[0:00]If you can muster and spot liquidity early, you will be able to enter the trade right before smart money does. and take advantage of this huge move and make a shit ton of money fast. So what exactly is liquidity? Most trading gurus and idiots try to make this liquidity concepts seem like something so hard to understand and complex. But I promise you that by the end of this lesson, you will be able to fully understand what is liquidity and how to spot liquidity correctly. So what exactly is liquidity? You must understand that for every buyer, there is a seller. Because there needs to be a seller on the other side to fulfill your buy order. This also means that for every winner, there will be a loser. That's just how trading is like, and every time you lose a trade, you are essentially adding liquidity into the market. This is the key about what we're going to cover later. So, this is what it can looks like, right? You are a retail trader, you get a trade stopped out because the smart money is so smart enough to know that you are an absolute idiot and purposely going to push the price down, trigger a stop loss, you lose your hard money while they just make a shit ton of money. Now, liquidity is not a problem for retail traders like us, because we are not trading with a large sum of money. However, it is a problem for the big financial institutions because they are trading with millions and millions of dollars. Which means if they want to enter for a buy, right? They want to buy your USD with a million dollars, they need to look for someone who is willing to sell a million dollars worth of Euro USD to them, which is extremely rare. Therefore, they need a large amount of liquidity in the market in order to place large orders. And how do you think they're going to get this liquidity? By causing you to lose. Because when you lose, you add liquidity into the market. Remember, so let's see what this actually looks like on the charts. So when you see this, you probably think that price is in an uptrend, right? Because price is creating a higher highs and higher lows and higher highs and higher lows, and right now price is creating a higher highs. So let's say you enter for a buy somewhere right around here, and your first thing, like the first thing you'll do is to place your stop loss right below this last swing low right here. Now, let's say on the other hand of this market, on the other side of this market, smart money want to buy your USD in bulk, okay? And they need a lot of sellers in order to fulfill that order, right? So right below this swing low, we have stop losses from the current buyers who are inside the buy position, their long position. In addition to that, we also have the breakout, or rather the reversal traders, the people who have a sell order somewhere right around here, so that if price actually break through the previous low, they will be entered into a sell position. So here there is sell stops and there is also stop losses of current buyers. So this is what smart money will do. They will purposely manipulate price to grab liquidity by triggering the stop losses of the current buyers and the sell stops of the sellers. And this is exactly why it is imperative that you train your eyes to spot liquidity because if you don't, you are most likely going to become a victim and lose your hard earned money if you're on the wrong side of the market. In this case, what money did was that they purposely manipulate the buyers to actually enter for buy orders right here and place their stop loss below this low, and also all the sellers who have their sell stop at this area right here, and then they purposely push the price down, triggering all the orders that we have right here, and all these buyers and sellers they're out of the market right now. And when they lose a trade, remember, they add liquidity into the market, and that caused price to just hit up it like a like a rocket way, like literally skyrocket, all right? And when this happens, this is actually what we call a liquidity sweep, right? Where price has already created that liquidity sweep, come down here, grab all the liquidity before fueling the up move right here and continue heading back up. Now, quite simply put, liquidity is basically pending buy or sell orders plus stop losses. Now, the question becomes, how do you exactly spot liquidity when you are trading? And that is where the concept of liquidity zones come in. So liquidity zones are basically where resting pools of orders are sitting and where institutional activity may have occurred. Like I said, our job as traders is to follow the footprints of the institutional traders, the smart money, because we understand that they are in charge of this huge move. And in order for us to, you know, get in with those huge move with them and trade with them rather than against them, we have to understand this liquidity zones and make sure that we identify them properly. So there are a few type of places where there will be a lot of liquidity, right? And those are your equal highs and lows, your swing highs and lows, your trend lines and your support and resistance levels. If you look at this liquidity zones, right, you'll realize that these are actually things that retail traders look at, things like your trend lines, your support and resistance levels, your even your double top and double bottom right here, all right. Retail traders are looking at this, and they are placing their buy or sell orders based on these patterns that are showing on the charts, and that is exactly why these are pending orders yet to be filled, which give us liquidity. So let's go through one by one. So if you look at equal highs and equal lows, this is actually your double top and double bottom chart pattern, right? It's where price creates the first top, and then come back up to retest their top before collapsing. And when retail traders, they see this, they will most likely enter for a sell right here, right after price could get this double bottom, I mean double top. And what happens next is that they're going to be placing their stop loss above these stops right here, and this give us liquidity, right? And there will also be breakout traders who will place their buy orders right here, right? pending buy orders right here so that if price eventually break above this highs right here, they will be triggered to enter for a buy order. So you can see buy orders right here, there is also stop losses right here for the sellers right here, and both of that give us liquidity at this area right here, your liquidity zone. And sometimes what money will do is that if there's not enough liquidity for this move to happen, right? Price will be pushed up right here, triggering out all the orders, all the buy orders, all the stop losses right here before pushing back down here and go back in that particular direction. Because right here, it created your liquidity sweep, right? It give the price enough fuel to continue this down move.
