​ICT, IRL, and ERL Explained (Beginner Guide)
​Trading concepts can often seem overwhelming to new traders. In this chart, we break down three fundamental components of ICT (Inner Circle Trader) methodology—IRL and ERL—in the simplest way possible.
​1. What is ICT?
​ICT (Inner Circle Trader) is a trading methodology focused on tracking institutional order flow. Instead of relying on traditional retail indicators, ICT focuses on how central banks and large market makers manipulate price to target liquidity (where stop losses are placed).
​2. What is ERL (External Range Liquidity)?
​Simple Definition: Old Swing Highs and Swing Lows located on the outer edges of price action.
​What it Represents: Retail traders often place their Stop Loss orders just above key high points or below key low points. This concentration of orders creates liquidity pools.
​On the Chart: Represented by horizontal lines marking recent Swing Highs (erl high) or Swing Lows (erl low).
​Price Behavior: Price acts like a magnet toward ERL levels to sweep (capture) those stop losses before reversing or continuing the trend.
​3. What is IRL (Internal Range Liquidity)?
​Simple Definition: Imbalances, Gaps, or Fair Value Gaps (FVG) created inside a price move.
​What it Represents: When price moves aggressively in one direction, it leaves behind inefficiency (an imbalance between buyers and sellers). Market makers prefer to bring price back into these areas to rebalance the market.
​On the Chart: Represented by shaded green (bullish) or red (bearish) FVG boxes.
​Price Behavior: Once price sweeps an ERL level, it typically retraces inward toward an IRL (FVG) zone to seek new orders
​The Fundamental Market Cycle
​Market movement generally follows a continuous loop between internal and external liquidity:
Expansion: Price moves from an IRL (Fair Value Gap).
​Targeting: Price expands outward to sweep an ERL (Swing High or Low).
​Retracement: After sweeping the ERL, price shifts (CSD) and rebalances back into a new IRL.
​Quick Summary
​ERL = Targets & Liquidity Sweeps (External Swing Levels)
​IRL = Entries & Rebalance Zones (Internal Fair Value Gaps)