Lecture on Liquidity and Price Action in Trading

Definition of Liquidity

• Liquidity: The degree to which an asset or security can be quickly bought or sold in the market without affecting its price significantly.
• Time frame is irrelevant when considering liquidity in the context of price action.
• As price action traders, focus is on reference points where there is a high probability of liquidity.

ICT (Inner Circle Trader) Concepts of Liquidity

• Relates to buy orders and sell orders.
• Example:
  • Market trades lower, if there are short positions, profits increase as market declines.
  • When market reverses, profits erode, turning into losses if reversal continues.
  • Stop-loss orders are often placed above highs for shorts, market tends to return to these levels to capture liquidity.

Key Points on Liquidity

• Liquidity exists above old highs (buy stops) and below old lows (sell stops).
• Price tends to move to these liquidity points.
• Removes retail-minded, indicator-based perspectives.
• Pure focus on price itself.

High Resistance Liquidity Runs (HRLR)

• Market has difficulty moving through multiple old highs and lows.
• Example:
  • Market moves higher, encounters resistance at old lows and highs.
  • Needs significant events (e.g., Non-Farm Payroll, FOMC announcements) to break through these levels.
• Least probable for trades due to high levels of resistance.

Low Resistance Liquidity Runs (LRLR)

• Easier for market to move through, represented by one-way direction with little retracement.
• Example:
  • Market breaks old lows and has straightforward downward movement.
  • Low resistance until reaching a significant old low/high.

Trading Strategies

• Focus on areas with high probability of liquidity.
• Avoid HRLR due to high resistance.
• Prefer LRLR due to ease of movement.

Practical Examples

• HRLR: Market moves higher, faces resistance at multiple old highs/lows, requires economic events to break through.
• LRLR: Market breaks old lows, moves easily downward, retraces minimally.
• Every short-term high/low provides target for liquidity runs.
• Each retracement in LRLR represents an opportunity for low resistance moves.

Conclusion

• Understanding liquidity is crucial for price action trading.
• HRLR and LRLR concepts help in identifying trading opportunities.
• Focus on areas with low resistance to increase trading success.