ICT Mentorship Core Content - Month 1 - Liquidity Runs
Summary
TLDRThe script explains the concept of liquidity in financial markets, referring to the ease with which an asset can be traded without dramatically impacting its price. It discusses how price action traders identify areas where buy and sell orders are likely clustered based on previous price swing highs and lows. When price moves away from these levels, stops are presumed to exist which the market seeks to take out. The ideas of high resistance and low resistance liquidity runs are introduced - the former having difficulty driving price to faraway stops, while the latter offers an easier path as price breaks recent levels.
Takeaways
- 😀 Liquidity refers to the degree to which an asset can be quickly traded without dramatically affecting its price.
- 👍Buy and sell orders resting in the market represent liquidity.
- 😯 Target areas where liquidity likely resides - above old highs and below old lows.
- 🤔 Avoid high resistance liquidity runs where price has to breakthrough many swing points.
- 🎯 Focus on low resistance liquidity runs with one-way price action and little retracements.
- 🔝 Buy stops representing willing buyers will rest above short term highs in uptrends.
- 🔚Sell stops representing willing sellers will rest below short term lows in downtrends.
- 😎 Trade with overall institutional order flow direction for best results.
- 📈 In uptrends, buy retracements targeting short term highs with buy stops above.
- 📉 In downtrends, sell bounces targeting short term lows with sell stops below.
Q & A
What is liquidity in trading?
-Liquidity refers to the degree to which an asset or security can be quickly bought or sold in the market without dramatically affecting its price. High liquidity means an asset can be traded quickly without much impact on its price.
How does liquidity relate to buy and sell orders?
-Liquidity relates directly to buy and sell orders in the market. When traders place buy and sell orders at certain price levels, it creates liquidity at those levels that other market participants can trade against.
Where is liquidity likely to reside in price charts?
-Liquidity is likely to reside just above previous swing highs and just below previous swing lows in price charts. This is where stop loss orders tend to cluster.
What is meant by high resistance liquidity runs?
-High resistance liquidity runs refer to attempts by price to run through multiple layers of resistance to reach liquidity resting far away, for example a previous significant high. It is difficult for price to access that distant liquidity.
What are the trading conditions for low resistance liquidity runs?
-Low resistance liquidity runs occur after price breaks a previous low and rapidly moves lower with very little retracement. The move down from the break of the low to the test of nearest resistance above defines the low resistance zone.
How can traders take advantage of low resistance liquidity runs?
-Traders can look to sell retracements in a low resistance zone, targeting liquidity below recent swing lows formed during the run down. Each new low will likely have sell stops resting below it.
When does a low resistance run change to high resistance?
-When price retraces back up to test the previous broken low as resistance, the conditions change from low to high resistance for that subsequent move up.
How do institutions defend liquidity above old highs?
-Institutions look to defend liquidity above old highs by leaning on subsequent rally attempts as high resistance liquidity runs. Repeated failure swing highs reinforce the defence of that old high liquidity.
What market conditions support low resistance buy side runs?
-After an old low forms on the charts, rally attempts get repeatedly rejected. This allows subsequent sell-offs to easily take out recent swing lows. Each new low sets up buys targeting old high liquidity above.
When is it easiest to trade with order flow trends?
-It is easiest to trade when you align trades with the prevailing order flow bias. Low resistance liquidity runs indicate the path of least resistance and allow trend trades with minimal drawdown.
Outlines
😀 What is liquidity and how it relates to price action
This paragraph defines liquidity as the degree to which an asset can be quickly traded without dramatically affecting its price. It relates liquidity to buy and sell orders in the market. When price swings up or down, there are corresponding long or short positions with stop losses resting at significant highs or lows. Price tends to be drawn back to these areas where there is a large body of liquidity or interest.
😊 Liquidity runs targeting previous highs and lows
This paragraph explains that price tends to run out previous highs and lows to target liquidity. However, it's difficult to run far to target an older level if there are many minor highs/lows in between. So high resistance liquidity runs targeting older levels are less probable without a major market event driving volatility.
