Showing posts with label Liquidity. Show all posts
Showing posts with label Liquidity. Show all posts

Saturday, March 1, 2025

Market Logic is Based on Liquidity, Volume, and Inefficiency | orderbloque

There are three main tools for market analysis that you will need once and for all. No more patterns and unnecessary clutter that only hinder and bring failures. The logic of the market is very simple and based on just three main elements: Liquidity, Volume, and Inefficiency. All price action can be described using just these three concepts. 
 
 » The logic of the market is based on liquidity, volume, and inefficiency. «

Liquidity: At the top of this chain is liquidity, the primary driver of the market. Without liquidity—without buy or sell orders—the market would come to a standstill. It's crucial to understand that while any element on the chart can provide liquidity, the key factor is the quantity: volume.
Volume: The second most important element is volumethe foundation of all our market logic and strategy. Volume directly reflects the amount of liquidity, or money, that has entered the market.
Inefficency: The third element is inefficiency, which arises from the influence of volume on price. Inefficiencies are graphical representations of volume at a specific moment in time, varying by time frame, and serve as tools for analyzing the chart.
 
Price always moves from liquidity to inefficiency and vice versa, or from internal liquidity to external liquidity and vice versa. Hence, when looking at any chart, the Points of Interest (POIs) are always price levels or zones where liquidity rests in the form of stop orders, unfilled, and partially filled orders, namely Fair Value Gaps (FVGs), Order Blocks, Rejection Blocks, Support & Resistance at previous highs and lows, or Fractal Points. 
 

All these concepts and terms are briefly defined and outlined below, and explained in detail with context and chart examples in the following video.

How Fair Value Gaps (FVGs), Order Blocks (OB), and Rejection Blocks (RB) operate.
 
Balanced and Unbalanced State of the Market
To understand the deeper logic of inefficiencies and market movements, we need to consider two main factors. The first factor is the state of the market at a certain point in time: balanced or unbalanced. What does this mean? 
 
 
When the market is in a balanced state, the volume of buys and sells is equivalent, and price hardly moves, with neither buyers nor sellers dominating the market. This is very rare and usually occurs on days with very low volatility. The second type is the unbalanced state, which is more typical of any market. This occurs when buy volume exceeds sell volume, causing price to rise, or when sell volume exceeds buy volume, causing price to fall.
 
Efficient and Inefficient Price Delivery
The second factor is the efficiency of price delivery, which also comes in two types. The first type is efficient delivery, where, in the context of a certain market movement, both buyers and sellers are present, allowing for a more even exchange of assets. 

 Efficient Price Delivery and Inefficient Price Delivery.

It is important to note that price delivery is always an unbalanced process in which one side—either buyers or sellers—dominates. 
 
The second type is inefficient price delivery, which occurs when the exchange of assets is uneven in certain price ranges between buyers and sellers. This means that there are areas in the market where orders remain unexecuted or are only partially filled, which is a key sign of inefficient pricing. Inefficient price delivery causes a Fair Value Gap (FVG). 
 
Fair Value Gaps (FVGs)
A Fair Value Gap (FVG) is a formation consisting of three candles where the shadows or wicks of the first and third candles do not overlap each other in both bullish and bearish variants, indicating an imbalance in buying or selling pressure.
 
 A Fair Value Gap (FVG) is a 3 candle pattern where the shadows 
of the first and third candles do not overlap, indicating an imbalance.
 
 A FVG has three levels: the upper and lower boundaries, and the 0.5 level, 
where, ideally, price action should revisit and bounce off, making it a potential entry point for a position.

Regarding the validity of the FVG when it is tested, it’s quite complex because much depends on timing. However, the key point is that price should not close below the lower boundary when the FVG is bullish and should not close above the upper boundary when the FVG is bearish. A close above the upper boundary in a bearish FVG or below the lower boundary in a bullish FVG would be considered an inverted fair value gap, which may signal a continuation of the movement. Everything else is permissible, but much depends on the context. 
 
 Examples of bearish and bullish FVGs.
 
