Overview
This lecture covers how to identify liquidity draws in trading using Fair Value Gaps, with specific techniques for spotting buy-side and sell-side liquidity zones.
Understanding Liquidity Draws
- Liquidity draws refer to areas where price is likely to move next, often towards buy-side or sell-side liquidity.
- Buy-side liquidity often sits above recent highs; sell-side liquidity sits below recent lows.
- Price movement is influenced by reactions to gaps and inefficiencies in the chart.
Using Fair Value Gaps (FVG)
- A Fair Value Gap (FVG) is an area on the chart where price moved quickly, leaving a gap between candles.
- If price respects a bullish FVG (bounces up), the draw is likely upwards toward buy-side liquidity.
- If price violates a bullish FVG (closes below), the draw may shift down towards sell-side liquidity.
- Use higher timeframes for context, then drop to lower timeframes (e.g., 1-minute) for trade entry.
- Never enter trades right after the high of day is taken; look for entries before major highs/lows are reached.
Analyzing Market Reactions
- A strong reaction off an FVG without taking liquidity indicates a likely move toward the next high or low.
- Multiple opportunities to enter may present as price interacts with FVGs or order blocks (support/resistance zones).
- Do not fade strong FVG reactions; the price tends to continue in the reaction's direction.
- Confirm the draw using candlestick closes above or below FVGs on various timeframes.
Practical Examples
- If price closes above a key FVG and has not yet reached the next high, the draw is likely toward that high.
- If price gets close to buy-side liquidity but does not hit it, it often returns to reach it later.
- Violating a lower FVG can shift the draw downward, targeting the next key low.
Key Terms & Definitions
- Fair Value Gap (FVG) — a gap between candles indicating inefficiency in price movement.
- Buy-side Liquidity — pending buy orders above recent highs.
- Sell-side Liquidity — pending sell orders below recent lows.
- Order Block — a zone of prior buying or selling that can act as future support or resistance.
Action Items / Next Steps
- Practice identifying FVGs and liquidity draws on NQ or ES charts.
- Watch the “conditions video” if unfamiliar with the setup process.
- Review examples of FVG reactions and analyze trade entry points on different timeframes.