[7:00]So this would have been somewhat of like a liquidity zone right here that have been tapped into. Same thing with the double bottom, right? It's just the opposite of a double top, right? There is liquidity below these lows right here, and smart money, they may push the price down here, break past the previous swing lows, grab liquidity before heading back up. Now, next is your swing highs and your swing lows, right? We know that in an uptrend, price is creating your higher highs and higher lows, and in a downtrend, price is creating your lower highs and low lows. And within these swing highs and swing lows, there will be your stop losses, your pending buy or sell orders once again, there will be liquidity. Now, in this scenario right here, price actually created an up move right here before it starts retracing and then creating another push phase and create your new higher high right here, right? And then what happens next was that price actually goes down and actually break past the last higher low, right? And when this happens, this could signify to us that price is about to change, right? This uptrend that we had previously could potentially be changing into a downtrend. In this scenario right here, what price will most likely do is that price is going to come up here to somewhere right around here and create a lower high before continue back down, right? Because chances are if price break through the last higher low to somewhere right around here, it won't have enough liquidity to continue this down move and go all the way straight down, right? Remember, price will always have to retrace, and that is why it needs to retrace, so that they can have more liquidity before pushing price down even further. And that is why price will retrace to this zone right here and grab the liquidity around this area, create a lower high before continuing down even further. Same thing in this bearish scenario right here, right? Price will most likely come down here, retest create a new higher low right here before continuing the uptrend. Now, if you're still unclear of what liquidity is, liquidity is basically a magnet for price to be attracted to, because the market needs to rebalance and in order to fuel further move, right? Because the price cannot go up forever or go down forever, it's to go down, retrace a little bit so that they can gain more fuel, just like a car before continuing heading back down, right? The market will never ever move up or down in a straight line. It needs some sort of fuel, and that is where liquidity come in. And then you have your trend lines, right? Trend lines is where, you know, if price is creating an up trend, right? You can draw your trend line connecting all these higher lows right here. Which means all the stop losses are going to be below all these higher lows as well, and which means there's going to be liquidity below this area right here. So that is exactly why sometimes smart money, what they will do is that they will push the price down and actually break past the trend line and actually still hit back up, right? Because they know for a fact that if they push the price break past the trend line that we have right here, you retail traders are going to think that this trend line is no longer working, and you will get out of your position or you might even enter for a sell because you see this as a trend line break. And indeed that scenario, you have been 100% wrong because smart money will just push the price up like this. Once again, this happens sometimes, not all the time, but sometimes. Sometimes a trend line break will be valid, sometimes it won't. And lastly, we have our support and resistance levels, the most simple concept that you guys learn when you start trading, and is actually the biggest trap. Right? Because like I said, smart money knows that you are trading based on this support and resistance levels, he, and they're going to use take advantage of you, right? They're going to take advantage of your stupid brain. So what they're going to do is that they know that you're going to have a resistance right here, they're going to push the price up, break past the resistance, triggering your stop loss for the sellers, and also making the buyers think that price is going to break out right now. And then they're going to push the price back down, and they're going to break past the support, and then they're going to push the price back up, and down, and they just going to play mind games with you, right? And in reality, what they are really doing is that they are really trying to trigger your stop losses, you know, cause you to get out of your trade, so you add more liquidity into the market, and fuel their move. And a lot of times you are see this pattern happen over and over again, where you maybe enter for a buy right here, and then place your stop loss like below this low. Price will purposely get all the way down here, push all the way down here, hunt your stop loss, trigger your stop loss before heading back up in that particular direction. And then you're sitting there regretting like, oh my God, I should have placed my stop loss wider because price purposely hit my stop loss, and then go up, oh no, I'm bitch, oh no, my trade did not go as plan. Now, in that case, you deserve it, because you don't understand how liquidity works. If you understand how liquidity works, you will know exactly what price is going to do next. And that is when this quote comes in, if you can't identify the liquidity, then you are most likely the liquidity. Now, let's go on to the charts and actually apply whatever we have learned so far about liquidity and see how all this works on the charts. So when you look at any chart, right, the first, first thing, the first step you should do is to identify the market structure. I've mentioned this for like the past three years, right? The first thing, identify the market structure, because you cannot spot liquidity if you don't even know what's the overall trend direction, you don't even know what's the overall order flow of the market, whether it is bullish or bearish. So, first things first, identify the market structure. And you can see price is creating your lower highs, lower lows, lower highs and lower lows. And you can see price created a lower high right here, and then it break past this previous low, creating your bearish brick of structure right here, before retracing, creating another lower high, and then creating another bearish brick of structure right here, right where price broke past the last lower low. And right now, price has retraced once again, creating your new lower high, but it has not break past the lower low right here yet, right? You can see this is the last low, and right now, most likely, if price is going to respect this lower high, price is going to go down here and break past this lower low right here. So ideally, that is what we want to see in price, but if we observe closely, what do we have right here? We actually have your equal lows, right? your double bottom. This means that there will be liquidity in this area right here, below all these equal lows. So you can actually mark up like a little liquidity zone right here. I just like to put dollar sign because yeah, it shows me that smart money are actually going to enter into the market soon. So we can expect price to actually goes down here, sweep the liquidity below this low before heading back up. Right? That is what we could potentially expect. But like I said, we never ever want to make sure that we assume what price is going to do. We always want to make sure that we actually react to what price going to do next, first, then enter for our trade.