Support and Resistance (SnR)
Support occurs when two candles form on the chart. The level where the bearish candle closes and the bullish candle opens is called Support. This is where buyers show activity and prevent the price from falling lower (Sell and Buy Candles).


Resistance occurs when two candles form on the chart. The level where the bullish candle closes and the bearish candle opens is called Resistance. This is where sellers show activity and prevent the price from rising higher (Buy and Sell Candles).

Order Block (OB)
A Bullish Order Block is a price movement where the Resistance level was broken with subsequent confirmation by the candle body closing above it.
 

A Bearish Order Block is a price movement where the Support level was broken with subsequent confirmation by the candle body closing below it.
 
Rejection Block (RB)
A Rejection Block is a two-candle formation where the range of shadows forms a zone of interest, and it doesn't matter which one is longer or shorter. 
 

In the bullish variant, it begins at the Support level. In the bearish variant, it begins at the Resistance level. 

Fractal Point (FP)
A Fractal Low (FL) is a three-candle formation where the minimum of the middle candle is lower than the minimums of the first and third candles. Five-candle fractals are considered potentially stronger.


A Fractal High (FH) is the opposite three-candle formation, where the middle candle has the highest maximum compared to the adjacent candles.
 
Dealing Range (DR)
The Dealing Range is a price movement that can be identified using two opposing fractal points (High and Low), regardless of direction. This formation displays the balance between buyers and sellers during a specific time period and helps to more clearly define potential zones of interest.


The Dealing Range is divided into two main zones - Premium and Discount with an Equilibrium level in the middle.
 
High Resistance Logic
High Resistance is considered a movement that has interacted with liquidity (Fractal Raid) or inefficiency (FVG rebalance) usually on the same timeframe, resulting in the formation of (OB, RB, FVG), plus a fractal point has formed as a level confirming the extreme. 

 

Friday, November 1, 2024

Crude Oil Prices vs. Global Excess Liquidity | Simon White

Oil prices are set to rebound due to a historic rise in global liquidity. These are strange days indeed. Policy has been eased in an economy showing scant definitive signs of accelerated slowing; liquidity conditions, which were already robust, have been turbocharged.
 

The recent rise in G10 excess liquidity to a level it has only eclipsed once before is a very positive tailwind for crude prices.
 

Tuesday, October 29, 2024

Fed Policy-Driven Super Rallies and Corrections in US Stocks | Sven Henrich

The US market is at a critical juncture with a contentious election, a Fed meeting, and numerous earnings reports on the horizon. A significant liquidity rally is underway, raising hopes for a year-end rally, yet concerns about a potential corrective move linger, especially after an 11-month rise. Despite strong bullish sentiment, skepticism remains due to insufficient changes in underlying conditions and earnings not meeting expectations. The S&P 500 is now at approximately 5,800, with some analysts projecting levels as high as 6,600, but these optimistic forecasts prompt concerns about sustainability.

Super rallies and corrections in the S&P, driven by interest rate cuts and hikes (2016–2024).
 
Liquidity-driven super rallies, influenced by Fed policy on interest rates, are characterized by prolonged market increases with minimal price discovery. The first major super rally in the above chart followed the earnings recession of 2015-2016, fueled by tax cuts and global quantitative easing. Subsequent rallies occurred despite rate hikes, indicating a strong influence from central banks and government policies. These rallies often persist until liquidity conditions shift, such as through rate increases or unexpected events. 
 
Currently, global central banks are signaling easing policies, contributing to the ongoing liquidity rally. Fiscal dominance, marked by significant deficits, plays a crucial role in this environment. The unprecedented $1.6 trillion deficit in 2023 raises questions about recession potential amid fiscal stimulus. Past experiences show that downside movements typically arise when liquidity changes. The current market situation highlights a disconnect between strong policy support and underlying economic conditions. Overall, these factors suggest that the rally extend through the end of the year or into 2025, but risks remain.
 
Reference:

Markets expect the Federal Open Market Committee to 
cut interest rates again by 0.25% on Thursday, November 7.
 
The median Nasdaq 100 (NDX) return from October 27th to December 31st is +11.74% since 1985.  
The median S&P 500 return from October 27th to December 31st in election years is +6.25% since 1928. 
 

