reversed to the upside, closing within the range.

With the first condition met, we head down to the lower timeframe for signs of reversal and entry confirmations targeting the CRT high.

On the fifteen minutes chart, the sweep of liquidity is evident leading to the break of the recent structure high.

Additionally, the bulls confirmed their buying momentum by breaking this other structure.

To add to our confluence, price is retesting the fair value gap.

So, we take our buy position here, stop loss just below the recent structure low and take profit above the candle range high.

As you can see, take profit got hit. If you trade the CRT alone without the following conditions, then you will definitely fail.

Let's look at the rules and conditions to optimize the CRT trading model.

First, identify the higher timeframe direction.

You should then wait for a pullback in the opposite direction at a point of interest.

Price should then sweep the candle range low or high.

The intended direction of the trade should align with the higher timeframe trend direction.

The sweep should also happen at a point of interest for a high probability set up.

Additionally, a market structure shift must form in the lower timeframe to validate the set up.

Let's combine these conditions in a real chart example.

Here, we can see that the market is in an uptrend breaking structure highs.

Price then created this bullish order block with a fair value gap.

So, we have this level marked as our point of interest.

Looking closely at the chart, we can mark this candle's high and low as it retesting the point of interest.

Now, price has swept the candle low and bounced from the order block.

The next pool of liquidity that we expect the price to sweep is the candle range high.

We can then scale down to the lower timeframe and look for a buy opportunity.

Here in the lower timeframe, price broke structure high after the sweep of liquidity forming a market structure shift.

The next thing to note is this bullish fair value gap which price must respect if it has to expand higher.

So, we can set our entry at the fair value Our stop loss goes just below the CRT low, and our take profits is set at the CRT high.

And as you can see, price expanded aggressively to the upside hitting our take profit.

So, you can see that the CRT trading strategy is a powerful tool i Trading.

However, in addition to the rules and conditions we have just discussed, timeframe alignment is key if you want to achieve great results.

The best time frame alignment for better accuracy is as follows.

Weekly CRT. Take your entry on the four-hour chart.

Daily CRT. Take your entry on the one-hour chart.

Four-hour CRT. Take your entry on the fifteen minutes chart.

One hour CRT. Take your entry on the five-minute time frame.

Any CRT on any time frame lower that fifteen minutes may not yield better results as you will often face stop outs.

You can also combine the CRT model with other smart money concepts for more accuracy and confluence.

I will dive deeper into more confluences in my upcoming video, so check it out soon.

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