Candle Range Theory (CRT): Explained

Candle Range Theory (CRT) is a trading methodology rooted in the analysis of candlestick ranges, offering a structured way to interpret price movements across financial markets. This theory highlights the relationship between the high, low, open, and close of a candlestick and how these elements interact within a market’s overall context. CRT integrates seamlessly with concepts like the ICT (Inner Circle Trader) Power of 3 and Smart Money Concepts (SMC) to provide deeper insights into market dynamics.

Definition of Candle Range theory

Candle Range Theory analyzes price movement within a candlestick to understand market behavior. It uses High, Low, Body, and Wicks to interpret volatility, liquidity, and sentiment. Each component provides critical data for traders’ decisions.

Candlestick as a Range:

• Every candlestick represents a range of price action.
• High and Low: Define the overall price movement.
• Body: Represents the distance between the opening and closing prices.
• Wicks (Shadows): Indicate volatility and liquidity grabs.

A bullish candle range represents a trading period where the closing price is higher than the opening price, symbolizing upward momentum in the market. It serves as a visual representation of positive sentiment, driven by strong buying pressure.

Bullish Candle Range

If the price is at a key support level on a higher time frame, you can consider looking for a bullish CRT (Close-Reject-Tail) model.

To identify a bullish CRT model:

1. Mark Key Levels: Highlight the high and low of the candlestick that closed at the support level.
2. Wait for Price Action: Observe the next candlestick. It should dip below the low of the previous candlestick (raiding the low) and then close above that low.
3. Confirm the Reversal: Look for a subsequent candlestick to close above the high of the candlestick that raided the low. Alternatively, you can check for an ICT Market Structure Shift on a lower time frame and execute a buy trade upon retesting the shifted structure.

This entire sequence may occur with just three candlesticks, but in some cases, it could require additional confirmation.

Bearish CRT Example

If the price is at a key resistance level on a higher time frame, you can look for a bearish CRT (Close-Reject-Tail) model.

To identify a bearish CRT model:

1. Mark Key Levels: Highlight the high and low of the candlestick that closed at the resistance level.
2. Wait for Price Action: Observe the next candlestick. It should rise above the high of the previous candlestick (raiding the high) and then close below that high.
3. Confirm the Reversal: Look for a subsequent candlestick to close below the low of the candlestick that raided the high. Alternatively, you can check for an ICT Market Structure Shift on a lower time frame and execute a sell trade upon retesting the shifted structure.

This sequence can often occur with just three candlesticks but might take additional confirmations depending on the market context.

Conclusion

In conclusion, combining the Candle Range Theory model with the ICT Power of 3 and ICT Kill Zone Theory provides a more comprehensive framework for identifying market reversals at key resistance levels.

seojinleelee

Hi, I’m Seojin Lee, an experienced trader focusing on the U.S. stock market, particularly NASDAQ and E-mini S&P futures. As a Chartered Financial Analyst (CFA), I apply my knowledge of financial analysis and market strategies to identify profitable opportunities.

I specialize in both short-term and long-term trading, always balancing risk management with market trends. With years of experience, I continuously refine my strategies to adapt to market shifts. If you’re interested in trading insights or strategies, you’ve come to the right place!