Thursday, October 17, 2024

Strong NYSE Breadth Indicates Liquidity is Abundant | Tom McClellan

Strong NYSE breadth says liquidity is plentiful.

A higher number of advancing stocks suggests bullish sentiment, 
more declining stocks bearish sentiment.


"No need to fear S&P 500 new all-time highs … until they cease."

Thursday, July 18, 2024

Interbank Price Delivery Algorithm (IPDA) Data Ranges | D'onte Goodridge

IPTA stands for Interbank Price Delivery Algorithm which controls the price action on our charts. It is the sole reason we get the four phases of the market: consolidation, expansion, retracement, and reversal. IPTA is used by Commercial Speculators to move large orders in the market. IPTA creates shifts on the daily chart every 20, 40, and 60 trading days, known as the IPDA look-back periods.
 
 IPDA Look-Back Periods = 20, 40, and 60 Trading Days

Approximately every 20 trading days, new liquidity pools form on both sides of the market. Understanding IPTA will give clarity about which levels are significant to current price. IPTA is always working and exchanging orders every second. IPTA can be applied on a daily timeframe of the current trading day or the first trading day of a month. 
 
Before trading a new month, traders should follow three steps to gain insight in the market:

(I.) Visualize IPDA Data Ranges in Daily Chart
The first step you must follow is finding the first trading day of a new month. Next you count back 20, 40, and 60 trading days (TD) from the first trading day of the month. Last find the highest high and lowest low in each look back data range.

 
The above is the daily chart of British pound versus US dollar (GBPUSD). Currently we are in January 2023, and the first official trading day is Monday, January 2, 2023. That is the start. From here we look back 20, 40, and 60 trading days: back 20 TD = December 2, 2022; back 40 TD = November 4, 2022; back 60 TD = October 7, 2022. Now we have all our look back data ranges. We find the highest high (red lines) and lowest low (blue lines) in al three quadrants.

(II.) Create hypothesis were price might draw to based on Technical and Fundamental Analysis
Now that we have finished our chart activity, we will take a look at technical analysis, then perform fundamental analysis and gain macroeconomic data that can aid with insight. Last, bring together the two analysis techniques to form a hypothesis on what price should do in the near future. 
 
Every new trading month, I am asking myself two questions: 
 
(1.) Is price going to give me a quarterly shift, meaning change trends?
(2.) Or is price going to continue its current trend? 
 
I have no idea whether or not the market is going to continue its trend or make a quarterly shift during the new month. However, using the IPTA ranges, I am able to structure some story-line, especially around liquidity. Going into a new trading month, IPTA ranges can help to figure out where the large orders of liquidity are residing. One side of the market is going to be taken, whether that is buy side liquidity or sell side liquidity. Look for the highs and lows that are still intact. This is where the price algorithm is going to draw to.
 
(III.) Consider Seasonality
Incorporate Seasonality for more insight going into a new trading month. Seasonality does not tell you when to buy or sell for the year but it does give a general sense of when to anticipate the high of the year or the low of the year or when a instrument may be going sideways for a month or a couple of months.

 
IPDA Library Example #1: Gold/USD vs IPDA.
 Primary driver of the market are Interest Rate Differentials (IRDs).
 
Ref
erence:

Sunday, July 14, 2024

Trading Major News Events | D'onte Goodridge

News events typically inject momentum into the market, often prompting traders to anticipate where price might trend in response to the news. Making educated predictions about these movements is a common strategy rooted in technical analysis. Position yourself AFTER major news releases (NFP, CPI, PPI, PMI, FOMC etc.) with either a Pump & Dump or a Dump & Pump trading setup.


Sell Scenario/Setup: Wait for the buy side liquidity pool on the 15 minute timeframe to be raided first. After that, go to the 1 minute timeframe entry above the killzone's opening price. Then, anticipate that price will revert back down to a sell side liquidity level.
 
 
Buy Scenario/Setup: Wait for the sell side liquidity pool on the 15 minute timeframe to be raided first. After that, go to the 1 minute timeframe entry below the killzone's opening price. Then, anticipate that price will revert back up to a buy side liquidity level.
 
