Master the ICT Trading System for Short Covering — How Experts Precisely Target Liquidity Traps

There is a highly respected trader in the Western trading community named Jadecap. He has persisted for years using a specific ICT trading system for live trading, profiting significantly from liquidity traps such as short covering. This methodology has been proven to generate stable trading signals across multiple markets including stocks, forex, and cryptocurrencies, helping traders quickly identify the market’s true intentions.

Starting with Daily Timeframe Bull/Bear Judgment—Building the Foundation

The first step in trading seems simple but is often overlooked: establishing a firm daily trend direction before opening a position. This is not a vague assumption but based on observing the previous day’s high and low points, as well as key recent swing highs and lows, to form a clear expectation of the market’s next move.

These daily highs and lows are important because they represent potential target levels where the market might pull or push. As long as the price gradually approaches these levels, there’s a possibility they will be reached. Traders need to judge: will the market move toward convergence, or will it first sweep liquidity in the opposite direction? Once this subjective judgment is made, one should not easily change their bullish or bearish stance.

An important exception: if you open your chart and see the price already moving rapidly in the expected direction, you should adopt a conservative approach—either use very small positions to test or stay on the sidelines. Because at this point, the risk-reward ratio is less favorable, and the win rate drops significantly.

Identifying Liquidity Hunting Signals—The Secret of the Three Forces

The second step is to mark areas of high liquidity concentration during specific periods. These include: the previous day’s high or low, the Asian session’s high or low, and the London session’s high or low. Smart money often sets traps at these levels, enticing retail traders to enter, only to reverse and take out their stop-loss orders.

The core of identifying these traps lies in understanding the market logic of “three forces”: accumulation, manipulation, and distribution. Common market patterns involve: first forming an accumulation zone on smaller timeframes, then manipulating the price to break through liquidity-rich areas, and finally distributing profits at higher timeframe targets. The manipulation phase is the most confusing.

A startling statistic: 95% of bullish candles initially appear bearish, and most bearish candles initially look bullish. This indicates that the market often moves in the opposite direction of its true intent initially, aiming to sweep out stop-loss orders placed at common levels. Only after clearing these liquidity zones does the market turn in its true direction.

A practical signal is: when during the New York session (Eastern Time 9:30–11:30), the stop-loss orders in these liquidity zones are swept, it often signals that a potential move is about to start.

Precise Entry and Risk Management—Mastering Stop Loss and Take Profit

The third step involves specific entry execution and risk management. Switch your chart to a 15-minute or 5-minute timeframe to find precise entry points.

Three common entry methods include: 1) Reversal candlestick close after liquidity is swept at daily highs or lows; 2) Near Fair Value Gaps (FVG), which are areas of no trading left after rapid price moves; 3) Order block zones, which are the last reversal candles before a strong move, believed to be accumulation zones of smart money.

For beginners, it’s not recommended to learn all three models simultaneously. Instead, choose the one that’s easiest to understand and fits your trading style, then practice extensively to build confidence and skill.

Stop loss should be placed where the risk-reward ratio remains reasonable. Typically, above the daily high or below the daily low. If based on an FVG, set the stop loss at 50% of the gap’s depth or near the top/bottom of the gap.

Take profit targets are usually the daily high or low identified earlier, or more significant swing highs and lows. However, it’s not necessary to wait until the price hits these targets exactly. You can dynamically adjust based on the trading session: during the New York lunch or afternoon, the day’s high or low is likely formed, so intraday traders can start closing positions; swing traders should consider higher timeframe liquidity zones, combined with price action and personal risk tolerance, to decide whether to hold or exit.

Practical Example—Profit Mechanism in Short Covering

Take a NASDAQ short position as an example, illustrating how to seize profit opportunities during short covering.

First, determine the daily trend: NASDAQ is in a short-term downtrend, with a bearish daily bias, expecting further decline. Mark the previous day’s high as a potential liquidity zone for buyers.

Observe price action: during the New York session, the price breaks above the previous day’s high, successfully sweeps out short stop-losses, attracting breakout chasing buyers. But the upward momentum doesn’t continue; the price then falls back—this signals that the initial breakout was a liquidity hunt, not a genuine bullish move.

Capture entry points: there are two clear shorting opportunities. First, when the price breaks the high and then reverses immediately, you can enter a short, with stop loss above the high liquidity zone. If missed, the second opportunity appears when the price further declines, forming an FVG, and then attempts to fill the gap but gets rejected—another entry point with stops above the liquidity zone.

Execute the exit: after entering, the price continues downward, reaching the Asian session low around 12:30 PM ET, at which point you can fully close the position. This timing aligns with the intraday low formation window and avoids potential afternoon volatility.

This case demonstrates how to identify liquidity hunts during short covering, how to act on false breakouts, and how to use time windows for precise exits.

The Art of Timing—Why Time Is So Critical

In this ICT trading system, timing is often underestimated. According to Jadecap’s long-term live trading statistics, about 70% of intraday lows or highs form within the 9:30–10:30 AM ET window.

This means most traders should focus their main operations during this period. Opening positions too early may lead to multiple reversals; delaying may cause missed optimal risk-reward. Mastering this timing is akin to understanding the market’s internal rhythm.

For intraday traders, consider closing positions in the afternoon, as the day’s high or low is likely established by then. For swing traders, decisions should be based on higher timeframe liquidity zones, combined with price action and risk appetite. Respecting the power of time often yields better results.

This system continues to work across stocks, forex, and cryptocurrencies because it follows the natural laws of market liquidity rather than fighting against them. Short covering, as one of the most common liquidity traps, serves as an excellent testing ground for this theory.