The Daily range + CBDR
Hello everyone!
Welcome to a new article in regards to my trading strategy. Last week, I provided you with a guide that was there to form a basis for the upcoming weeks.
We are going to take a deepdive in the theory and we are going to step up the difficulty overall.
So if you have not read the article from last week, make sure to read it first before you are going to step into this one.
You can read the article from last week with this link:
https://mn-trading.medium.com/essentials-to-daytrading-90ca5986bb3a
This article will be split into three parts so it is going to be an extensive article, make sure to grab a cup of coffee, a notebook and your favorite pen. It will make it easier for you to digest everything!
For now let’s dive into the following topics: The dealing range and the central bank dealing range
Happy reading!
Part 1: Defining the daily range
In the first part we are going into the daily range. Specifically, we will define the daily range and explore the different trading zones that shape the 24-hour retail trading day. By understanding these zones, traders can gain valuable insights into high probability trade scenarios and enhance their precision in the market.
Contrasting the Retail and Interbank Trading Days
To begin, let’s highlight the distinction between the retail and interbank 24-hour trading days. While the retail version is commonly seen on trading platforms like MT4, it is essential to note that it differs significantly from the interbank trading day. To increase the probability of successful trades, it becomes crucial to align our reference points with the interbank price delivery algorithm (IPDA), which serves as a standard in referencing time.
Retail Delineations and their Limitations
Many traders use vertical lines on their charts to frame the trading day, based on retail delineations. However, this approach often indicates a lack of understanding and expertise. To view price in relative terms to time effectively, we need to adopt the same perspective as interbank traders. By doing so, we can move beyond retail delineations and gain a deeper understanding of the market dynamics.
Exploring Time-Based Trading Zones
Now, let’s delve into the specific trading zones and their respective time frames. Understanding these zones is crucial for successful day trading. Here are the key time-based trading zones:
Asian Range: The Asian range refers to the period when the Asian market is most active. It begins at midnight Eastern Standard Time (New York) and ends at a specific time. We often see a tight consolidation during the Asia session. If we are seeing a trend in Asia, it is likely to see continuation during the London session.
ICT London Kill Zone: The London Kill Zone is a significant trading period that starts at 1 am Eastern Standard Time (New York) and ends at 5 am Eastern Standard Time (New York).
The characteristic for the London killzone is the fact that we often create the high or low of the day between 2 and 4 AM NY time.
ICT New York Kill Zone: The New York Kill Zone is another essential trading period that commences at 7 am Eastern Standard Time (New York) and concludes at 10 am Eastern Standard Time (New York). The characteristics we often see from the NYKZ is the fact that we see either of two moves occur. We will see a trend continuation from the price action that was created in London, or we are going to see a reversal from the London trend.
ICT London Close Kill Zone: This trading zone occurs at 10 am Eastern Standard Time (New York) and ends at 12 pm noon New York time.
Understanding the IPDA True Day
To establish a comprehensive understanding of the market, we need to define the IPDA true day, which represents the 24-hour interbank trading day. The IPDA true day starts at 12 am midnight New York time and ends at 3 pm New York time. Exploring the dynamics within this time range will provide valuable insights for successful trading.
Analyzing the True Day: A Practical Example
Let’s examine a practical example to illustrate the concepts discussed above. Consider a true day for Monday, April 3rd, 2017. We categorize this as an IPDA true day, opening at midnight and closing at 3 pm New York time. By observing the specific time elements within this day, we can identify patterns related to algorithms and institutional order flow. Notably, pay attention to turning points, daily highs and lows, as well as swing points, which exhibit logical reasons for price movements.
Conclusion
Understanding time-based trading zones is crucial for day traders seeking precision and accuracy in their strategies. By aligning our reference points with the interbank trading day and considering the specific time elements within each trading zone, traders can make informed decisions and increase the probability of successful trades. In the upcoming lessons, we will
Tools
In addition towards the theory from above, I would like to give you some tools that can help you out. As always this is a lot of information to gather, but we have some indicators that will help you map out the the correct time periods on your chart.