[14:08]So you can see price goes down slowly, and you can see price breaks past the equal lows that we have right here. So the retail traders who are bullish because they see this double bottom right here, they're going to be entering for their buy position right here and place their stop loss below this equal lows right here.
[14:38]And look at what happened here. Price got pushed down, triggering all their stop loss. So the buyers who actually enter for buy position right here, they're out of the trade, okay? So they add liquidity into the market already. Now, on the other hand, we also have retail traders who are breakout traders. That means that if they see price break structure like this, right, price break past the last lower lows, means what? Price going to continue going down already. They're going to be entering for the sell position right here as well. And when they enter for their sell position, upon the breakout, they're going to be placing their stop loss above right here, right here. Above this liquidity zone right here. And in that scenario, look at what happened next. They also get stopped out. When both sides, the buyers and the sellers, the retail traders are completely out of the market, smart money was able to grab liquidity right now. So in this scenario, instead of entering for buy here or a sell here, you should have been very patient to wait for price to actually break past the equal lows right here, and create what we call your liquidity sweep, which I showed you guys just now, before entering for the trade. So in this example, we actually had a liquidity sweep right here. Because trust me when I say that if price wanted to go down, right, price will create this massive momentum and just goes down, create a lower high, a lower low, a lower high and a lower low, but that is not what it actually shows us. If you observe the candlesticks that is forming right here after price has broke past the equal lows, price is giving us small candlestick right here. And then look at these two candlestick right here. This show us that the selling pressure, the selling momentum is gone. The smart money have out or rather is potentially going to enter into the market soon and they're going to enter for buy position in bulk, right? And you can start seeing some sort of bullish momentum right here. So this is where you can actually enter for a buy position right here, place your stop loss below these lows right here. A better entry right here, right? immediately when price start showing some sort of signs of bullishness, after price actually grab liquidity, right? That is when you can enter for the trade. Stop loss below these lows, and you can take profit at these highs that we have right here. And once again, if you look at this, what do we have right here? Your double top. So there is going to be once again, the same thing, liquidity waiting for you at this area right here. So there will be a very good take profit for us, right? And that is what you can place your take profit right here. One is to five risk to reward ratio, and look at what price does. Price goes up, smash our take profit, while all the retail traders in the world just lose their hard earned money. We are over here making their money, stealing their hard earned money, and that's just the cold hard truth of trading, right? Trading is a zero sum game, right? It's either you become the winner or you become a loser, and after watching this video, if you can implement the advice I give you in this video, you will be the winner. That actually takes the money away from the loser. Because if you can understand liquidity properly, right, you will no longer be a victim of the market. You will actually be part of the smart money and be able to, you know, not get your stop loss, liquid to out all the time, and not lose your hard earned money all the time, by instead, be making profits just like this. And right now, since we're out of this trade, right, potentially, we have identified your equal highs, right? You're going to be waiting for price to sweep the liquidity above this highs right here, and then that is when we can enter for a sell position, right? Because if you look at the overall trend, we are still in a downtrend, right? Once again, we are still in a downtrend, and ideally, we want to trade with the trend, right? And in that scenario, we want to be looking for our sell position at these lower highs that's forming right here. So chances are right now, price is potentially forming a new lower high before heading back down to create your new lower low. So, right now, we are waiting for price, right?
[18:48]We are waiting for signs that show us that this little retracement is going to be done, and that is only going to happen after price is officially sweep the liquidity above this highs right here. You see, price goes up there, once again, sweep the liquidity above this highs already, and that is when you can potentially enter for a sell position somewhere right around here. Once again, what happened right here? Do you do you guys realize that I did not enter for a sell position right here? Okay, let me just replay right here.
[19:16]You see, right here, price created a double bottom, and I could have entered for a sell position right here, immediately after price created this double bottom, but I did not do that because I know that if I do that, I'm going to be placing my stop loss right here. And once again, what is that? That is your liquidity above this highs right here. So what I want to do is to wait for price, once again, to actually take out the liquidity above this highs right here before entering for my sell position. You can see, PAM right there, that is when potentially a liquidity sweep is going to happen soon. Look, boom, there we have it, your liquidity strip just happened right here on this double top, and this is potentially a new lower high on the overall trend, right? You can see overall trend, this is the last lower high, and this is the next new lower high, and then this is the most recent lower high. And if you look towards the left, there is actually your supply zone right here, right? There is your supply zone right here, and just nice, price has mitigated your supply zone. Price mitigated your supply zone, you got your liquidity sweep right here, and based on market structure, price also in a lower high, and yeah, based on that, we got all the confluence in the world for actually, for us to actually enter for a sell position somewhere right around here. Place your stop loss above this highs right here. Ideally, I would have potentially enter for a sell position on like a one hour time frame like a smaller time frame, and I would enter like somewhere right around here. And then I will move my take profit all the way down here at this area right here, right at this, this is the last low, and you can also draw like a little demand zone here if you want. And yeah, this would have been like a very nice, potential trade right here, and just see on a higher time frames, price goes down, goes down, and eventually smash our take profit, right? Somewhere right around here, smash our take profit before price actually reverse and hit back up here. Now, in in this scenario right here, the moment price actually comes down here, tap into this demand zone that we have right here, you can manually just take profit and get out, right? Ideally, like I said, I will have take profit somewhere right around here, I'll just refine this zone a little bit, somewhere right around here. Yeah, and that would have been my take profit. Price tap into this zone and then reverse and hit back up, and look at what price does once again. Price grab the liquidity below these lows that we have right here, right? Chances are if you look at it, from here, there is actually a support level right here, and price is actually creating your liquidity sweep right here before getting the momentum and hit back up. Now, let me show you guys another example to make things much more clearer to you, and this time around in an uptrend.
[21:54]So let's say price in an uptrend right now, you know, lots of bullish momentum right here, and we could be expecting price to create a new, a higher high right here. Price created a higher low right here, so I can actually mark up this low right here, and then price is has actually also created a higher high right here. We know that there is going to be liquidity above these swing highs right here, right? Above these swing highs, there's going to be liquidity, and then there is also liquidity below these swing lows right here. So we are waiting for price to sweep the liquidity either from the upside or the downside. So we still wait.
[22:34]First of all, you could have easily entered for a sell position right here, right after price sweep the liquidity right here, you can enter for a sell position right here. And place your stop loss above, place your take profit all the way down at this swing low. So in this case, right, after price has swept liquidity from the upside, look at what happens next. Price goes down here and go all the way down to this low that we have right here. So if you actually enter for a sell position right here, right after this liquidity sweep happen, you see this first sign of selling pressure right here, right your bearish candlestick, place your sell order right there manually, and then you can actually place your stop loss above this highs and take profit at this area right here.
[24:33]And you can see, huge move, right? huge move happens right after price actually sweep the liquidity above the highs right here. Now, the thing about liquidity is that I don't really use liquidity as my main confluence. I use it as an additional confluence for me to confirm for my entry. So what that means is that I'm going to be focus on market structure, supply and demand zones, and even order blocks, first as the foundation before even thinking about understanding liquidity.
[25:37]So what I would advise you to do is to actually go through this playlist right here, this market mechanics playlist right here, where I literally give you an complete course on each of these things that I just talked about, your market structure, your supply and demand zones, and your order blocks. Go through every single video in this list, watch it from the start till the end, and then once done, then come back to this liquidity concepts video, and everything will just make much more sense. And I said this at the start of this video, but whatever, right? So, watch this whole playlist, and then come back to this liquidity concepts video, and you will have a much more better understanding of whatever I just talked about right here. And the truth is that market structure will always be the most important thing when it comes to understanding how and why price move. Liquidity is just an additional confluence. So, go and watch that playlist, and as always, remember, you're just one trade away.
