LIQUIDITY is fuel for the market, it is oxygen for the price.
Without liquidity, the market will not get any momentum for upside or downside.
Big institution fills their order with high liquidity because they have a big number of orders and they know well where is the maximum buy/sell orders of the retailers, that’s why they move the price to support, resistance, and trend lines.
Buying and selling without inducement is known as Smart Money Trap or Smart Money Liquidity.
BOS / CHOCH > IND
Engineering Liquidity: High/low before the extreme order block.
External Liquidity: Major swing high/low, Previous day high/low, Session (Newyork/London/Asia) High/Low
When price sweeps external liquidity then we need CHOCH in the market to plan our entry.
As a day trader:
If the price breaks the Major swing High/days high: Look for a short-term sell opportunity
If the price breaks the Majors wing low/days Low: Look for a short-term buy opportunity
In 1 Day TF, if the price sweeps the previous day’s high, there will be short-term down move is expected. And the candle range will act as a supply zone.
In 1 Day TF, if the price sweeps the previous day low, there will be short-term up move is expected. And the candle range will act as a supply zone.
Downtrend (DAILY TIME FRAME)
If the price sweeps a major swing high we will have a long-term short opportunity in the smaller time frame
If the price sweeps the previous day’s high we will have a long-term short opportunity in a smaller time frame
If the price sweeps a major swing low we will have a short-term buying opportunity in a smaller time frame
If the price sweeps the previous day’s low we will have a short-term buying opportunity in the smaller time frame
If the price sweeps a major swing high we will have a long-term short opportunity in the smaller time frame
If the price sweeps the previous day’s high we will have a long-term short opportunity in a smaller time frame
If the price sweeps a major swing low we will have a short-term buying opportunity in a smaller time frame
If the price sweeps the previous day’s low we will have a short-term buying opportunity in the smaller time frame
Break Of Structure for higher/lower time frames will give us a pullback
RETAILERS LIQUIDITY
Here we learn all about retailers and price action.
We need to be good retailers before mastering smart money trading.
Identifying retailers is the most important thing to being a smart money trader.
Market makers have huge orders it can not be filled at market price and they know the maximum orders of retailers is at their stop loss that is why they collect the stop loss of retailers and then the order of market makers will be executed.
Retailers are available at both types of liquidity (Internal/external).
Major swing High/low break and seep is external liquidity.
External liquidity can have many forms like supply/demand zones, trendlines, breakouts, and high/low sweeps of the major time frame.
Internal Liquidity: it is created between 2 external liquidity like the previous day’s high and low or a major swing high and low or demand and supply zones or session high and low.
Internal liquidity: Trend line, support and resistance of smaller time frame, moving averages., Fibonacci level, pivot level.
We use internal liquidity (trend line/support resistance/ breakout/fakeout) as an additional confirmation there is no other use for it, we must focus on where is our POI.
If the price reaches our POI we have to execute our order, Before this whatever is happening is part of liquidity, we do not have to enter whether it is a break of the trend line or level.
We must wait and take action when the price taps our POI (Price Of Interest).
ADVANCED LIQUIDITY
Here we learn about inducement, smart money traps, and engineering liquidity.
In the bearish market when the price breaks the previous major low BOS will be confirmed.
The lower low will be confirmed when the price takes 1st internal high (inducement).
We need to identify where are our inducement, Smart Money Trap, and engineering liquidity.
When BOS happens then we need proper POI or order block where we can sell.
whenever BOS happens, Maximum retailers sell/buy near the 1st order block. This 1st order block acts as a smart money trap because, without inducement or liquidity sweep, buying/selling zone is a smart money liquidity zone or liquidity point.
Order Blocks before inducement and liquidity sweep is a trap.
Before buying or selling we have to wait for the price to take inducement then we take entry if the price taps any order block (on the left side) or if the price takes inducement by sweeping the liquidity (by candle wick).
Engineering liquidity is the liquidity before the extreme order block near Lower High/higher low.
For a Downtrend ENG: liquidity before the Lower High
For an Utrend ENG: liquidity before the Higher low
Sometimes the market will not tap the POI but takes the ENG liquidity and goes down/up.
Basically, Inducements and Engineering Liquidity are 2 zones where we have to look for buying and selling opportunities with the trend.
Anything between inducement and engineering liquidity will work as a smart money trap (SMT).
Inducement has a 50/50% probability that the price will go up/down.
If the price takes the engineering liquidity then the probability is very high.
SMT: Order blocks Just before inducement or Just before Engineering liquidity and in the middle of inducement and engineering liquidity.
NOTE: If there is no unmitigated order block after inducement then inducement and engineering liquidity is the same.