Liquidity is the lifeblood of the markets. Liquidity is what allows anyone to buy or sell for a profit or a loss. It is what creates opportunity in the markets. While liquidity may not hold much significance for a retail trader, it is of paramount importance to big players who must carefully consider it in order to execute positions successfully. In an non-liquid market there are few buyers and sellers, and trades may take longer to complete, and prices can be more volatile. To help you better understand what liquidity is, I have drawn some simple diagram. It illustrates why we refer to certain levels as 'liquidity'. The point is not that the models themselves are liquidity, but that when a certain price model appears, liquidity is attracted at key levels and price points.
So what is the use of liquidity for us traders? Good question. Liquidity helps us determine where the price is likely to go next. You can learn to trade only using liquidity levels, it's not difficult, but the risks and potential profits will not be so attractive. In order to get a high-quality trading idea, using the liquidity, you need to apply the market structure on the Higher Time Frames, order blocks, and Premium/Discount zones. This helps to understand what kind of liquidity will attract the price and where we should enter into the trade and where we should exit.
How to identify the Draw on Liquidity (DOL): As a day trader, the DOL can be PWH/PWL (Previous Week High/Low), PDH/L (Previous Day High/Low), or session High/Low from Asia, London, or New York paired with EQH/EQL (Equal Highs/Lows) with a Low Resistance Liquidity Run (LRLR) condition. EQH/EQL (Equal Highs/Lows) are large pools of liquidity so institutions will always draw towards those levels to take out retail.
How do I find the next Draw on Liquidity? First thing, price is always either re-balancing or taking liquidity. Price is going from Premium/Discount array to P/D array. Hence, you must annotate your P/D zones to know If price re-balanced or will re-balance, you must also annotate your liquidity and P/D arrays. To find the next draw on liquidity, you can follow a displacement, use the reaction on a P/D array.
External range liquidity refers to the buy side liquidity above the range high and sell side liquidity below the range low in the current trading range. It Is associated with liquidity runs that seek to pair orders with pending order liquidity, which is in the form of a liquidity pool. External range liquidity runs can be low resistance or high resistance in nature. As a trader, you want your trades to be In low resistance conditions, meaning you don't want any resistance in your path of profitability. While Internal Range Liquidity is the liquidity inside the defined range (External Range Liquidity), This could be In form of any institutional reference that we can use as entry such as order blocks, fair value gaps, volume imbalance, and more.
So what is the use of liquidity for us traders? Good question. Liquidity helps us determine where the price is likely to go next. You can learn to trade only using liquidity levels, it's not difficult, but the risks and potential profits will not be so attractive. In order to get a high-quality trading idea, using the liquidity, you need to apply the market structure on the Higher Time Frames, order blocks, and Premium/Discount zones. This helps to understand what kind of liquidity will attract the price and where we should enter into the trade and where we should exit.
How to identify the Draw on Liquidity (DOL): As a day trader, the DOL can be PWH/PWL (Previous Week High/Low), PDH/L (Previous Day High/Low), or session High/Low from Asia, London, or New York paired with EQH/EQL (Equal Highs/Lows) with a Low Resistance Liquidity Run (LRLR) condition. EQH/EQL (Equal Highs/Lows) are large pools of liquidity so institutions will always draw towards those levels to take out retail.
How do I find the next Draw on Liquidity? First thing, price is always either re-balancing or taking liquidity. Price is going from Premium/Discount array to P/D array. Hence, you must annotate your P/D zones to know If price re-balanced or will re-balance, you must also annotate your liquidity and P/D arrays. To find the next draw on liquidity, you can follow a displacement, use the reaction on a P/D array.
External range liquidity refers to the buy side liquidity above the range high and sell side liquidity below the range low in the current trading range. It Is associated with liquidity runs that seek to pair orders with pending order liquidity, which is in the form of a liquidity pool. External range liquidity runs can be low resistance or high resistance in nature. As a trader, you want your trades to be In low resistance conditions, meaning you don't want any resistance in your path of profitability. While Internal Range Liquidity is the liquidity inside the defined range (External Range Liquidity), This could be In form of any institutional reference that we can use as entry such as order blocks, fair value gaps, volume imbalance, and more.