Liquidity Lecture Notes

Introduction

• Liquidity = Money
  • Essential for market movement
  • Analogy: Money keeps a country functioning, just like liquidity keeps a market active

Basic Market Concepts

• Equal highs and lows: Initial definition of liquidity
  • Issues with this approach: Uncertainty in determining precise moments for market actions

Simplified Approach to Liquidity

• Three Types of Liquidity: Structural, Inducement, Transactional
  • Goal: Simplify and clarify liquidity in market movement

Structual Liquidity

• Use: Continuations
• Identification: Last low before main low or last high before main high
• Example:
  • Identified using swing structures (sweep, break of structure)
  • Continuation upon taking out structural liquidity
• Trade Example: GBP/USD (various setups)
  • Look for sweeps, break of structures, and the last low/high before main structures

Transactional Liquidity

• Use: Corrections/Reversals
• Identification: Sweep of previous low/high followed by a break in structure
• Example:
  • Expect reversal/correction after liquidity is taken out
  • Used to predict near-term market corrections
• AUD/USD Trade: Correlates bullish structures with transactional liquidity

Inducement Liquidity

• Use: Expansions when structural liquidity is absent
• Identification: Happens only with absence of structural liquidity
• Example:
  • Identifies new market trends and expansions by taking out inducement liquidity
  • Useful for anticipating large market moves
• Chart Example: Shows how inducement liquidity leads to market expansions

Chart Examples

• GBP/USD: Identifying structural liquidity and trade setups
• 15-minute timeframe: Detailed breakdown of market reactions to different types of liquidity

Conclusion

• **Key Points to Remember: **
  • Structural liquidity for continuations
  • Transactional liquidity for corrections
  • Inducement liquidity for expansions
  • Always anticipate market corrections and expansions based on liquidity types

[End of Lecture]