When price moves above the opening price of a killzone, it's in a premium. This is where to find ideal sell entries. 


When price moves below the opening price of a killzone, it's in a
discount. This is where to find ideal buy entries.

Wednesday, April 3, 2024

ICT Fair Value Gap | Darya Filipenka

A Fair Value Gap (FVG) is a price action phenomenon that is usually illustrated using three consecutive candles when the wicks of the two candles sandwiching the third candle fail to meet or overlap. A Fair Value Gap (FVG) is a range in Price Delivery where one side of the Market Liquidity is offered and typically confirmed with a Liquidity Void on the Lower Time Frame Charts in the same range of Price. Price can actually “gap” to create a literal vacuum of Trading thus posting an actual Price Gap. It occurs when price leaves a specific level where there’s less trading activity seen and only has a one-directional price movement.
 
 The key point in identifying FVGs is that the gap is only calculated by the impulse up or down candle, 
and the candles on either side of that move. Everything else does not contribute towards that gap.

A Liquidity Void is a range in price where one side of the market liquidity is shown in wide or long one-sided ranges or candles. It occurs when the market aggressively moves away from a consolidation, creating a void of buy-side liquidity. This means that very little buying took place during the price movement. The nature of a liquidity void is that, with a high probability, the price will eventually move back up and trade over the same price levels that were previously void of liquidity. The idea behind FVGs is that the market will eventually come back to these inefficiencies in the market before continuing in the same direction as the initial impulsive move. FVGs are important since traders can achieve an edge in the market. Price action traders can also use these imbalances as entry or exit points in the market.

BISI = Buyside Imbalance and Sellside Inefficiency 
SIBI = Sellside Imbalance Buyside Inefficiency. 
 
A Bullish FVG is a BISI. A FVG is made up of 3 consecutive candlesticks. In a BISI, it starts with the high of candle #1 which will be the FVG low and ends with the low of candle #3 which is the FVG High. A Bullish FVG gets created when the low of candle #3 doesn't overlap the high of candle #1. This happens when there is a displacement in price from candle #2. It is called a Buyside Imbalance Sellside Inefficiency (BISI) because during candle number 2 there is only buyside offered to the market so there's a Buyside Imbalance and because there's no sellside being offered there's a Sellside Inefficiency.

A Bearish FVG is a SIBI. A SIBI starts at the low of candle #1 which is the FVG High and ends with the high of candle #3 which is the FVG Low. A Bearish FVG is created when the high of candle #3 doesn't overlap the low of candle #1. This happens from the displacement of candle #2. It is called a Sellside Imbalance Buyside Inefficiency (SIBI) because during candle #2 there was only sellside offered to the market so there's a Sellside Imbalance and because there is no buyside being offered there's a Buyside Inefficiency.
 
  

Inverted FVG - When price use SIBI (Bearish FVG) as support and when price uses BISI (Bullish FVG) as resistance. In other words word, inverted FVGs are failed Fair Value Gaps that get retraced into later in price. We consider Inverted FVG only when:

1. Bullish FVG formed inside Premium Zone (above Equilibrium).
2. Bearish FVG formed inside Discount Zine (below Equilibrium).
 
Most of the time Bullish FVG that was formed inside Premium Zone will fail to give us reaction when price comes back to that FVG. We want to see price goes lower and bounce back right to this FVG to continue sell off. In this case that Bullish FVG becomes Resistance and I would say Strong Resistance. Exactly the same for the Bearish FVG that was formed inside Discount Zone — we want to see price is trading higher to break this FVG and makes it invalid then retest of this zone again and continue move up. This FVG becomes Support Zone.

Implied Fair Value Gap - it utilizes two wicks and their respective Consequent Encroachment. An Implied Fair Value Gap (IFVG) is an imbalance formation consisting of three candles, as conceptualized by ICT. It involves identifying a larger candle body and measuring the average between the two adjacent candle shadows.

