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Liquidity Concepts Explained: BEST Strategies Revealed — Transcript

by Data Trader · 2,805 words · 409 segments · language en · Watch on YouTube

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0:00In this video, I'll reveal a powerful
0:02liquidity strategy. And it's the exact
0:04strategy used by professional traders.
0:05Yet, I'm breaking it down so simple that
0:07anyone, even total beginners, can
0:09follow. So, if you want to learn the
0:11strategy that professional traders
0:12actually use, this is it. Now, let's
0:15dive in. So, the strategy revolves
0:17around one key concept, liquidity. But
0:20what exactly is liquidity? In simple
0:22terms, they are areas where pending
0:24orders are placed in the market. Let's
0:26break this down with a practical
0:27example. Imagine you're looking at a
0:29chart and decided to place a buy order
0:31at a certain price level. What you're
0:32actually doing here is providing
0:34liquidity to the market at that price
0:36level. You're basically telling the
0:37market, "Hey, I'm willing to buy at this
0:39exact price." The same principle applies
0:42when you place a sell order. You're
0:43basically telling the market, "Hey, I'm
0:45willing to sell at this exact price,
0:47which also creates liquidity at that
0:49level." In most markets, liquidity is
0:51present at every price level because
0:53millions of traders are constantly
0:55placing orders at different prices.
0:56These could be retail traders, big
0:58banks, or financial institutions. So, at
1:01any price point, there's always a market
1:03participant willing to buy, and there's
1:05always a market participant willing to
1:06sell. That's the whole concept of
1:08liquidity, and it's what makes the
1:09markets move every day. However, there
1:11are certain price levels where there's
1:13more liquidity than others. For example,
1:15let's say there's a support level on a
1:17chart where price is bounced off twice.
1:19As price approaches that level again,
1:21what do you think most traders will do
1:22when they see this setup? They'll expect
1:24another bounce. So, they'll enter a long
1:27position right at the support and place
1:28their stop loss just below it. If
1:30they're more cautious, they might place
1:32it further down to avoid getting stopped
1:34out easily. Now, you've probably
1:35experienced this before. Instead of
1:37bouncing, price wicks through the
1:39support just enough to trigger the
1:40stop-loss only for it to reverse and
1:42come back higher. You're then left
1:44wondering why the setup failed. The
1:45reason this happens is because
1:47professional traders, the ones with a
1:48lot of capital, intentionally target the
1:50resting liquidity below that support.
1:52They know that a lot of retail traders
1:54are watching the same pattern and are
1:56placing stop- losses in the same zone.
1:58This creates a lot of liquidity in that
2:00area. So by taking those stop losses
2:02out, they absorb the liquidity needed to
2:04fill their own long positions. That's
2:06why you often see price wicking through
2:08a key level before reversing. And so I'm
2:10going to teach you how to be in the 1%
2:12of traders who takes advantage of this
2:14so you don't end up like the 99% who
2:16gets stopped out. And just so you know,
2:18this strategy works best on lower time
2:20frames like the 5 to 15-minute chart.
2:22And it can be used on any asset, whether
2:24it's forex, crypto, or stocks. Let's
2:26begin. So, first, to simplify
2:28everything, I'm going to break down the
2:30strategy into four simple steps that you
2:32can follow. Keep in mind that all of
2:33these steps are connected to one
2:35another, meaning if you skip any of
2:36them, you can't proceed to the next one.
2:38So, let's begin. Step one is identifying
2:41something called a break of structure in
2:43price. To do this, we first need to
2:45understand how trends actually form. So,
2:47we all know there are two types of
2:49trends in the market. Uptrends and
2:50downtrends. Let's take an uptrend for
2:52example. During an uptrend, the markets
2:54rarely move straight up. Instead, it
2:56moves in a structured way, forming
2:58what's called higher highs and higher
3:00lows. On the flip side, during a
3:02downtrend, the structure you'll find is
3:03price forming lower highs and lower
3:05lows. [music] Now in an uptrend
3:07structure whenever the previous high
3:09gets broken and price forms a new higher
3:11high that's what we call a break of
3:13structure. Similarly in a downtrend
3:15whenever the previous low gets broken
3:17and price forms a new lower low that's
3:19also called a break of structure. Now
3:21that you have an idea of what a break of
3:22structure is. Let's look at a real chart
3:24example. In this chart we can see that
3:27price is forming higher highs and higher
3:29lows indicating an uptrend. To find the
3:31break of structure, we simply look at
3:33the moment price broke above the
3:35previous highs and formed higher highs,
3:37which is right here. So, this becomes
3:39our break of structure. Now, it's
3:41important that you wait for a candle to
3:42actually close above the previous highs
3:44for it to count as a break of structure.
3:46So, wicks alone don't count. Once a
3:48break of structure is identified, we can
3:50move on to step two, which is
3:52identifying a supply or demand zone.
