Candle Range Theory (CRT): Trading Higher-Timeframe Candle Ranges

Every candle on a chart is a small story with a beginning, a high, a low and an end. Candle range theory (CRT) treats one higher-timeframe candle as a complete trading range and asks a simple question: when the next candle arrives, which side of that range does it raid first, and does it return to the other?

CRT grew out of ICT-style thinking about liquidity, and it is now taught in several versions by different educators. This lesson focuses on the core logic that most versions share.

What it is

Pick a higher-timeframe candle, often an H4 or daily candle. Its high and low hold resting orders: stops from traders who sold near the high or bought near the low, and breakout orders just beyond each extreme. In CRT this candle is the range candle, and its high and low define a dealing range.

The model watches the following candle:

• If it trades above the range high, runs those orders, and then closes back inside the range, the high has been swept. The model then looks for a move toward the range low.
• If it trades below the range low and closes back inside, the low has been swept, and the model looks toward the range high.

This is the same liquidity sweep idea used elsewhere in ICT, applied to a single candle. It also echoes the power of three pattern: a range, a false move beyond it, and then the real move.

The range midpoint (50%) is useful too. It splits the candle into premium and discount and often serves as the first partial target.

How to identify it

1. Choose your range timeframe and stick to it, for example H4 for intraday trades or daily for swing trades.
2. Mark the range candle's high, low and 50% level once it closes.
3. Check higher-timeframe context. Is the range candle sitting at a weekly or daily PD array? Does the sweep side agree with your bias?
4. Watch the next candle. Note which extreme it trades through first.
5. Look for rejection. Ideally, price returns inside the range quickly rather than holding beyond it.
6. Drop to a lower timeframe (M5 to M15) and wait for a displacement and structure shift back into the range.
7. Define the trade. Stop beyond the sweep extreme, first target at the midpoint, final target at the opposite extreme.

Worked example: XAU/USD on H4

All prices are illustrative. Gold is quoted in US dollars per ounce, and 1 standard lot is 100 ounces, so a $1 move equals $100 per lot.

An H4 candle on XAU/USD closes with a high of 2,385 and a low of 2,350. The midpoint is (2,385 + 2,350) ÷ 2 = 2,367.50. The daily chart shows the price trading in premium beneath a daily bearish fair value gap, so a sweep of the high fits a bearish view.

During the next H4 candle, gold rallies to 2,391, six dollars above the range high, during the New York AM session (07:00–10:00 ET). On the M5 chart it then displaces lower and breaks the last higher low, leaving a bearish fair value gap around 2,378–2,382.

• Risk: 2,393 − 2,380 = $13 per ounce
• Reward to target 2: 2,380 − 2,351 = $29 per ounce, about 2.2R (29 ÷ 13 ≈ 2.23)
• Reward to target 1: 2,380 − 2,367.50 = $12.50, a little under 1R

With a $10,000 account risking 2% ($200), position size = $200 ÷ ($13 × 100) = 0.15 lots (0.1538 rounded down). Actual risk = 0.15 × 100 × $13 = $195. Target 2 is set a dollar above the range low so the order is more likely to fill before the obvious level. Note that gold can move several dollars in seconds around news, so slippage can widen the real loss.

How traders use it

• As a bias tool. Once the high is swept and rejected, many traders favor only sells until the range low is reached or the setup is invalidated.
• With time filters. Sweeps that happen during a kill zone, or at the open of a new H4 or daily candle, are often watched more closely.
• Nested ranges. A daily range candle can contain H4 CRT setups, giving a top-down structure for planning.
• For trade management. The midpoint offers a natural partial-profit level, and a close back beyond the swept extreme is a clear sign the idea has failed.

Common mistakes

• Treating every candle as a range candle. Small, quiet candles produce small, noisy ranges. Many traders prefer range candles with a clear body and context.
• Entering as soon as the extreme is touched. Without a close back inside and a lower-timeframe shift, a breakout may simply continue.
• Ignoring higher-timeframe direction. Fading a sweep against a strong daily trend is lower probability by design.
• Stops inside the sweep. A stop placed between the range high and the sweep high sits exactly where the next push can reach.
• Mixing timeframes. Defining the range on H4 but judging the sweep on H1 candles muddles the logic.

Summary

Candle range theory treats a higher-timeframe candle as a dealing range. When the next candle sweeps one extreme and closes back inside, the model targets the midpoint and then the opposite extreme. Use higher-timeframe context to choose which sweeps to trade, refine entries on lower timeframes, place stops beyond the sweep and size positions from a fixed risk amount. The next module, starting with ICT entry models compared, turns these ingredients into step-by-step setups such as the ICT 2022 model.