ICT Power of Three Strategy Explained: How to Identify and Trade It

What is the ICT Power of Three?

The ICT Power of Three is a trading strategy, or model, created by the Inner Circle Trader, better known as ICT. This trading strategy aims to follow smart money traders, or large financial institutions, and capitalize on retail traders.

How To Identify the ICT Power of Three Setup

The Power of Three trade setup is divided into three phases: Accumulation, Manipulation, and Distribution. Traders often refer to these phases as AMD.

Accumulation Phase

The accumulation phase is a range or consolidation area. This range creates stop-loss buy orders below lows for bullish-biased traders and stop-loss sell orders above highs for bearish-biased traders. To identify this phase, look for an area where price is stuck in a range.

Manipulation Phase

The manipulation phase is a false breakout outside of the accumulation phase. When price breaks to the upside of a range, short sellers stop-loss orders will be triggered and bullish breakout traders will enter positions. When price breaks to the downside of a range, traders who are long stop-loss orders will be triggered and bearish breakout traders will enter positions.

Distribution Phase

The distribution phase is the third and final stage of the ICT Power of Three. After the manipulation phase, smart money’s intentions will come into action. With all the liquidity created by retail traders from the manipulation phase, smart money will add more to their position, moving the market in the opposite direction intended by retail traders.

How to Trade the ICT Power of Three

Once you understand the accumulation and manipulation phases, you can start executing trades with the ICT Power of Three. As a trader, your goal is to enter positions after the manipulation phase so you can capitalize during the distribution phase with smart money.

When to Enter Trades

After the manipulation phase, wait for price to come back into the range and close above or below the high/low to take your entry. For long trades, price should close above the range’s low before you take a long entry or buy. For short trades, price should close below the range’s high before you take a short entry or sell.

Risk Management

Just like any trading strategy, it’s important to know where you will set your stop loss and profit targets when you enter a trade. When you enter a trade with the ICT Power of Three strategy, set your stop loss at the manipulation phase high/low and take a 1:2 risk-to-reward trade.

Long Trades: Set your stop loss at the low of the manipulation phase and your take profit at a 1:2 risk-to-reward.

Short Trades: Set your stop loss at the high of the manipulation phase and your take profit at a 1:2 risk-to-reward.

Long Trade Example

For a bullish ICT Power of Three setup, you want to first identify the accumulation phase (highlighted in yellow). Then, look for manipulation at the lows of the range (highlighted in red). Once price comes back up and a candle closes above the low of the accumulation phase, take a long entry or buy. Set your stop-loss at the low of the manipulation phase and take a 1:2 risk-to-reward trade.

Short Trade Example

For a bearish ICT Power of Three setup, you want to first identify the accumulation phase (highlighted in yellow). Then, look for manipulation at the highs of the range (highlighted in red). Once price comes back down and a candle closes below the low of the accumulation phase, take a short entry or sell. Set your stop-loss at the high of the manipulation phase and take a 1:2 risk-to-reward trade.

ICT Power of Three Indicator

We developed and released an indicator that automates the entire ICT Power of Three strategy. The indicator will detect and draw the manipulation phase and distribution phase. It will show buy signals, sell signals, take profit areas, stop losses, and much more. You can also backtest everything with the built-in backtesting dashboard. Try it out for free today on TradingView here.