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Liquidity PDF

Liquidity refers to how easily an asset can be traded without affecting its price. Forex has high liquidity as there is a constant flow of buyers and sellers. For large institutions, lack of liquidity can prevent big trades from being filled. Key liquidity points include areas above highs and below lows, where stop losses may be triggered. Other liquidity types are structural zones from supply and demand, fake trend changes, and flat highs/lows in a choppy market. Liquidity grabs occur when a liquidity point is broken through, triggering stops and allowing banks to generate momentum in the opposite direction. Proper identification of liquidity is important for traders to avoid becoming liquidity themselves.

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Shabab Ahmad
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10K views20 pages

Liquidity PDF

Liquidity refers to how easily an asset can be traded without affecting its price. Forex has high liquidity as there is a constant flow of buyers and sellers. For large institutions, lack of liquidity can prevent big trades from being filled. Key liquidity points include areas above highs and below lows, where stop losses may be triggered. Other liquidity types are structural zones from supply and demand, fake trend changes, and flat highs/lows in a choppy market. Liquidity grabs occur when a liquidity point is broken through, triggering stops and allowing banks to generate momentum in the opposite direction. Proper identification of liquidity is important for traders to avoid becoming liquidity themselves.

Uploaded by

Shabab Ahmad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
  • Introduction to Liquidity
  • Liquidity Types
  • Highs and Lows Liquidity
  • Structural Liquidity
  • Fake Trend Change
  • Flat Highs and Lows Liquidity
  • Liquidity Grab (LG)
  • Additional Concepts – The Daily Range

INTRODUCTION TO LIQUIDITY

• Liquidity is the ability of a currency pair to be traded (bought/sold) on demand.


• A market is liquid when there is a constant flow and participation of Buyers and Sellers. Anyone can come in at any time and sell his
commodity/asset.
• Forex is one of the most liquid markets. Real estate is one of the most illiquid markets.
• The concept of Liquidity is CRUCIAL, because it is what drives the market and helps BFIs execute their orders.
• For us (retail traders), liquidity is not a problem. We open our platform anytime and can take our 1-100 lot/contract trades.
• Imagine being a Bank, opening their platform and trying to place a buy with 10k lots/contracts and the platform says: ‘’Not enough
liquidity available to execute your order.’’.
• So, the Bank has to wait for more liquidity, generate its own, or drive price towards ‘’liquidity pools’’. Remember where liquidity is?
• Liquidity points are used by BFI to get enough counter orders to theirs, so their order can get filled.
• This is done by taking other people’s Stop Losses, Limit Orders, Stop Orders, and Tricking them into Buying and Selling.
• Mindset Shift is required. When you see a DT – mark it as LQ point. When you see flat, choppy price – mark it as LQ.
• Liquidity Grabs (LG) are a ‘’recharge mechanism’’. Market cannot be pushing up/down forever – it needs liquidity to
recharge. That’s why we get pullbacks, formations and liquidity points, that are mainly ‘’engineered’’ by BFIs.
LIQUIDITY TYPES

• There are many forms of Liquidity. The key is to KISS (simple and systematic)
• Above any High and Below any Low. (Why? Stop Losses and Stop Orders.)
• Equal Highs (EQHs) and Equal Lows (EQLs). Usually we see them as DTs, DBs, Ranges.
• Structural (S&D) Liquidity – Old S&D zones or Structural Levels.
• Fake Trend Change.
• Trendline Liquidity – slow and corrective trending structure. (subjective)
• Flat Highs and Lows fall under this category.
• Flags and Channels.
HIGHS AND LOWS LIQUIDITY

• Every High and Low has Liquidity.


• A Single High or Low.
• Equal Highs and Lows.
• Remember, HTF matters the most! A High/Low on a HTF matters more than on the LTF.
HIGHS AND LOWS LIQUIDITY - EXAMPLE
HIGHS AND LOWS LIQUIDITY - EXAMPLE
HIGHS AND LOWS LIQUIDITY - EXAMPLE
STRUCTURAL LQ

• Those are Old Structural Levels (HLs/HHs/LHs/LLs) and/or Supply and Demand Zones.
• Many traders refine too much, do not follow the trend and end up becoming Liquidity to those levels.
STRUCTURAL LQ
STRUCTURAL LQ - EXAMPLE
STRUCTURAL LQ - EXAMPLE
FAKE TC

• That is a Fake Trend Change, that tricks traders into Buying/Selling, before Liquidity is generated.
FAKE TC - EXAMPLE
FAKE TC - EXAMPLE
FLAT HIGHS AND LOWS LQ

• Flat price is simple, yet a bit subjective.


• Slowly moving price, corrective in nature, still making structure, but in a very choppy manner.
• Trendline Liquidity – ascending/descending corrective price. Depending on the direction – it can either be used as Inducement
or for Targets.
FLAT HIGHS AND LOWS LQ
FLAT HIGHS AND LOWS LQ
LIQUIDITY GRAB (LG)

• The Liquidity Grab is a CRUCIAL concept!


• Also called Sweep, Stop Hunt, Liquidation, Manipulation.
• A LG is a Stop Hunt. Simply, a break of any Liquidity Point we just covered.
• This takes LQ and then launches order in the opposite side. Usually, after a LG, price will sharply reject and reverse.
• A LG should be usually followed with a large influx of momentum. No Momentum – not enough LQ has been gathered.
• That’s BFI launching fake orders to take out SLs. A LG can be retested, but it shouldn’t break.
• LGs are on all timeframes. The concept is Fractal.
• LG on HTF (4H/15M) will signify a strong zone created. An S&D zone that made a LG is stronger!
• LG on LTF (1M) signifies liquidation and stopping out early buyers/sellers.

• Include LGs in your Trading Plan.


• Decide on which LQ points you are going to use. Add them to your Strategy.
• Always wait for the LG. Else – you will be the liquidity.
ADDITIONAL CONCEPTS – THE
DAILY RANGE (2 PROFILES)
ADDITIONAL CONCEPTS – THE
ASIAN RANGE (4 PROFILES)

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