Everything is personal preference but I will suggest a couple of tools that you can use:
- ICT Killzones [28Trades] by Tradinator
- Sessions & ICT Killzones by Vincent 139
- Market sessions by Anche
Part 2: The Central Bank Dealers range
In the world of financial trading, having a systematic approach is crucial for success. In the second part of this article, we will delve into the concept of Central Bank Dealers Range and its application in the ICT Day Trading Model. We will focus on understanding Central Bank Dealers Range and how it can be used to identify potential high and low points in the market.
Central Bank Dealers Range: An Overview
Before we delve into the specifics of Central Bank Dealers Range, it is essential to grasp the concept of ranges in trading. A range refers to a predefined high and low level in price. The Central Bank Dealers Range, in this context, represents a specific time period during the day that holds significance for traders. It serves as a reference point for identifying potential deviations in price.
To better understand Central Bank Dealers Range, it is assumed that traders have a basic understanding of standard deviations. Standard deviations help measure the dispersion or variability of price data around a central focal point. In this case, the Central Bank Dealers Range acts as the central focal point.
Applying Standard Deviations to Central Bank Dealers Range
To utilize Central Bank Dealers Range effectively, we need to measure its range in terms of pips and replicate it using standard deviations. The range height, calculated from the high to the low of the Central Bank Dealers Range, can be reproduced above and below it using standard deviations.
One standard deviation above and below the Central Bank Dealers Range represents the same range added or subtracted from the high and low of the range, respectively. This process can be continued to replicate the Central Bank Dealers Range with standard deviations one, two, three, and four.
Understanding Trading Days and Projections
On most sell days, the high of the day is expected to be within the Central Bank Dealers Range up to three standard deviations. Conversely, on most buy days, the low of the day is expected to be within the Central Bank Dealers Range down to the third standard deviation.
Ideally, sell days should create a high of the day no more than two standard deviations above the Central Bank Dealers Range. Similarly, buy days should create a low of the day no less than two standard deviations below the Central Bank Dealers Range. However, it is important to note that these projections are not absolute and can vary based on market conditions and high-impact news events.
Time Period and Range Criteria
The time period that frames the Central Bank Dealers Range is from 4 PM to 8 PM New York time. Traders need to identify the candle that marks the start of this time window on their price charts, regardless of their geographic location. The range within this time window should ideally be less than 40 pips, with a preference for a range of 20 to 30 pips.
The significance of directional bias is emphasized in conjunction with the Central Bank Dealers Range. Traders need to determine whether the market is expected to move higher or lower and consider seasonal tendencies and market conditions to identify favorable setups.
Utilizing Central Bank Dealers Range for Day Trading
The primary objective of incorporating Central Bank Dealers Range into the trading strategy is to identify the potential high or low of the day, particularly in bullish market conditions. By focusing on the low of the day forming in the London session, traders can have a higher probability of capturing profitable opportunities.
When analyzing price charts, traders can use either the body or the wicks of the candles to determine the Central Bank Dealers Range. While the wicks may provide insight into retail trading behavior, the bodies tend to offer a clearer picture of institutional accumulation and distribution ranges.
Chart examples
In the first example we can see that price traded lower after the midnight open. We can see that we traded 1 standard deviation below the CBDR. We can see that that one standard deviation away was enough to be the low of the day. The CBDR in this case is marked out with the grey box
Another thing that you should note is the following: When did we create that low? The low of the day was created during the London killzone.
We can see that we created a Low in the London session. This happened at 1 standard deviation below the CBDR. Afterwards we saw a run upwards.
The New York killzone has two characteristics. It is either going for continuation from the London move. Or it is going to get a reversal. In this case we can clearly see that we had a complete reversal from the LOKZ.
But why was that? This was because of the fact that we traded into a higher timeframe resistance area in the form of a higher timeframe FVG.
So as always you should always have a clear bias and you should know what is happening on the high timeframe.
In the last example we can see that we had a low of the day formed in London at 1 standard deviation. Afterwards we had an entire day of continuation.
Tool
The tool that I used in these examples is the indicator called ICT everything.
That was the complete story of today. I hoped you liked it and until next time!
