Lecture Notes: Trading Strategies and Market Structures

Introduction

• Discussing the unpredictability of the market.
• Importance of understanding trading concepts to avoid frustration.

Section 1: Understanding Liquidity

Definition of Liquidity

• Liquidity in a chart represents swing highs and swing lows.
  • Swing High: Formed by a three-candle pattern (1-2-3).
  • Swing Low: Also a three-candle pattern representing the lowest point.
• Trapped Traders: Orders placed by traders above swing highs and below swing lows.

Liquidity Locations

• Above Swing Highs: Contains liquidity from trapped buyers.
• Below Swing Lows: Contains liquidity from trapped sellers (stop-loss orders).
• Example Markets: Forex (e.g., Euro/US Dollar), Crypto (e.g., Bitcoin), Indices (e.g., NASDAQ).
  • Identifying swing highs and lows helps locate liquidity.

Section 2: What is a Sweep?

Definition of a Sweep

• A sweep occurs when liquidity is taken out, showing market manipulation.
• Recognizing a sweep involves:
  1. Fair Value Gap (FG) moving into liquidity.
  2. Opposite Fair Value Gap emerging after liquidity is swept.

Chart Analysis

• Use examples from Euro/US Dollar and Bitcoin:
  • Look for bullish and bearish fair value gaps around swing highs and lows.
• Sharp Turn: A significant reversal pattern indicating potential market direction.
  • Characteristics: Quick movement above swing highs/lows; no prolonged stays.

Section 3: Targets After Sweeping Liquidity

Targeting Opposing Liquidity

• After a sweep, the opposite liquidity to target is the first encountered swing high or low.
• Examples of identifying targets:
  • Euro/US Dollar: After sweeping a swing low, target the first swing high.
  • Bitcoin: Use weekly swing lows and highs for setting targets.
  • NASDAQ: Analyze sweeps and identify subsequent highs/lows for targets.

Section 4: How to Capitalize on Sweeps

Steps to Trade After Sweeping

1. Identify Liquidity: Define areas of liquidity on the chart.
2. Observe Market Behavior: Wait for a sharp turn or fair value gap to form after a sweep.
3. Set Targets: Use opposing liquidity points to set potential profit targets.
   • For Swing Traders: Look for larger time frame movements.
   • For Day Traders/Scalpers: Seek entry patterns in lower time frames following the sweep.

Practical Application

• Use the discussed concepts in real-time analysis (e.g., DXY analysis).
• Reinforce understanding through practice with live sessions or materials.

Conclusion

• The importance of understanding liquidity, sweeps, and sharp turns to make informed trading decisions.