Overview
This lecture covers liquidity voids in price charts, how they form, the role of smart money, and strategies for anticipating void closures and trading gaps.
Liquidity Voids: Definition and Formation
- A liquidity void is a price range where one side of the market dominates, appearing as long, one-sided candles.
- Voids indicate an absence of contrarian liquidity, usually after aggressive movement from a consolidation.
- Typically, price will revisit or “fill” these voids at a later time, but the timing is unpredictable.
- Voids can remain open for varying durations, from intraday to several months.
Price Action and Smart Money
- A consolidation is a period where price is balanced (equilibrium) before a significant move.
- Smart money, large institutional traders, are the main force behind moves out of consolidations.
- Their positions are scaled in gradually; they cannot move entire positions at a single price.
Identifying and Trading Liquidity Voids
- Liquidity voids form during sharp moves, visible as gaps or long candles with little counter-trading.
- Downward liquidity voids are created by a lack of buyers; upward voids by a lack of sellers.
- Price often returns to fill or “cover” the void, resulting in a uniform delivery of price action.
Example Scenario: Voids and Gaps
- A sharp drop from consolidation creates a liquidity void between 104.76 and 104.50 (example).
- Sell stops build below short-term lows; price may run these stops before returning to fill the void.
- When price revisits the void, the move often covers the previous range with bullish candles.
- Gaps occur when there’s a visible separation between candle closes and opens, creating trade opportunities.
Trading Strategies for Gaps and Voids
- Common gaps can be used for trade entries, e.g., placing a sell limit order at the gap level for downward moves.
- Once the gap is closed by price action (usually the candle body), price typically moves in the direction of the void.
- Sell stops are targeted for short covering; repeated price runs can create new trading opportunities.
Key Terms & Definitions
- Liquidity Void — Price range dominated by one-sided trading with little opposite liquidity; often revisited by price.
- Consolidation — Period of horizontal price movement showing equilibrium before a significant move.
- Smart Money — Large institutional traders capable of moving price out of consolidations.
- Price Gap — Area where price jumps between candle closes and openings, leaving a separation on the chart.
- Sell Stops — Orders below current price, commonly targeted to trigger liquidity for large traders.
Action Items / Next Steps
- Review provided PDF examples on bullish and bearish liquidity voids, gaps, and order blocks.
- Prepare for supplementary teachings and daily lessons in the final week of December.
- No trading during the week of Christmas; focus on studying additional materials.