Liquidity: Refers to how quickly and easily an asset, security, or market can be bought or sold without affecting the asset's price dramatically.
Price Action and Liquidity
Price Irrelevance to Time: Time frame doesn't matter when analyzing price in the context of liquidity.
Reference Points for Traders: Price action traders identify points in the market where there is a high probability of liquidity.
ICT Concepts on Liquidity
Buy Orders and Sell Orders: Understanding liquidity involves identifying where buy and sell orders are placed.
Swing Market Movements: Traders identify swings (e.g., market going lower) and understand that open profit positions may erode, leading to stops placed above significant highs or lows.
Liquidity and Market Movements
Buy and Sell Liquidity: Identifying areas where liquidity resides based on historical highs and lows.
Targeting Highs and Lows: Traders aim for areas where there has been significant movement targeting old highs for buy stops and old lows for sell stops.
Liquidity Zones
Open Float Concept: (To be covered later) Understanding the foundation that liquidity resides above old highs and below old lows.
Market Tendencies: Markets aim to target old highs and lows to knock out resting liquidity (buy stops or sell stops).
Price Action Analysis: Look at where orders are likely to reside rather than patterns.
Trading Strategies based on Liquidity
Low Resistance Liquidity Run (LRLR): Easier market movements through new or fewer levels of resistance. Favorable for trading.
High Resistance Liquidity Run (HRLR): Harder market movements with more resistance levels to overcome. Less favorable for trading.
Practical Examples
Examples of HRLR:
Market moving up through multiple resistance levels with difficulty.