Price movements on a chart may seem random at first glance, but when analyzed through the lens of Internal Range Liquidity (IRL) and External Range Liquidity (ERL), a clearer pattern begins to emerge. These concepts help traders understand the intentions behind price action, allowing them to anticipate future movements with greater confidence.
When you grasp the dynamics between IRL and ERL, two key principles stand out:
- Price moves to neutralize liquidity – commonly known as stop-loss hunting.
- Price moves to rebalance imbalances – often seen as filling value gaps or inefficiencies.
In this blog post, you will learn what IRL and ERL mean in the context of ICT (Inner Circle Trader) methodology and explore various examples demonstrating how they influence price action.
What is Internal Range Liquidity (IRL)?
Internal Range Liquidity (IRL) refers to the liquidity that exists within a trading range. This typically includes imbalances or fair value gaps where the price has moved rapidly in one direction without offering sufficient trading opportunity in the opposite direction.
The above BTCUSDT chart illustrates Internal Range Liquidity (IRL), showing how price returned to fill the gap within the range.
These areas are often referred to as:
- Fair Value Gaps (FVG)
- Imbalance
- Price Opening Gaps eg NWOG,NDOG
Price tends to revisit these levels to rebalance order flow, offering liquidity to institutional participants. Recognizing IRL allows traders to identify potential retracement zones within a range.
What is External Range Liquidity (ERL)?
External Range Liquidity (ERL) exists outside the current price range, typically above old highs or below old lows. These areas are where retail traders often place their stop-losses, making them prime targets for liquidity grabs.
ERL is often found at:
- Previous support or resistance levels
- Significant swing highs or lows
- Areas of retail clustering
Smart money (institutions) tends to push the price towards these zones to trigger stop-losses, collect liquidity, and then potentially reverse the market direction.
Understanding Price Movement Between IRL and ERL
When analyzing price action through the lens of Internal Range Liquidity (IRL) and External Range Liquidity (ERL), certain movement patterns can reveal the market’s likely direction:
- Continuation:If the price moves from IRL to ERL, it typically indicates a continuation of the current trend.
- Reversal:If the price moves from ERL back to IRL, it often suggests a potential reversal in market direction.
Trading Strategy IRL and ERL
Identify Recent Liquidity Taken:Check whether the price has recently taken out internal or external liquidity.
Scenario 1 – Internal Liquidity Taken:
If the price has taken internal liquidity, the next likely target is the external range liquidity. This sets up a potential trend continuation.
Scenario 2 – External Liquidity Taken:
If the price has taken external liquidity, look within the dealing range to identify areas of internal liquidity. This could indicate a reversal setup.
Bearish Bias:
If the price first takes out internal liquidity and external liquidity lies below the current price, the bias is likely bearish, with a potential downward move toward that external liquidity.
Bullish Bias:
If the price first takes out internal range liquidity and external range liquidity lies above the current price, the market bias is likely bullish. Expect the price to move upward toward external liquidity.
The above BTCUSDT chart illustrates how price moves from External Range Liquidity (ERL) to Internal Range Liquidity (IRL).
In Image 1, price sweeps the external liquidity by taking out the old lows, triggering stop-losses positioned there. After this sweep, a Fair Value Gap (FVG) is identified — an area of imbalance.
The price then revisits this imbalance, targeting the internal liquidity within the dealing range, signaling a potential reversal setup.
What is an ICT Dealing Range?
An ICT Dealing Range is defined as the zone between a confirmed Swing High and Swing Low, where both have already taken liquidity from previous highs or lows. This range serves as the basis for identifying Internal Range Liquidity (IRL) and External Range Liquidity (ERL).
How do Internal Range Liquidity (IRL) and External Range Liquidity (ERL) relate to each other?
IRL and ERL work together to reveal price intent. Price often moves from IRL to ERL in trend continuations, and from ERL to IRL during reversals. IRL lies within the range (imbalances), while ERL lies outside (stop-loss zones).
How can you identify areas of Internal Range Liquidity on a chart?
Internal Range Liquidity is identified inside the trading range, often as Fair Value Gaps, order blocks, or zones where price shows imbalance or inefficient movement.
What chart levels indicate the presence of External Range Liquidity?
External Range Liquidity is typically found beyond the current trading range, at or just beyond previous swing highs and lows, where retail traders’ stop-loss orders accumulate.