Lecture on Liquidity and Price Action

Understanding Liquidity

• Definition: Liquidity refers to how quickly a market or asset can be bought or sold without affecting its price.
• Importance for Traders: Traders look for reference points where there is a high probability of liquidity.

ICT Concepts and Liquidity

• Buy and Sell Orders: Understanding liquidity is about knowing where buy and sell orders are positioned in the market.
• Swing in the Market: When the market swings lower, short positions become profitable. As market reverses, those profits erode.
• Stop Loss Orders: Often rest above recent highs, creating buy liquidity.

Market Behavior and Liquidity

• Buy Liquidity: Seen when markets move away from lows, indicating profitable buyer positions.
• Sell Liquidity: Seen when markets retreat after a rally, indicating profitable short positions.

Price Action and Patterns

• Focus on Existing Orders: Traders target areas where orders are likely to reside, not just patterns.
• Smart Money Trader Perspective: Identify buy stop liquidity above highs and sell liquidity below lows.

High Resistance Liquidity Run (HRLR)

• Challenges: Markets encounter resistance from old highs and lows.
• Economic Events: Events like FOMC or non-farm payrolls can break through resistance.
• Trading Strategy: Avoid HRLR for long trades due to multiple resistance levels.

Low Resistance Liquidity Run (LRLR)

• Opportunities: Easier trading conditions with minimal resistance allow for profitable trades.
• Market Structure: Identifies ranges where trading is less resistant, focusing on breaking short-term highs or lows.

Practical Examples

• Old Highs and Lows: Markets struggle to break through established highs/lows without significant external influence.
• Resistance and Support: Every short-term high/low provides opportunities for low resistance runs.

Institutional Order Flow

• Low vs High Resistance: Low resistance runs facilitate trades with minimal resistance, while high resistance runs are difficult without external influence.
• Trading Strategy: Focus on low resistance runs for buying or selling opportunities.

Conclusion

• Trading in Sync: Align your trading with institutional order flows by focusing on low resistance liquidity runs for better profitability and less drawdown.