3:54These are areas where large buy or sell
3:56orders were placed in the market causing
3:58a sharp move in price. The easiest way
4:00to find these zones is to first spot a
4:02break of structure. Then look at the
4:04starting point before the sharp price
4:06move which led to that break of
4:07structure. The area right before the
4:09sharp move upwards is called a demand
4:11zone. Similarly, in a downtrend, the
4:13area right before the sharp drop that
4:15led to that break of structure is called
4:17a supply zone. Returning to our original
4:19example, since we've already identified
4:21a break of structure, finding the demand
4:23zone becomes easier. We look at the area
4:25right before the sharp move that led to
4:27that break of structure. In this case,
4:29price began its sharp move upwards at
4:31this point. To mark the demand zone,
4:33highlight the last candle right before
4:35that sharp move. Use the rectangle tool
4:37to draw a zone from the candle's low to
4:39its high. This marked area becomes our
4:41demand zone. Now that we've identified a
4:43demand zone, we move on to step three,
4:45which is finding a liquidity level. And
4:47this is the most important step in the
4:49entire strategy. To put it simply,
4:51liquidity levels are areas where a lot
4:53of stop-loss orders are placed. Examples
4:55of liquidity levels are double bottoms,
4:58triple bottoms, or even multiple
5:00rejections from the same level. The
5:02point [music] is, when a level looks too
5:04obvious for a bounce, a lot of traders
5:06enter long positions there and usually
5:08place their stop losses just below it.
5:09This causes a buildup of liquidity under
5:11that level, which becomes a target for
5:13stop hunts. So, what we're trying to
5:15find is any type of liquidity level
5:17that's located above our demand zone.
5:19What usually happens is that price will
5:20break below that level, sweeps the
5:22liquidity below it, and then bounces off
5:24our demand zone. This bounce becomes our
5:26long opportunity. The same logic applies
5:29in a bearish structure. What we're
5:31looking for is a liquidity level that's
5:32located below our supply zone. What
5:34usually happens is that price will break
5:36above that level, sweeps the liquidity
5:38above it, and then rejects off the
5:40supply zone. And that rejection becomes
5:42our short opportunity. Now, back to our
5:44original example. Since we've already
5:46marked our demand zone, the next step is
5:48to find a liquidity level sitting above
5:50it. And here we can see that price
5:52formed a double bottom, rejecting the
5:54same level twice, which creates a pool
5:56of liquidity below that level. Once a
5:58liquidity level is identified, we move
6:00on to the final step, which is entering
6:02the trade. Entering the trade with this
6:04strategy is simple. We place a limit buy
6:06order on top of the demand zone, place a
6:08stop-loss slightly below the zone, and
6:10set a take-profit at two times your
6:12stop-loss distance. Or if you want to be
6:15more aggressive, you can target the
6:16previous highs as your take-profit. Now,
6:18a limit order means you're not entering
6:20the trade at the current price. Instead,
6:22you're entering at your desired entry
6:24price along with your stop-loss and
6:26take-profit targets. This way, you don't
6:28have to sit in front of your charts all
6:29day waiting for the entry. Simply set a
6:31limit order, and let the price move. In
6:33this example, price actually broke below
6:35the liquidity level, wicks into our
6:37entry, and then reverses back up,
6:39hitting our take-profit target. Now,
6:41this strategy might seem hard at first,
6:43as many conditions need to come together
6:45for it to work, but it's really just
6:47about spotting a few key rules. A
6:48liquidity level formed near a supply or
6:51demand zone. It's no different than
6:52trying to spot a regular chart pattern.
6:54For example, in a triangle pattern,
6:56you're not trying to find this exact
6:58price movement because price don't move
7:00like this in a real chart. Instead,
7:02you're focusing on the rules that make
7:04up the pattern, which in this case are
7:05the converging trend lines. It's the
7:07same with our liquidity strategy. Don't
7:09try to find this exact price movement on
7:11a chart. Instead, focus on the key rules
7:13that make up the pattern, a liquidity
7:15level that formed mere a supply or
7:17demand zone. That's why it's important
7:18to understand these rules and not just
7:20memorizing the price sequence. Now,
7:22let's look at another example.
7:24So again, the first step is to find a
7:26break of structure. Looking at this
7:28overall chart, we can see that price is
7:30forming lower highs and lower lows
7:32showing a clear downtrend. And right
7:34here we can spot a break of structure as
7:36price broke below this low and formed a
7:38new lower low. We can also spot another
7:41break of structure here as price broke
7:43the previous low. Once the break of
7:45structure is identified, we can move on
7:47to step two, which is identifying a
7:49supply or demand zone. Since this is a
7:51downtrend, we'll be looking for a supply
7:53zone. To do that, we take the most
7:55recent break of structure. Then look at
7:57the starting point right before the
7:58sharp move down that led to that break
8:00of structure. In this case, it's right
8:02here. So, we mark our supply zone. Next,
8:04we move on to step three, which is
8:06finding a liquidity level below that
8:08supply zone. Here, we can see multiple
8:11wicks rejecting this level, making it an
8:13area of liquidity. This makes it a
8:14target for a liquidity sweep. So, we now
8:17have a supply level with a liquidity
8:19level sitting right below it, making
8:20this a valid liquidity pattern. Now, we
8:23can move on to step four, the final
8:24step, which is entering the trade. Since
8:26this is a downtrend, we're looking to
8:28short the market, meaning we make a
8:30profit if price goes down. For the
8:32entry, place a limit short order at the
8:34bottom of the supply zone. Set a
8:35stop-loss slightly above it and set a
8:38take-profit target at the previous lows.
