Candle Range Theory (CRT): A practical guide to trading the setup

Candle Range Theory (CRT) is a model for reading a single candle as a price range with liquidity at both ends. Price sweeps one side of the range, closes back inside it, and then moves toward the opposite side.

Candle Range Theory, also known as the CRT model, is commonly associated with the Smart Money Concepts (SMC) and Inner Circle Trader (ICT) frameworks. It uses a multi-timeframe approach: the higher timeframe defines the range, while the lower timeframe reveals market structure and potential entry points.

1. Start with the Range: CRH and CRL

Any candle can define a range

Price does not move in one direction indefinitely. It moves from one range to another, and a single candle is also a range, defined by its high and low.

Take a daily candle and switch to the H1 chart for that same day. You will see 24 hourly candles, and their highest high and lowest low match the daily candle’s high and low exactly. A higher-timeframe candle is made up of lower-timeframe candles, and they share the same high and low.

Finding CRH and CRL

CRT uses just 2 price levels from that candle. The high becomes CRH (Candle Range High), and the low becomes CRL (Candle Range Low). Draw a horizontal line at each level, and you have your range. The candle body, formed by the open and close, shows the price area where the market was accepted. The wicks show how far price reached beyond it.

Sweep or Breakout: What’s the difference?

The key is not the candle that defines the range, but how the next candle reacts to the CRH or CRL. If price closes decisively beyond either level, the market has accepted the new price area, and no CRT setup forms. If price sweeps beyond the level but closes back inside the range, a CRT setup emerges. The breakout has failed, and liquidity at the opposite end of the range becomes the target.

2. What makes a CRT setup?

The sweep is only half the story

A liquidity sweep alone does not confirm a CRT. Price must move beyond the CRH or CRL and then close back inside the range, and this failed breakout is the key condition that separates a valid CRT setup from a genuine breakout.

Comparing three versions of the second candle makes the distinction clear. In the first, price never reaches the CRH, so no liquidity sweep occurs and no setup forms. In the second, price breaks above the CRH and closes above it, so the breakout is accepted and this is not a CRT.

In the third, price sweeps above the CRH but closes back inside the range. Only this scenario qualifies as a valid CRT, because the entire setup rests on one sequence: sweep beyond the range, then close back inside.

CRT can take more than one shape

The classic CRT setup uses three candles, but it does not have to follow a strict three-candle pattern. Price may remain inside the range for several candles, moving sideways before the sweep occurs, and the setup then follows the same logic as the three-candle version.

Sometimes, the entire sequence unfolds within a single candle. The second candle wicks above the CRH to sweep liquidity, then closes near the CRL at the bottom of the range. The sweep and the directional move happen within the same candle, which makes this a two-candle CRT.

Zoom in on the range using a lower timeframe, and the same sequence becomes more detailed: accumulation, manipulation, then distribution. Often, the sweep leaves an order block at the top of the impulsive move, marking the area where distribution begins.

Whether the setup unfolds over two candles, three candles, or an entire sequence, the underlying principle remains the same: sweep one side of the range, close back inside, then move toward the opposite side.

The AMD cycle behind a CRT

Beneath this pattern is the AMD cycle, also known as the Power of Three. It describes how price can move through three phases within a range:

• Accumulation: Orders build up quietly inside the range as price moves sideways, often near one end of the range.
• Manipulation: A sharp move sweeps beyond the CRH or CRL, triggering stop-loss orders around that level, before price closes back inside the range.
• Distribution: The directional move begins. Price moves away from the swept level and heads toward the opposite end of the range.

The AMD cycle gives a broader view of the price action behind a CRT. Accumulation establishes the range, manipulation creates the failed breakout, and distribution carries price toward the other side. The sequence may unfold across several candles or become visible within a single candle when viewed on a lower timeframe.

From the sweep to the entry

Once a CRT setup is confirmed, the next step is to find an entry with a clear invalidation point and target. The higher timeframe defines the range, while a lower timeframe reveals the market structure shift that can signal a potential entry.

Use a lower timeframe to confirm the move

After price sweeps the CRH or CRL and closes back inside the range, move to a lower timeframe to watch how price develops. The key is to wait for a market structure shift in the expected direction.

For a bearish CRT, price sweeps above the CRH, closes back inside the range, then breaks below a recent swing low on the lower timeframe. For a bullish CRT, price sweeps below the CRL, closes back inside, then breaks above a recent swing high.

The decisive detail is always the closing price, not the wick. A close beyond a key level can confirm a break in market structure, while a wick beyond it followed by a close back inside may signal a liquidity sweep instead.

Find the entry at the Order Block

After the market structure shift, look for the order block left behind by the impulsive move. This area can provide an entry when price pulls back into it.

In a bearish CRT, price sweeps the CRH and then breaks lower on the lower timeframe. After the break, price may retrace to the order block formed before the sharp decline, and this pullback offers a potential short entry.

A bullish CRT follows the same logic in reverse. After price sweeps the CRL and breaks higher, look for a pullback to the order block left behind by the bullish move as a potential long entry.

Match the timeframes

Use the higher timeframe to define the CRT range and the lower timeframe to read market structure and refine the entry. As a rule of thumb, move down approximately two timeframe levels from the timeframe of the CRT candle.

For example, if you identify a CRT on the H4 chart, move down to M15 to look for a market structure shift and a potential entry at the order block. This is a guideline rather than a fixed rule, because the best timeframe combination depends on how clearly price develops.

Set the Stop-Loss and Target

Place the stop-loss just beyond the sweep extreme. For a bearish CRT, that means above the sweep high, and for a bullish CRT, below the sweep low. If price moves beyond that extreme, the setup is invalidated.

