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Mastering Liquidity in Trading Strategies

Apr 24, 2025

Understanding Liquidity in Trading

Key Concepts

  • Trading isn't just buying low, selling high; it's understanding market moves.
  • Importance of understanding liquidity in trading.
  • Introduction to a blueprint model for understanding liquidity.

Types of Liquidity

1. Dealing Range Liquidity

  • Formation: Created by swing highs and lows.
  • Characteristics:
    • Price trades form swing highs and lows, creating a dealing range.
    • Liquidity pools exist above swing highs (buy-side) and below swing lows (sell-side).
  • Example: Three candles form a swing high or low, indicating liquidity.

2. Internal Range Liquidity

  • Concept: A range within a range.
  • Components:
    • External liquidity: buy-side above highs, sell-side below lows.
    • Internal range: liquidity within these external bounds.
  • Trading Strategy:
    • Midpoints in internal ranges are low probability for trades.
    • Look for price to break internal range for higher probability.

3. Failure Swings

  • Definition: Price fails to break previous highs or lows, creating low resistance areas.
  • Liquidity:
    • Failure swings hold liquidity due to lack of significant price action (PD arrays).
    • Once external liquidity is targeted, failure swings can lead to significant moves.

Applying the Blueprint Model

Case Study: NASDAQ 5-Minute Chart

  • Objective: Identify liquidity pools using blueprint model.
  • Steps:
    1. Wait for time-based liquidity hunt (e.g., 9:30 open for NASDAQ).
    2. Identify range highs and lows for external liquidity.
    3. Identify internal range liquidity (most recent high/low within external bounds).
    4. Wait for price to take out one side of the range.
    5. Look for failure swings as indicators of low resistance.
    6. Confirm direction with change in state delivery (e.g., closing below 3 up candles).
    7. Execute trade with target on failure swings and internal/external liquidity lows.

Final Thoughts

  • Understanding liquidity is key to anticipating market moves.
  • The blueprint model allows traders to anticipate rather than chase moves.
  • Additional learning available through free trial and Discord community.

Note: For further learning and live trading insights, sign up for a free trial and join the Discord server.

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