8:40Then, simply let the trade run. In this
8:42example, price sweeps the liquidity
8:44level, hits our entry at the supply
8:45zone, and then rejects downward toward
8:47our takerit. So, this is one of the most
8:49powerful strategies you can learn, and
8:51it's the exact same one that helped me
8:53earn $500 per day just by finding this
8:56one setup daily on lower time frames
8:58like the 5 or 15 minute chart. The best
9:00part, it works on any asset. Sometimes I
9:03use it on forex, crypto, or the stock
9:05market. Now, the liquidity setup I just
9:07showed you is only the basic version of
9:09the strategy. There's also a more
9:11advanced setup. And knowing this can
9:12help you even more if your goal is to
9:14achieve $500 per day. So, let's dive
9:17into that right now. The way this setup
9:19works is first, just like in the basic
9:21version, we start by identifying a break
9:23of structure. This allows us to mark a
9:25supply or demand zone by looking at the
9:27initial sharp move that led to the
9:29break. The key difference in this
9:31advanced setup lies in the liquidity
9:33level. Instead of being a typical
9:34rejection pattern like a double bottom
9:36or triple bottom, the liquidity is
9:38formed by another demand zone instead
9:41created from a second break of
9:42structure. However, this second zone
9:44must be a minor demand zone slightly
9:46different from the major zone found
9:48below it. So, how do we know whether a
9:50supply or demand zone is considered
9:52major or minor? Simple. We look at the
9:55break of structure that formed after. If
9:57the break came from a large obvious
9:59price swing, it's a major zone. If it
10:01came from a small short-term move, it's
10:03a minor zone. For this strategy, the
10:05ideal setup is when we have a minor
10:07demand zone sitting just above a major
10:09demand zone. That minor zone becomes our
10:12liquidity level and we look to enter a
10:14long trade once price sweeps the
10:16liquidity off that minor zone and
10:17bounces off the major zone right below
10:19it. So, let's look at an example. In
10:22this chart, we can see that price is
10:24forming higher highs and higher lows
10:26clearly in an uptrend. Right here, we
10:28see a break of structure, which means we
10:30can draw our demand zone at the initial
10:32move before that break, which is right
10:34here. Now, if we look closer, we can
10:36also spot another break of structure
10:38just above. Meaning, we can draw another
10:40demand zone before the initial move that
10:42led to that break. Since that break came
10:44from a small price swing, we classify
10:46the zone as a minor demand zone.
10:48Meanwhile, the zone below was formed
10:49from a large price swing, which makes it
10:51a major demand zone. So, now we have our
10:53ideal setup, a minor demand zone sitting
10:56just above a major one, giving us a
10:58valid liquidity setup. For the entry, we
11:00place a limit long order at the top of
11:02the major demand zone, a stop-loss
11:05slightly below it, and a take-profit
11:06target at the previous highs. In this
11:09case, we can see that price rejected a
11:11few times at the minor demand zone
11:12before breaking it. Retested the major
11:14demand zone which triggers our entry and
11:16then bouncing up to hit our takerit. A
11:19clean and successful trade. So, let's
11:21look at another example. In this chart,
11:23we can see that price is forming lower
11:25highs and lower lows, clearly showing a
11:27downtrend structure. There are also
11:29multiple breakup structures that could
11:31be identified, but we'll focus on the
11:33most recent one, which is right here.
11:34From that break, we take the initial
11:36move that led to it and draw our supply
11:38zone. Looking closer, we can also spot
11:41another break of structure that came
11:42from a smaller price swing. This lets us
11:44draw a second supply zone. And since it
11:47was formed from a smaller move, we
11:48classify it as a minor supply zone. In
11:51contrast, the zone above was formed from
11:53a larger price swing, which makes it a
11:55major supply zone. At this point, we now
11:57have a minor supply zone sitting just
11:59below a major supply zone, giving us a
12:02valid liquidity setup. So for the entry,
12:04we place a limit sell order at the
12:06bottom of the major supply zone, set a
12:08stop-loss slightly above and target the
12:11previous lows for take profit. As we let
12:13the price play out, we can see that it
12:15showed rejection towards this minor
12:17supply zone, further confirming that
12:19this is a strong liquidity level, breaks
12:21through it, sweeping the liquidity, hits
12:23our entry at the major zone, and then
12:24drops toward our take-profit. Another
12:26clean and profitable trade. And that was
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