The target is the opposite end of the original range. A bearish CRT targets the CRL, while a bullish CRT targets the CRH. This keeps the trade aligned with the core CRT idea: after sweeping one side of the range and closing back inside, price may move toward the other side.

Before entering, check that the potential reward justifies the distance to the stop-loss. A valid CRT does not guarantee that price will reach its target, so risk should be defined before the trade is placed.

Using premium and discount to frame the trade

Divide the range in half at the 50% level, also known as the equilibrium. The area above it is the premium zone, where price is relatively expensive, and the area below it is the discount zone, where price is relatively cheap.

This simple midpoint helps you assess where price sits within the range and where a trade may offer a more favorable entry.

Bearish CRT: From premium to discount

In a bearish CRT, price sweeps above the CRH in the premium zone, where traders look for selling opportunities. On the lower timeframe, wait for market structure to break to the downside while price is still above the 50% level.

You can then look for an entry at an order block in the premium zone, with the CRL as the final target in the discount zone. The idea is to sell at relatively high prices within the range and target lower prices, which can offer a more favorable risk-to-reward ratio, provided the entry, stop-loss, and target leave enough room for the trade.

Bullish CRT: From premium to discount

A bullish CRT follows the same logic in reverse. Price sweeps below the CRL in the discount zone, where traders look for buying opportunities.

After market structure breaks to the upside, look for a potential entry at an order block while price remains below the 50% level. The target is the CRH at the opposite end of the range, in the premium zone.

The idea is to buy at relatively low prices and target higher prices. As with a bearish CRT, the location alone does not confirm a trade, because the liquidity sweep and market structure shift must support the setup, and the potential reward should justify the risk.

When a CRT is worth trading

A liquidity sweep alone is not a reason to enter a trade. Where the CRT forms matters just as much as how the sweep unfolds, because a setup at a meaningful price level has a clearer context for a potential reversal than one that forms randomly in the middle of a price move.

Look for CRTs at key levels

Consider a CRT that forms at a minor high in the middle of an uptrend, just above a fresh demand zone. Although price sweeps the high, there is no major level nearby and no meaningful liquidity pool for the sweep to target. Price ignores the setup and continues climbing, which makes this the kind of CRT to be cautious about.

Now consider a different scenario. Price sweeps an old swing high that has remained untouched for a long time, and stop-loss orders may have accumulated above this level, making it a more meaningful liquidity area. If price then closes back inside the range and shifts market structure to the downside, the CRT has stronger context for a potential bearish move.

The same principle applies to swing highs and lows, supply and demand zones, and order blocks. When a CRT forms at one of these areas, the location provides additional context for why price might reverse.

For example, a bearish CRT forming inside a supply zone left behind by a strong downward move may offer a more compelling setup than one forming without any clear level nearby.

Know when to skip a setup

Not every CRT deserves a trade. Be cautious when the setup forms in the middle of a range or trend, away from meaningful highs, lows, supply and demand zones, or order blocks, because a sweep without a clear reason for price to reverse may simply be followed by continued movement in the original direction.

Before entering, check three things:

• Location: Does the CRT form at a meaningful price level?
• Confirmation: Has price swept the range boundary, closed back inside, and shifted market structure in the expected direction?
• Trade potential: Is there enough room to the target to justify the distance to the stop-loss?

A CRT is a potential trading opportunity, not a guarantee of reversal. Prioritize setups with clear context and confirmation, and skip those where the location, price action, or risk-to-reward does not support the trade.

Putting it all together

Use this checklist to work through a CRT setup, from defining the range to managing trade risk.

1. Mark the range. Choose a higher-timeframe candle and mark its high as the CRH and its low as the CRL.
2. Wait for a liquidity sweep. Watch for price to move beyond the CRH or CRL.
3. Confirm the failed breakout. Make sure the candle closes back inside the range.
4. Determine the direction. A sweep above the CRH points to a potential bearish CRT; a sweep below the CRL points to a potential bullish CRT.
5. Confirm market structure on a lower timeframe. Wait for a break of structure in the expected direction.
6. Find the entry and target. Look for an entry at the order block left by the structural shift, and target the opposite end of the range: the CRL for a bearish CRT or the CRH for a bullish CRT.
7. Set the stop-loss. Place it just beyond the sweep extreme to define where the setup is invalidated.

Before entering, check that the CRT forms at a meaningful price level and that the potential reward justifies the risk. Not every valid setup offers a worthwhile trade.

Frequently asked questions

Which candle can define a range?

Any candle can define a range. What matters is not the candle itself, but how the next candle reacts to its CRH or CRL.

Does a sweep have to close back inside the range?

Yes. The closing price distinguishes a liquidity sweep from a genuine breakout, and a close beyond the level signals acceptance of the new price area, invalidating the CRT setup.

Does a CRT have to consist of exactly three candles?

No. Price may remain inside the range for several candles before the sweep occurs. A CRT can also consist of just two candles, with the sweep and directional move unfolding within the same candle, and the underlying logic remains the same.

How should you combine timeframes?

As a rule of thumb, move down approximately two timeframe levels from the CRT candle’s timeframe: Monthly to Daily, Weekly to H4, Daily to H1, H4 to M15, H1 to M5, and M15 to M1.

What is the 50% level used for?

It divides the range into premium above and discount below. This helps you assess whether you are selling at relatively high prices or buying at relatively low prices within that range.

Does every CRT lead to a reversal?

No. A CRT that forms in the middle of a price move, without a key level or a meaningful liquidity pool nearby, is often ignored by the market. Prioritize CRTs that form at previous highs and lows, supply and demand zones, and order blocks.