Strategy Library

ICT

Optimal trade entry (OTE)

An ICT entry zone. Draw the leg from a meaningful swing low to swing high. Below its halfway point is discount, above it premium. In an up leg you look to buy the pullback into the 62% to 79% retracement, with 70.5% as its middle, and the mirror in a down leg.

AdvancedForex, indices, goldLondon and New YorkM15, H1, H4
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Example 01

Optimal trade entry (OTE) on a chart

EURUSD · M15OTE bandleg, pullback, continue

Leg: 1.0810 to 1.0870OTE band: 1.0823 to 1.0833Entry at 70.5%: 1.0828Stop: 1.0807Sample candles, not market data

The rules

Setup
  • Pick the leg from a swing that swept liquidity or broke structure, not a minor wiggle
  • Draw the retracement over it and mark 50% (equilibrium), 62%, 70.5% and 79%
Entry
  • In an up leg, enter on a pullback into the 62% to 79% band, in discount (mirror it in a down leg)
Stop
  • Beyond the start of the leg (the swing low for a long)
Target
  • The end of the leg, or the liquidity beyond it
Manage
  • Redraw the leg when price makes a new swing

Common mistakes

  • Drawing it on a minor swing. A random leg gives a random zone. Choose the swing by a written rule.
  • Treating 70.5% as exact. Nothing makes 70.5% special beyond being the middle of the band.
  • Never redrawing. Once price makes a new leg, the old zone is out of date.

When it's off

  • Call it off if price closes beyond the start of the leg
  • Skip a pullback that stops in premium for a long, or discount for a short

Words to know

Optimal trade entry
The 0.62 to 0.79 retracement band of a leg, deep in discount for longs or premium for shorts, with 0.705 as its middle.
Premium and discount
Split a leg or dealing range at 50% (equilibrium): the upper half is premium, the lower half discount. In a bullish range you look to buy in discount, in a bearish range to sell in premium; price in the wrong half is a reason to wait, not a signal the other way.
Fibonacci retracement
A tool that measures how deep a pullback is as a fraction of the leg (0.382, 0.5, 0.618, 0.786). Draw it low to high on a leg up and high to low on a leg down, on the leg that broke structure, usually wick to wick.
Golden zone
The part of a pullback many traders watch most, commonly the 0.5 to 0.618 retracement; the tighter golden pocket (0.618 to 0.65) and a deeper 0.618 to 0.786 version exist too. It is a place to look, not a reason to enter: it needs structure and a trigger.
Swing high and swing low
A swing high is a peak with lower highs on both sides; a swing low is a dip with higher lows on both sides. It only counts once the candles to its right have closed.
Equilibrium
The 50% point of a leg or range, between premium and discount.

When you make it yours, I'll ask what the rules above leave open. Start with one of these:

  • Which swings make your leg, and on which timeframe?
  • Do you draw from wicks or from bodies?
  • Do you enter anywhere in 62% to 79%, at 70.5%, or after a lower timeframe confirmation?
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From DT Academy

What testing exists

No evidence was found that these retracement levels are special. Treat the band as a hypothesis to test against a simple control.

Before you trust a backtest

  • Many professional traders risk under 1% of their account on one trade idea, and the common guideline is 1 to 2%.
  • The more versions of a rule you try on the same data, the more likely a good backtest is luck. Decide your rules before you test.
  • Include spread and commission, and practice on dates you have not looked at, before you trust a result.

Sources