Candle Range Theory (CRT) explained
Candle Range Theory (CRT) treats a single higher timeframe candle as a range with a high and a low. When the next candle trades beyond one side of that range and closes back inside it, CRT reads the move as a sweep and takes the opposite side of the range as the target.
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The three candles
- Candle one sets the range. Its high and low are the two levels that matter.
- Candle two takes one side. It trades above the high or below the low and then closes back inside the range of candle one.
- Candle three delivers. Price travels toward the opposite side of the range.
If candle two closes outside the range instead of back inside it, the setup is not there. That is a continuation, not a CRT.
Why the lower timeframe matters
On the higher timeframe a CRT is only confirmed when candle two has closed, and by then much of the move toward the other side may be done. So the model is usually traded one or more timeframes lower, inside candle two.
There, the sweep of the range high or low looks like any liquidity sweep, and the confirmation is a shift in the lower timeframe's own structure: price closing back through the order block that led the sweep, or a change in the state of delivery (CISD), where price closes back through the open of the run of candles that made the sweep.
Choosing the timeframe pairing
The range candle and the execution chart need to be far enough apart for the lower one to show structure inside the higher one. Common pairings are a daily range traded on 15 minutes or 1 hour, a 4-hour range traded on 5 or 15 minutes, and a weekly range traded on 1 or 4 hours.
The time of the sweep matters as well. A daily range that is swept during the London or New York open has far more participation behind it than one swept in a quiet hour.
Where it goes wrong
CRT fails most often against the higher timeframe trend. In a strong downtrend, a sweep of a candle low followed by a small close back inside is frequently just a pause before the next leg lower.
The opposite side of the range is a target, not a promise. Price often reaches the midpoint of the range and turns, which is why many traders take part of the position off there.
Indicators that draw this
- CRT Engine (free): Candle Range Theory on the chart: the higher timeframe range, and how it gets taken.
- Dynamic Range Tool (free): The session range, its quarters, and the projections price is running into.
Questions.
What does CRT stand for in trading?
Candle Range Theory. It reads one higher timeframe candle as a range, waits for one side of it to be swept, and targets the other side.
Is CRT the same as a liquidity sweep?
CRT is a liquidity sweep with a defined frame around it. The level being swept is the high or low of a specific higher timeframe candle, and the target is that same candle's opposite extreme.
What is CISD?
Change in the state of delivery. After a run of candles in one direction, it is the close back through the open of that run. Traders use it as a lower timeframe confirmation that the sweep has turned.