The Candle Range Theory (CRT) 3-Candle Strategy is a price action method derived from Smart Money Concepts (SMC). It is based on the "Power of 3" logic (Accumulation, Manipulation, Distribution), essentially compressing an entire market cycle into a sequence of three specific candles.
This strategy relies on the idea that the first candle sets a range, the second candle manipulates price to trap traders (liquidity sweep), and the third candle confirms the true direction.
The Core Logic: The Power of 3
Every valid setup consists of three specific candles in a sequence:
Candle 1 (The Range/Accumulation): This candle establishes the "Range High" and "Range Low." It represents the reference point.
Candle 2 (The Manipulation/Sweep): This candle breaks the high or low of Candle 1 but fails to sustain momentum, often leaving a wick. This is the "trap."
Candle 3 (The Reversal/Distribution): This candle confirms the rejection and moves in the opposite direction of Candle 2, closing back inside the range or expanding away.
1. Buy Conditions (Bullish CRT Setup)
You are looking for price to "fake out" sellers by breaking a low, trapping them, and then reversing upwards.
The 3-Candle Sequence:
Candle 1 (Reference): Identify a bearish or consolidation candle. Mark its High and Low. This is your range.
Candle 2 (The Sweep): The next candle must drop below the Low of Candle 1.
Crucial: It should ideally "sweep" the liquidity (go below the low) and then pull back up, leaving a long bottom wick. It must not close strongly below Candle 1. NB: the candle 2 must close bearish
Candle 3 (The Entry): This candle opens and moves bullishly, closing above the closing price of Candle 2 (and ideally closing back inside Candle 1's range).
Trigger:
Aggressive Entry: Enter immediately as Candle 3 is opening inside the range of Candle 1.
Conservative Entry: Enter at the Open of Candle 3
2. Selling Conditions (Bearish CRT Setup)
You are looking for price to "fake out" buyers by breaking a high, trapping them, and then reversing downwards.
The 3-Candle Sequence:
Candle 1 (Reference): Identify a bullish or consolidation candle. Mark its High and Low.
Candle 2 (The Sweep): The next candle must rally above the High of Candle 1.
Crucial: It should sweep the liquidity (go above the high) and then reject, leaving a long top wick. It must not close strongly above Candle 1. NB: the candle 2 must close bullish.
Candle 3 (The Entry): This candle opens and moves bearishly, closing below the closing price of Candle 2 (and ideally closing back inside Candle 1's range).
Trigger:
Aggressive Entry/
Conservative Entry: Enter at the Open of Candle 3
Risk Management & Targets
Parameter
Rule
Stop Loss
Place just above the "Sweep" wick (Candle 2 High) for Sells, or below the "Sweep" wick (Candle 2 Low) for Buys.
Take Profit 1
50% of Candle 1's Range. (The "Equilibrium" point of the first candle).
Take Profit 2
The Opposing Liquidity. (The High of Candle 1 for Buys; The Low of Candle 1 for Sells).
Pro Tips for Success
Timeframe Alignment: This works best if Candle 1 is a Higher Timeframe (HTF) candle (like the 1-Hour or 4-Hour).
The "Close" Matters: If Candle 2 closes strongly outside the range of Candle 1, the setup is invalid. It indicates a true breakout, not a manipulation. You want to see wicks, not bodies, breaking the range.
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