OTE (Optimal Trade Entry) strategy uses multiple Fibonacci levels to identify the optimal time and place to enter a position. In essence, OTE refers to finding the best entry points during price retracements.
What Is OTE (Optimal Trade Entry)?
The OTE setup is designed to help traders enter positions with precision during price retracements.
OTE in ICT Style
OTE utilizes the Fibonacci tool to identify optimal entry points, particularly within specific times of the day. As a result, entries are mostly made during corrective moves within a primary trend.
Required Tools for OTE Setup
To successfully apply the OTE setup, you’ll need to utilize several concepts and tools:
Fibonacci Tool
The Fibonacci tool helps identify retracement and extension levels. Key Fibonacci levels in OTE include:
For Entry Zone:
- 62% (0.618)
- 70.5% (0.705)
- 79% (0.79)
For Stop Loss:
- (1) 100%
For Take Profit:
- 0
- -1
- -1.5
- -2
Order Blocks
Key areas where price reactions are likely due to significant previous price action.
Liquidity Zones
These zones include stop-loss levels or pending orders, where price tends to move to collect liquidity.
Higher and Lower Timeframe Analysis
Analyze higher timeframes (e.g., daily or 4-hour) to determine the trend, and lower timeframes (e.g., 15-minute or 5-minute) to find precise entry points.
Specific Timing
The OTE strategy works best when trades are entered during a specific timeframe of the day.
Steps to Execute the OTE Setup
To use the OTE setup effectively, it is best to follow the provided guidelines to avoid potential errors.
#1 Analyze the Trend in Higher Timeframes
Identify the main market trend:
- Check for key highs or lows and assess the market structure;
- Look for pullback zones to enter long trades in an uptrend;
- Look for pullback zones to enter short trades in a downtrend.
#2 Identify the Key Order Block
Locate the area where price started its significant move:
- In an uptrend: Look for the last bearish candle before the bullish move;
- In a downtrend: Look for the last bullish candle before the bearish move.
#3 Apply the Fibonacci Tool
Draw Fibonacci levels on the most recent main swing:
- Use the tool from the swing low to the swing high;
- Entry zones usually lie within the 62% to 79% retracement levels.
#4: Confirm Liquidity Grab
Ensure that price has collected liquidity before reaching the OTE zone:
- This could involve a previous high or low;
- Look for retail traders' stop-loss
#5: Mark the Specific Time Window
Best time for OTE setup is between 8:30 AM and 11:00 AM New York time. Adjust this timeframe to your local timezone using a converter.
#6: Identify Lower Timeframe Triggers
Move to a lower timeframe (e.g., 5-minute or 15-minute) and look for:
- Market Structure Break (Break of Structure);
- Confirmation candle from the Order Block;
- Retest of the OTE zone.
Managing the Trade in OTE Setup
Trade management becomes more straightforward with OTE since all critical components (entry, stop-loss, and take-profit levels) are derived from Fibonacci settings.
Stop Loss Placement
- For a bearish setup: Above the 100% Fibonacci level;
- For a bullish setup: Below the 100% Fibonacci level.
Take Profit Targets
Take-profit targets can include:
- The previous high or low (opposite direction of entry);
- Fibonacci extension levels (e.g., 1- or 2-).
Risk Management
Always risk a fixed percentage of your capital (e.g., 1%) per trade. Using an appropriate Risk/Reward Ratio ensures trade optimization.
Practical Example of OTE Setup
On the daily timeframe, price is in an uptrend:
- Higher timeframe analysis confirms an uptrend;
- A new bullish move breaks a market structure;
- Fibonacci levels are drawn from the swing low to the swing high;
- It’s between 8:30 AM and 11:00 AM New York time;
- Price retraces to the 5% level;
- Enter the trade with a stop-loss below the 100% level and take-profit at the previous high.
The image below is the same as the previous example in a downtrend:
Key Tips for Success in OTE
- Always analyze higher timeframes to determine the main trend;
- Only enter trades after liquidity has been grabbed;
- Confirm the structure break in lower timeframes;
- Stick to the specified timeframe (8:30 AM to 11:00 AM New York time;)
- Discipline and risk management are essential for success.
Common Mistakes Traders Make with OTE Setup
- Failure to analyze the main trend in higher timeframes;
- Using the strategy outside its specific time window;
- Misinterpreting the market structure break;
- Incorrectly placing Fibonacci start and end points;
- Applying the strategy against the main trend.
What Markets are Suitable for OTE Setup?
OTE strategy is ideal for markets like Forex, NYSE stocks, futures and indices; This is because the strategy aligns with New York session liquidity and It is less effective in markets not tied to New York trading hours.
Conclusion
The ICT style and OTE tool allow traders to identify optimal entry and exit points with precision.
This method is particularly beneficial forretail traders [especially scalpers], as it focuses on a specific time of day and considers detailed market behavior.