Criteria:
1. Big range candle.
2. Does NOT have a FVG.
3. Candles on either side have long wicks that overlap “Implied FVG”.
Steps:
1. Find Consequent Encroachment of left candles lower wick.
2. Find Consequent Encroachment of right candles upper wick.
3. Space between C.E. wicks is “Implied FVG”.

Balanced Price Range — is the common area between 2 opposite Fair Value Gaps when they overlap each other. This overlapping of the FVGs called double FVG. BPR is the result of an aggressive move up that’s immediately followed by an aggressive move down or an aggressive move down that’s immediately followed by an aggressive move up. What's left after either of these instances is essentially a double Fair Value Gap which can act as a magnet to the price before a continuation move higher or lower. You have to have HTF Point of Interest. Don’t enter blindly into the trade which is have BPR if you don’t know bias for the day. ICT states that in order for price to become a balanced price range it must trade through both directions of the price window. As you can see price traded through the overlapping gaps, rebalancing and redelivering creating a balanced price range. Once we redeliver, expect price to move away aggressively from the gap. 
 
Reference: 

Monday, March 18, 2024

ICT Draw on Liquidity | Darya Filipenka

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.
 

ICT Liquidity Runs | Michael J. Huddleston

As price action traders, we're looking specifically for reference points where there is a high probability of liquidity resting in the marketplace. Related to ICT concepts, liquidity relates to buy orders and sell orders. It's as simple as that.

Below old lows, the market will seek liquidity for the sell side or the sell stops, taking orders out. Understanding this premise, when we view price action, it removes all of the retail-minded perspective but heavily leaning on indicator-based ideas. When we adopt these principles with study of price, it gives us the  truest and purest view of how price is delivered.

We have no confidence or direct relationship to our directional bias on price relative to anything except for price itself. If the market is moving from an old high, we know that there is going to be liquidity resting above that old high. If the market is moving from an old low, we know there is going to be a rest liquidity below those lows. It is just that simple. 
 
LRLR = Low Resistance Liquidity Run
HRLR = High Resistance Liquidity Run

As a trader you want to be trading when there is LRLR conditions because during LRLR conditions price will cleanly deliver to your target a lot quicker than HRLR conditions. If you're in a trade a lot longer than expected it is most likely because you are in HRLR conditions.

A LRLR will have clean highs or lows and for this example it means there's a large pool of liquidity resting above the Clean Highs/EQHs. This is where retail traders are placing their stops and smart money will look to take out these stops.


Another way you can look at LRLR is if there are EQH/Ls & multiple highs/lows lined up in a row (Trendline Liquidity). This is what #TheStrat traders call Pivot Machine Gun (PMG). It's called PMG because the algorithm spools higher like a machine gun triggering stop losses to get taken out.
 


So in this example, after SSL got raided, you're looking to go long inside of the FVG within the BPR to target the EQH. This is LRLR conditions.
 


When you have EQH/L, any PD arrays in-between where price is currently at to the EQH/L will have a low probability of holding. Smart money will target the largest liquidity pool which will be the EQH/EQL so price will either go through the PD array, or consolidate at the PD array then continue in the direction of the EQH/L. Now we will look at an example of HRLR. Typically with HRLR conditions there will be a stop hunt (fu) on buyside or sellside liquidity. Once there's a stop hunt it will leave a Point of Interest (POI) / PD array which is typically an orderblock or fair value gap.
 


Because there's a stop hunt (fu) which leaves a POI, the POI will act as resistance which will make it a HRLR condition. So in this example, instead of going long at the lows to target the high formed from (fu), I'd rather wait for price to reject off the POI to look for shorts.
 

1st pic below is M15 timeframe, 2nd pic below is H1 timeframe. You will see a M15 fu raid on BSL which leaves an H1 bearish orderblock making it HRLR. After the fu raid price went lower and when it retraced back up it rejected the orderblock then started to take out internal SSL.
 
 
 
HRLR conditions can also happen when indices ( $ES $NQ $YM ) is not in sync with each other or when it's not in moving inversely to $DXY (dollar). $GU & $EU are supposed to move inversely w/ $DXY as well so if they're moving together it is HRLR conditions.


Reference: