All language subtitles for 1. Liquidity Concepts

so you'll probably remember this diagram from the intro to the technical analysis

lesson at the start of this module and essentially if you're not super

comfortable and if you haven't spent the time

testing those previous concepts on market structure on supply and demand

zones then i would massively advise you to not really watch this section just

yet and the reason why is because liquidity

concepts i think they can just cause unnecessary confusion until you have

mastered structure and supply and demand zones first and foremost

now i'm not saying that to try and insult your intelligence it's just more

because you know i personally know how powerful

just using both market structure and supply and demand concepts together on

their own you know i know how just how effective that can be and how much

success that you can have keeping the strategy as simplified as

possible so

when we're going to start to add liquidity concepts you know it can help

us to refine our edge just that much bit further and it really brings the

strategy up to another level but it is not necessary to be consistently and

highly profitable now it may be a bit overwhelming if it's

the first time learning this style or if you're just new to training in general

and i just think you can end up limiting your speed of progression which is just

exactly what i do not want to happen for you

so this is why it's just really imperative that you really have that

solid understanding in the core components of the strategy which is

market structure combined with s d zones and you've spent a fair amount of time

testing and getting comfortable with those alone

okay so you know there's your little warning i'm sure some of you are just

blindly ignoring me and that's cool so i'll shut up now and let's just crack on

with it shall we so liquidity is a concept that can just

get unnecessarily over complicated so we're going to keep it simple for our

purposes in the market so market liquidity is essentially the

amount of demand and supply in a market it is the ease to which a market can be

traded without you know severely affecting its price

so this diagram illustrates what liquidity looks like in terms of an

order book in the market so each of these lines represents a

price level in the market if a market is very liquid there will be

bids and offers at every single price level but also with a large amount of

volume sitting there on each level so if you have ever clicked you know buy or

sell with an app market order on say euro dollar by your fx broker then it's

very likely that you have got instantly filled because it is an extremely liquid

market and there will pretty much always be enough liquidity on the other side of

your order to instantly fill your trade you know especially if you're just a

retail trader and you're not putting through you know billions of dollars at

a time however with illiquid markets there may

not actually be any bizarre offers at certain price levels and all the

quantity of supply and demand at those levels may be you know much much lower

so a very typical example of an liquid market would be the housing market you

know everyone knows property if you put your house up for sale there will not

instantly be someone just you know standing outside your front door

knocking on your door ready to buy with the exact you know

amount that you're asking for the car for the house you know they're just not

just gonna have that in a briefcase in cash right they're not gonna be a

willing buyer uh straight away for you to sell to so that's a pretty good

example of an liquid market you know it can take months at a time to make that

transaction uh go through but in the fx market a liquid market

conditions are pretty much where you're gonna very often see price gapping you

know either up or down to fill the next best available order uh wherever that

may be because remember for every buy order in

the market to be filled it must be matched with an equivalent seller and

vice versa for every sell order in the market to be filled it must be matched

with an equivalent buy order for a trade to occur

so if you were trading this a liquid market

let's just say you placed a market buy order of seven hundred thousand dollars

you would instantly absorb all of the all of the liquidity at the nearest ask

price and price would continue to shoot up another five price points until all

of your demands had been absorbed by the market

so price is constantly seeking liquidity to rebalance price

so when we see those large imbalances between supply and demand in the market

when we've been looking at those zones on our price chart so far that's what's

happening right we're essentially just viewing this process on the order book

via the price action right via the candlesticks on our charts

so price is moved by that imbalance between supply and demand and it keeps

moving to seek liquidity to then rebalance price at a fair value

so the aim of the game that we are playing by using technical analysis is

essentially using all of these concepts as a mechanical framework to read what

is happening on the order book via the price action on our charts

so we use market structure to help us with direction so whether price is

bullish or bearish if we are trading with or against the trend you know how

this all fits together within the multi-time frame story and how well

priced it is within the leg right so we were using premium and discount tool to

help us with that then we have looked at how we can use

supply and demand zones to show us where large orders have entered the market to

cause those huge imbalances and shifts in price and therefore where orders may

potentially be left sitting in the market so that we can then use that to

our advantage when price returns to those zones

there is another tool and concept that we can use to help us identify where

large pools of orders may be sitting in the market and where price may gravitate

and move towards and that is of course using liquidity concepts

now liquidity in the market essentially acts as a magnet for price to be

attracted to because after those huge shifts in

supply and demand that have caused those big imbalances in the market

price is then constantly seeking these liquidity pools to tap into to try to

rebalance price and then provide fuel for further market moves

so identifying liquidity in the market you know can obviously be a very useful

tool for us to use in our analysis but if we are not looking directly at the

order book then how can we actually spot where there is liquidity lying in the

market on our price charts well there are three main types of

structural liquidity in the market that we're going to be focusing on within our

price charts so if we look at spring structure or even any sort of structure

created in the market once that market structure has actually

been created you know whether it's a swing high or a swing low

more than likely there will be orders that are sitting just below the swing

low or just above the swing high and those orders are going to exist for

a multitude of different reasons anyone who has bought at the swing low

they are most likely going to have their stop loss just below the low

and anyone who has sold at the swing high will most likely have their stop

loss above the high if we are looking at people who trade

breakouts they would have their sales top order just below the swing low right

so if they were looking for price to take out that swing low and if they

wanted price to keep going down then they would have their sell stop order

just below that swing low right and they'd be looking to get taken into that

bearish move and of course the opposite is true

as breakout traders would also place a buy stop order just above the swing high

right if they wanted to get taken in into price breaking that high to the

upside now of course there will also be orders

just resting there behind those structural swing points simply because

price previously reversed and turned away from that swing point without

actually tapping into those orders that you know were always there just behind

where that swing point has now formed so that's how there's you know multiple

reasons for why we know there will be resting liquidity pretty much behind

every structural swing point in the market

and price may eventually seek the liquidity behind those structural points

in order to rebalance price whenever there are imbalances between

supply and demand so when you also have you know

relatively equal highs or lows they do not have to be perfectly equal but when

you get this such as you know a double top or a triple top for example there

will be loads of orders sitting behind them for the exact same reasons that we

just listed so traders will have stop-loss orders behind them as well as

traders looking to play a potential breakout of those levels and the same

goes for the trendline as people are you know buying an ascending trend line so

orders you know those pools of liquidity they're all starting to be building up

below the trend line and then when people are selling a descending trend

line liquidity of course will be building up above that trend line

then eventually an overwhelming amount of supply demand will eventually step

into the market causing an imbalance in price and then this is where price will

then move to seek out those liquidity pools to tap into those resting orders

in the market to then rebalance price so what you can do is you can think of

those dotted orange lines drawn on here on these diagrams you can think of those

as kind of you know like magnets in the market

you know they are all areas on your price charts where price will be

gravitated towards to tap into those orders to tap into that sitting

liquidity for price to then fill and rebalance itself

so those are the three main types of sort of ways that we identify liquidity

on our charts but of course they also come in you know

slight different variations like this where we don't have perfectly equal

highs or lows but you know what you can call more of a momentum shift where

liquidity will still be building behind them or we can have you know a range

forming where liquidity will be forming up on either side of the range

but again those are both just based on the concept of relatively equal levels

in the market so now we understand what liquidity is

in the market we've seen where we can identify where it is sitting in the

market and why price will be magnetized towards it to seek those pools of

liquidity to re-balance price so now the question is well you know how

do we actually utilize these liquidity concepts for us to capitalize on and

make profitable trading decisions well there are two main ways in which we

utilize liquidity within our trading the first is a concept called inducement and

the second method is to use liquidity to identify sleep zones so let's take a

look at the first method which is using liquidity for inducement

so inducement it's really just a fancy word that you know has been bounding

around the trading space in recent times and essentially all it means is to

induce or to lead other traders to take the other side of your trade

so remember for every buy order there must be an

equivalent sell order and for every sell order there must be an equivalent buy

order so if you're a large institution who needs to put a huge order through

the market you're obviously going to want to do this where there will be a

large amount of volume so a large amount of liquidity to take the other side of

your trade because otherwise you're very likely

going to experience you know really bad slippage and you will get filled at an

unfavorable price level so let's take a look at some examples to

explain how this theory can work in the market

so one of the very common patterns that occurs in the market is relatively equal

highs or lows in this case many traders would call this double top

but of course you can have triple or quadruple tops and so on but the point

is is that it's a pretty obvious level in the market right

so traders would see that price has failed twice to break up higher above

that level so they may see this as a strong resistance level and so they

would sell and get short because they hope that price will sell off from there

and not break higher now other traders would see those equal

highs in the market but they may be bullish overall and they might think

that if price can actually break up through that strong resistance level

right so if price can get above that double top then they think that price is

going to go to the moon and they want to get in long on the breakout as these

equal highs can also look like a very common price pattern that is often

referred to as a ball flag that some of you may be aware of

and then finally you may have some traders that are also bullish but they

want a little bit more confirmation on the breakout so they wait for the break

and re-test of that level right of those equal highs for them to then buy up so

that's just three simple but different scenarios of how you know many traders

could all be looking at the same double top the same equal highs in the market

but looking to trade it in a different way

however all of these different scenarios will

have one major thing in common all three of these scenarios lead to

those traders placing buy orders right above those highs in the market

so in the first case if you are short from that double top

you will most likely place your stop-loss order somewhere up above

behind those equal highs right and remember if you are short and you have

sold then if you get stopped out you need to buy back your position

so that means that your stop-loss order is actually a buy stop order

in the second example if you were looking to get triggered in on the

breakout to get long you will also have a buy stop order somewhere above those

equal heights and in the final example if you were looking to buy the break and

re-test of those equal highs then you would set a buy limit order somewhere

above those equal highs right for price to tag you in

so what does this information actually tell us well using that knowledge that

there is likely a ton of buy-side liquidity sitting right around that

price level above those equal highs in theory this could likely be an area

that big money is going to want to step in and sell at because there are enough

buyers for them to sell to without experiencing terrible slippage because

remember again for every buy order there must be a sell order so they need to

find buyers to actually sell to so at these very obvious points in the

market right when everyone can see these levels where you can see where there

will very likely be a ton of buy side liquidity building up

then that is a way that we can essentially view the order book but on

our price charts instead and we can start to piece this together with other

confluences that we use to realize that potentially big money will be entering

the market in those areas to sell against to sell

against that buy side liquidity okay so because there will be many instances

where traders get short from a double top and they'll be running you know in a

little bit of profit before price then pulls back just stops them out of their

position before price then reverses back in their desired direction and moves

without them or when breakout traders get long right when those equal those

equal highs that level breaks and price is moving in their favor for a little

bit but then it suddenly just rapidly reverses against them and stops them out

both of these types of traders are probably then extremely frustrated angry

pissed off and probably confused as to why this has then happened and you'll

often hear people refer to this as a stop hunt and you know complain that

they were manipulated by the market or whatever

but a lot of the times the reason why is because those obvious structural levels

in the market they formed just in front of a key area where big money is about

to step in and take the other side of their trade

so imagine if we have identified a very strong supply zone right this grey box

here and then when you see liquidity forming just in front of that zone

whether it be a swing point relatively equal highs or a trend line either way

whenever you can see that there will be a pool of liquidity a collection of buy

orders just below a key supply zone you will find that it increases the

probability of these zones actually playing out

now the theory you know the whole school of thought behind this is that these

patterns in the market are essentially formed engineered or created for the

sole purpose of inducing buyers or sellers into the market right in order

to create liquidity for large players to then buy or sell into

now i personally have no idea or you know i have zero proof whether or not

that is actually the case but to be honest i don't really care and

the reason why is because what i care most about

is whether or not the actual concept you know works in reality

so what i've found is with my experience in the market and the extensive testing

and data collection that i've done on this is that when you actually see such

an example in the market where you see liquidity building in front of a

supplier demand zone this does tend to increase the probability and the strike

rate of these zones playing out in the desired direction

so kind of having you know inducement and liquidity like this in front of a

zone it's not necessarily a strict requirement it may be in your plan it

may be it may not be in some of your plans right you'll figure this out with

time how you like to trade what works for you

and what doesn't but in general

they do definitely increase the strike rate overall

so that's a brief overview of the theory behind using liquidity for inducement in

the market now we're going to take a look at the second method that we use to

utilize liquidity concepts with our actual trading which is something called

sweep zones sweep zones are essentially just another

way that we can you know refine our supply and demand zones in the

market so of course we have you know the two

main methods for um

being a strict requirement for validating what a strong zone is so can

you remember what those are that a zone either needs to break market structure

or it needs to take out another zone right

so we have structural zones and we have flip zones and those are the two main

methods for validating strong zones and they should kind of be a minim a minimum

requirement in my opinion um for looking to build a trade idea around the supply

zone or demand zone right or looking to trade directly off it so it needs to be

either a broken structure or it needs to have taken out another zone right a flip

zone so these sweep zones here they are still based on structural and flip zones

but it's just an extra piece of confluence that we can look for in those

zones when they are created to increase their probability and strike rate even

more of giving us that large but also that sustained price movement that we

want to see when price reaches these zones and we look to trade from them

okay so again we're still looking for zones to be the break structure or take

out another zone right they're the two main ways flip zones or structural zones

but this is just another thing that we can look for when those types of zones

are created is essentially whether or not they took liquidity so you know if

you were to try and define a sweep zone very simply it's just a zone that takes

liquidity when it is created so essentially price will sweep

structure and then reverse the other way then breaking down through structure or

you know taking out another zone to then create a strong supply or demand zone

so when you see this manipulation occur in the market

when a zone is created these are often very high probability zones when of

course you combine this with all of the other analytical concepts that we have

looked at so far so if we now combine you know both of

those liquidity concepts together both a sweep zone and inducement this example

here is a very typical setup that we will very often see in the market

so price is trending to the upside right it

then starts to build liquidity in this case buy side liquidity is building up

above those kind of relatively equal highs so there is a lot of buy orders

building up just in front of that high time frame supply zone

price then sweeps those highs taps into the supply zone where then the big money

is then triggered into the market utilizing that buy side liquidity to

take the other side of their sale position

however the imbalance between supply and demand is still big enough to cause

price to break structure to the downside and take out demand to the downside

right creating another supply zone that blue zone there which in this case is

now a sweep zone it's a sweep zone because it took out

and swept liquidity behind those equal highs as it was created

so now as price starts to pull back to the newly created sweep zone that blue

zone it pulls back nice and correctly and it starts to react and sell off from

the previous miner supply zone now that minor supply zone i haven't drawn it on

in this case but you can see how there would be one right from that minor

pullback in that bearish swing leg but it doesn't have any inducement in that

leg so what happens is price only has a short-term reaction it fails to break

the low and as this price action is occurring

tons of liquidity is now building up on both sides of that range right below the

equal lows and above the equal highs so then when price breaks up it sweeps

the buy side liquidity that was being induced above those highs right for them

the large money from that supply zone to then sell into right as that zone is

tapped into and the big money then steps in

and price then rapidly moves down as it seeks more liquidity to rebalance price

and it targets to sell side liquidity below those equal lows

so here is another common example of sweep zones and inducement concepts when

we combine them in the market and in this case when price is trending

so on the left-hand side right where we have this bearish structure you'll see

how price pulls back to form a lower high but in doing so right on that first

pullback a sweep zone is created because the

internal structural high is swept before the real move starts to break structure

to the downside to form that lower low so again if you look at that first

initial swing pull back here that's in the orange circle you see how price

pulls back then it forms an internal lower low all right so many traders

would then be short or looking to get short because they may think that the

swing lower high is now in pre in place and price is ready to form that swing

lower low right they think it's ready to start to break structure to the downside

however in this case price then pulls back up and it sweeps that internal high

to then form another higher high tapping into that buy side liquidity that had

just been built up between that previous internal high

but then the big money steps in using the other side of that liquidity

right to then actually cause price to sell off and actually break that swing

structure to the downside this time to then create a strong sweep zone

then after we have that new lower low price then pulls back correctively

forming more buy side liquidity inducing buyers into the market just in front of

that new sweep supply zone all right again for the big money to

then sell into that buy side liquidity and the exact same thing occurs in a

bullish market on the right hand side right but we have sell side liquidity

building in front of those demand zones now another common example is where you

will get a series of mitigations right as bullish order flow is holding with

demand being respected each time so price falls back to those demand breaks

up higher pulls back to demand breaks up higher right but anyone who who is

essentially still long in the market when this is happening

they will likely have their stop losses below that trend line that is now

forming right and there will also be plenty of breakout traders who will be

looking to get short on the bearish breakout of that trendline

so then when price reaches a really strong supply zone

that then causes an overwhelming imbalance between supply and demand

price will then start to sell off aggressively to the downside and there

will be almost no demand in its way to stock price because most of those

previous demand zones have already been mitigated right the orders have already

been filled which essentially has cleared out those demand zones so you

know when price then rapidly moves to the downside it can then move pretty

freely to them move down and sweep all of that cell side liquidity sitting

below that trendline to then rebalance price

now this is an extremely simple but very

very important point and that is structure is far more

important than liquidity liquidity is generated all of the time

we will never know when it will or won't be used but we can assume however that

if the market is trending then we just assume it will continue to do that

so in this case if the market is clearly bullish and price pulls back up to a

supply zone if there are equal highs just behind that supply zone

obviously that is not ideal because price could of course want to sweep

those highs and utilize the liquidity pool that is then sitting behind those

highs however if price is bearish and that is

the swing high then we can assume that that swing high is strong and it will be

protected and price will not trade higher

because if you are always anticipating and you're just waiting for liquidity to

be swept first then this can mean that you will very often end up missing

trading opportunities now this is something that will be

different for every trader you know in terms of whether you are happy to trade

and get short from a supply level like this when you know it has an obvious

liquidity pool behind it but like everything it will come with time and

experience in how you wish to approach these situations so my advice is to

always react to liquidity sweeps and do not necessarily you know predict that

price will or has to sweep it first before price may move in your desired

direction so what does this actually mean in

reality well let's say your entry model sets up

in the supply zone and you get short but then price ends up pushing higher and

actually sweeping those equal highs behind the supply zone stopping you out

of your position that's okay it's just part of the game and the risk that you

will need to accept before you enter and take that trade if you of course you are

happy to trade from that level right but then what can happen is price can

then sweep those highs and it can retrace back inside the swing range

without the candle actually closing above the swing high

so what this means is there was no true break of structure right if you're using

type 1 mapping it was just a grab of liquidity

and when this happens this is a very high probability setup for price to now

commence that next bearish leg because it's grabbed that liquidity to fuel the

next move to the downside so then again you can look for your entry models to

get short so in this case you were initially aware

of those equal highs you knew there was a possibility that price could sweep it

before the real bearish move started but you were happy to take that first short

when price first reached the supply zone accepting the risk that you could be

swept out but then when the sweep does happen you then react to this and then

you take the next valid setup that presents okay

now you may remember this example on the daily chart on eurodollar that we've

been looking at in all of the previous lessons whereby the daily had started

that new bearish trend price pulled back up towards the swing

high right for quite a number of days price was then chopping around just

below that swing high which then led to tons of buy side liquidity building up

above that swing high price then eventually tried to break out

to the upside but it was just a sweep and grab of all of that liquidity that

had been building up as big money then stepped in that same day

and smashed price back down so that the daily candle then closed back below

inside that bearish swing range so this means that there was no true

breaker structure to the upside right it was just a wick break and that's why i

prefer to use a type 1 mapping for true breaks of structure i want to see the

candle closure because that means now that you can understand what's going on

when you just get a wick break that very often it can just be a grab of liquidity

of course not always but a lot of times it can be

now remember we always want to trade away from sweeps

so when price in this case when it's swept to the upside we then want to

trade away from that so we want to trade the following bearish move

so then when price then you know continues that bearish move right

continues downside from here and it breaks structure to the downside to form

that swing lower low there will of course have been liquidity sitting below

the previous swing low to the left so that when price then comes down and it

sweeps that liquidity sitting below the price swing low price will then sweep

that and it will start to pull back to then form the next lower high

so that's why we always say what happens after a break of structure we expect a

pullback why well because price has swept

liquidity from the prior swing structure so now we want to trade away from that

and that's why we can then trade that counter trend pullback okay

so there is literally liquidity behind every single structural swing point in

the market and that's why every time any piece of structure is broken

generally you will see some form of reaction whether it's a full reversal or

you know just a pullback now

one kind of other thing to consider when looking at trading from a particular

zone is the nature of price action as it is pulling back to the zone

so always ask yourself how is price being delivered

if price is putting back slowly and correctively then you can see in kind of

both of those first two examples how liquidity is being built up as

inducement for price to sweep into the zone but then also for liquidity to

target for price that they go on to take after the zone has been mitigated

so these are the types of pullbacks that you generally want to see when price is

returning to the zone that you're looking at

however in that final third example if you see a v-shaped return where after a

large impulse in price you know where that sort of zone was created if

priceline has a sharp almost vertical retrace straight back to the zone

not always but a lot of the time this is not a good sign because there is no

inducement and a lot of the time price will then just disrespect the zone and

eventually break down and sweep past it where essentially where that zone was

created that ends up being inducement for a zone you know below or above it

now this concept for price delivery you know back to the zone it's not super

super important but it's just an extra piece of confluence which can you know

potentially help to boost your strike rate so i personally wouldn't massively

worry about this too much at all especially when you're first starting

out but it is something to bear in mind as you start to progress and you're just

looking for those you know extra refinements that you can potentially

make right okay that pretty much wraps up the

theory um so what we're going to do is we're going to hop on the charts just to

look at kind of you know one last thing our infamous price action example that

we've been building on pretty much every single listener so far so yes this is

your five second warning to reduce your screen brightness if you are sitting in

a dark room because we are of course about to potentially blind your retinas

with my white charts alright so we should be you know pretty

familiar with this diagram by now um and all we are simply doing is just applying

the liquidity concepts that we have just gone over

all right in this theoretical lesson um i'm kind of just looking at a bit more

of a clear-cut trading example before we're going to hop on the charts uh in

the next lesson or two so starting off at the start of the diagram what do we

have we have this thick gray line as the four-hour chart price moves up it pulls

into a previous supply zone what do we know about previous supply zones when we

are in a bullish trend generally they will facilitate a pullback right of

course we could you know go on to reverse but generally old supply zones

are there to then produce and facilitate that pullback now in this case in this

example price turns but pulls back right with

this internal structure right so imagine and then price is putting back it forms

an internal level high and then takes that low right continuing that bearish

internal trend and then price takes that high so we get that change of character

right that first initial minor breaker structure to the upside

creating a higher high so that means that there will be a decent amount of

liquidity below this low right for traders who are looking to potentially

get long or for traders who are looking to sell the breakout of that what should

be you know a reasonably strong internal low

and then what can end up happening of course is if price then sweeps at

liquidity right and then that fuels the move to the upside then that will create

us a pretty decent sweep zone of course when price then goes on to break

structure so we build some more equal lows here before price actually goes to

break structure a bit more of a minor minor pullback there and then again

another minor pullback building liquidity above that high as price and

sweeps are high moving into that supply zone that for our suppliers are right to

then facilitate that next pull back there

then we jump down to the m15 right and we can start to look to play that four

hour pullback what do we have we have that pull back into demand price then

pulls back up again the exact same thing right we get an internal lower high

price then sweeps that high and then we get that failed reaction and

that change of character that breaker structure to the downside um and yeah

and then again build some uh minor uh well not minor but with that minor high

we have a build of liquidity behind that high and even on the pullback as well

and all of this acts as inducement for what inducement for this supply zone

which is a sweep zone because it took liquidity when it was created and broke

demand and structure to the downside there's then inducement in the leg right

so it builds up that buy side liquidity for you know in theory that big money to

then sell into and continue that pull back down here

now as we're pulling back what can end up happening is we can start to sweep um

all of that prior liquidity that was built on the way up okay so all of this

is internal range liquidity any sort of liquidity that is you know within the

swing high and the swing low is essentially classified as internal range

liquidity and then um any liquidity behind those swing highs and swing lows

is essentially you know external range so internal range is everything between

the high and the low external is obviously

basically behind the high and the low so after we get um you know that break of

structure generally that will be a sweep of liquidity and eventually we'll get a

pullback so in this case in this diagram it's obviously a very exaggerated uh

movement after we get that breaking structure obviously there's gonna be

tons of liquidity sitting um you know externally and then eventually that

facilitates that pullback so then later on you know when we get that uh breaker

structure over here right we're again tapping into the external arranged

liquidity that has been building up the entire time price has been put in back

right there's going to be loads of liquidity building all up above the top

of this range right on top of the top of the four hour swing high so eventually

when price breaks that high we don't know when it could literally be a pip

and you will see this you know even a micro pip it breaks and then it can

facilitate the pullback right so literally the minute that that line is

broken and that is essentially that external range of quality being tapped

into that's built up here that entire time

and then that starts to you know provide that liquidity sweep

for price to pull back or of course potentially uh reverse so

it's kind of just the difference between internal range and external range of

gravity it doesn't really make a massive difference in terms of how you define it

it's just kind of just so you understand what's going on so generally when you

are looking at you know this m15 price action every time we get kind of get

that reaction to pull back for a lower high generally we'll be doing one or one

of two things if not both um it will either be reacting to a prior demand

zone right in this leg here to facilitate that pullback or it will be

imagine there was a minor low there or a 15 minute low right just like this slow

here it will most likely be sweeping that low and then that will also

facilitate the pullback okay so you'll either get the demand zone in fact let

me just draw it on so you can see exactly what i'm talking about so we'd

either have say an m15 demand zone for example right and also if you imagine

that that demand zone would have been created from a minor

leg all right or it may have um you know a

more accurate one would be a bit of inducement in it so then as price comes

down it sweeps that low there it taps into demand and that will facilitate the

pullback so again when we come down and we sweep the spinal low it facilitates

the pullback to kick in and the exact same thing so as we come

down into this four hour sweep zone right remember it took liquidity and

then led to the breaker structure and the failed reaction so it's a sweep zone

a structural zone and a flip zone right this is kind of our highest probability

zone and it's at the origin of the swing move so this is where that strong swing

low should be holding right this is you know as good as it gets essentially in

trying to catch that high low and that pro trend move

we then induce sellers into the market right so anyone who's kind of getting

long from this double bottom already right if we draw on uh this i imagine um

oops move this up out of the way nice and small there we go so anyone who's

say essentially long from the double bottom right likely to have their stop

anywhere below these lows right obviously some people can have wider

stops it's not just going to be you know one deadline below it there's just going

to be a ton of orders all within kind of this whole range right or you know the

opposite of that there are going to be people who see those strong lows and

they're going to think okay if those strong lows go i'm going to want to get

short and they will sell they will put their sell stop order on the break of it

right so there's loads of um so orders in that area which in theory should then

introduce sellers into the market for this large demand to then buy against

those sell orders buy into those sell orders right for every uh buy order

there must be an equivalent sell order so you know the theory is the big money

that's stepping in here in the strong demand zone is gonna then use that

liquidity again to trade against but eventually you know there's going to be

that overwhelming imbalance between supply and demand where demand now is

starting to take control as we start to break these minor breaks and structures

to upside we tap into demand we pull back that demand sorry that the supply

fails to do its job right because it fails to take out the low demand then

steps in again it causes the reaction to fail and then eventually we get the

change of character um creating our flip zone

potentially there may be a very minor pullback on the way up which is then

again just acts as inducement um yeah for the same thing happening right and

then we pull back potentially we have this trend line holding right people

look to get long hair on the third bounce but it just breaks down through

sweeps that trend line equity sweeps that minor low there and then

again we get the same entry model right failed reaction uh so flip chalk pull

back in and then we can start to target that weak

four hour high right and that whole time right all of these moves here all of

this pullback is going to generally be creating you know some sort of trend

line liquidity right as people are starting to sell behind all of these

lower highs there's just going to be tons of orders all building up in this

area right this whole empty bit of price section where there isn't price hasn't

moved into yet it's just going to be full of orders all of this white space

is just full of orders and some people refer to this as a liquidity void right

and eventually what's going to happen is price is going to move back up so this

movement here is essentially then filling all of the orders within the

space that had built up right and now price comes up and it taps into all of

that supply obviously demand is still powerful at this point overpowering it

and then we eventually get up we sweep that external range liquidity right that

had been building up above this four-hour spring range the entire time

right anyone who's trading this range a lot of people still have um stop-losses

above the highs or people looking to break out on this level so there's tons

of liquidity up here price will then eventually sweep that and then

facilitate that pullback right using prior liquidity um yeah on the way down

so remember all of this price action here where we we got our entry model

and we see these series of mitigations with all of these lower time frame

demand zones what is that doing well you know what would that look like if we

just looked at candles it would look like a bit of an ascending trend line

but what that is kind of a reality is tons of liquidity building up uh beneath

those demand zones right as people are getting long and whatnot right tons of

orders are building um within here so the price comes down into our extreme

demand zone right because essentially this would be the origin of the move

that actually led to that break of structure so this would actually become

you know our new swing low at that point right and we'd have our new swing high

and then obviously price could you know reject any demands from along here but

obviously in this example we've just drawn it with price coming all the way

down to the extreme it sweeps all of the liquidity that had built below

these zones here taps into our you know origin the move and then in theory we

can then try and get another higher high and this would become our next higher

low so yeah hopefully that's starting to

make a little bit more sense of how we use these liquidity concepts within our

trading because like i said at the start right

liquidity is literally everywhere it can also be quite subjective in terms of if

you start kind of using these lines right to draw where you think liquidity

is all over your chart you you you'll be drawing all day you'll

never end right because it's everywhere right it's behind every single

structural point in the market but more what we try and kind of use this for is

we try and be you know using it in in very kind of refined scenarios and those

two scenarios are one for identifying if a zone is a sweep zone or not

and two just looking for you know is there some inducement um you know quite

near our zone right in front of the zone really that's kind of what we're most

interested in you don't need to kind of go around and draw on all of this trend

line liquidity of course when you're practicing and you're just trying to get

a feel for looking at how price sweeps it and then it reverses um you know it's

good to do that but in reality when you're actually trading in live markets

you do want to try and keep your charts as kind of clear as possible just so you

can really be focusing on the price action uh that is occurring so one right

we see liquidity with liquidity get taken as it creates a zone that then you

know increases the probability of this zone even more two we then have

inducement in front of it okay so even in this case what you'll often see

is you know there will be minor demand here right because you know this is

where some demand stepped in pivot created demand to

lead to that break of structure so then when price comes back to it you know we

we could have formed a high low here but more often than not you'll just see a

bit of a small reaction as that demand is then filled and then what's that

doing it's creating equal those here diesel glows still haven't been swept

but then it's also just creating that larger kind of

you know bigger double bottom right it'll be more of that kind of classic

horizontal support level that's holding and then eventually that goes right and

then we're off so it's just happening practically all over the market and

what's more important is everything that came before the liquidity modules right

getting your market structure right first knowing where your true swing

highs and swing lows are knowing what direction you want to be trading in then

identifying your supply and demand zones either via a break of structure or via a

flip zone or ideally both right and then we can just increase the

probability of either of those two types of zones even more by just seeing if

they took liquidity when they were created and or if they have liquidity

just in front of it to induce right sellers if we were

buying from demand or induced uh buyers if we're going to sell into them from

supply right and that's essentially it um you know that's a kind of as simple

as i can try to explain it and kind of as simple as i personally believe you

should try and and keep it um in your training right so

yeah you know if you're not consistent or comfortable

with just market structure and supply demand on its own i definitely would

kind of you know advise you kind of don't worry too much about liquidity

just now and just focus on those two concepts

because you really do not need liquidity it's just kind of just yeah you know

i've ranted about this enough before but just to kind of give you that little um

extra fine uh tuning to your training so yeah that's pretty much it the only

other thing i guess i want to add is just remember whenever we get a sweep of

liquidity generally we will get a pullback so that's what i mean you know

when you're looking at internal structure you see a prior high that's

when price will break it taps into you know the the liquidity that was behind

the high and that's when we get the pool back right same thing liquidity behind

this high we pull back that then leaves a double top we then build equal highs

there right price on the m1 would sweep that it would pull back and obviously

then hopefully continue um so yeah just kind of bear that in mind now when in

the late lessons we start to think about management of how you can use

um this concept you know if you're in a trade yes we do want to target that uh

you know if we've got long hair whoops we do want to target right we're

long down here ideally you write this for our weak swing high to get that

higher high but not every time we we get into the trade is it going to do that

straight away right it could come down lower it could mess around again and go

off so what we can do in that meantime let's say we're running

you know really decent profits and we see some nice equal highs over here

right which is kind of poorly draw a dollar sign there um you may you know

use that to your knowledge that when price pulls uh past that when it sweeps

it it's likely to have a steep pullback and maybe you want to pay yourself right

so you can take some partial profits off the table pay yourself just in case

price then does come down sweeps all of this liquidity taps into another demand

zone and then we get the real move okay so um yeah again we can talk about

management in a lot more depth later but i just kind of want you to start you

know thinking about the reasons why um you know how we can use those concepts

into our training in as many ways as possible so i'll leave that there

in the next few lessons we're now going to go and just do yeah real nice slow

walk through on the charts and just start to kind of put these pieces of the

puzzle together playing everything we've kind of learned together now with just

that final little tweak with liquidity

um yeah and just look at as many trade examples as possible so watch this over

as many times as you need to make sure you take plenty

of notes as always try and draw these diagrams yourself and it will really

help to kind of fill in any gaps in your knowledge that may be there that you

weren't quite aware of so yeah hope you guys took some value from that and i

will see you in the next one