😎 Identifying high and low resistance liquidity runs
This paragraph contrasts high and low resistance liquidity runs. In a low resistance run, price breaks a level sharply and has little retracement as it fills the break. New minor highs/lows will be easy to take out. But as price approaches the original broken level, resistance increases. The opposite patterns apply for high resistance runs.
🤓 Example of low resistance liquidity run on sell side
This gives an example of identifying a low resistance liquidity run on the sell side. When price breaks above a short term high, establishing bullish structure, then breaks below an old low sharply with little retracement, it signals the start of a low resistance run targeting stops below subsequent minor lows.
😯 More examples contrasting high and low liquidity runs
This shows additional examples differentiating between high and low resistance liquidity runs. Low resistance runs break levels fast with little pullback. High resistance runs struggle to break previous highs/lows due to increased price action and interest around those levels.
Mindmap
Keywords
💡Liquidity
💡Market orders
💡Stop orders
💡High resistance liquidity run
💡Low resistance liquidity run
💡Buy stops
💡Sell stops
💡Old highs/lows
💡Expansion
💡Retracements
Highlights
Liquidity refers to the degree to which a market can be quickly bought or sold without dramatically affecting the asset's price.
We look for reference points where there is a high probability of liquidity resting in the marketplace - buy and sell orders.
We target areas where the market has already shown a willingness to move higher or lower, removing retail perspectives.
High resistance liquidity runs occur when price must breakthrough many old highs/lows to reach a significant faraway level.
Low resistance liquidity runs offer easier trading as price breaks through levels with little struggle.
After an old high is made, old highs act as resistance and old lows have buy stops - high resistance to go higher.
After an old low, old highs have buy stops for low resistance up and old lows act as support - easier path up.
When structure breaks lows, selling retracements targeting short term lows has little resistance down.
When structure breaks highs, buying retracements targeting shorts has little resistance up.
Repeated failures to break a level indicates it is being defended by institutional orders.
Get in sync with institutional order flow for low resistance and avoid trading against strong levels.
Clean levels attract buying/selling - retracements set up runs through old highs/lows.
More price action around a level indicates it is strongly defended.
Trade away from defended levels in sync with institutional orders for low resistance.
Following market generated information produces profitable exits and little drawdown.
Transcripts
what is liquidity liquidity refers to
the degree to which a market or asset or
security can be quickly bought or sold
in the market without affecting the
assets price
dramatically
when we look at price
it doesn't matter what time frame you're
looking at
time
is irrelevant for right now
the
specifics about price action
as it relates to liquidity
we as price action traders we're looking
specifically for reference points where
we can hone in on where there is a high
probability of liquidity resting in the
marketplace now liquidity
as it relates to ict concepts it relates
to buy orders and sell orders
it's as simple as that
when we have a swing in the marketplace
as we note here
and the market trades lower
our understanding is there is someone
that went short here
this position would be net positive or
profitable
as the market moves lower
as the market turns around if those same
positions were still held
their open profits would be eroding and
at some point at this point right here
they would be at a losing position
our understanding is if there's a short
position or traders that are bearish on
the marketplace if they have positioned
a profitable trade here
and moved lower
their stop loss order would be resting
right above this high
or generally many times just rate at
that high
the market tends to find an interest in
going back to where that
large
body of interest
or what we call liquidity in the
marketplace
it would be by
liquidities
as the market finds these lows down here
as the market rallies away we are our
understanding is that there's going to
be buyers that have positions that are
net positive or profitable
as it trades higher
at some point when the market starts to
trade back down lower
back into the area in which the
buy orders would have
originated from
their open profits would be eroding
until eventually
moving into this area here
it would be at a net loss position
so when we look at when we look at price
the idea is
we're not looking for
specific patterns for the sake of
patterns we're looking at where
existing orders will reside
so
essentially what you do is you're
targeting areas at which the market has
already seen a willingness to go higher
or lower in this case we see a
swing high and the market moves lower
we view that
as a smart money trader or as a market
maker perspective we know that there's
going to be buy stop or buy liquidity
above that high
when we look at the lows when the market
moves away from these lows
we see that as cell liquidity
identifying both of these positions on
both sides of the marketplace we're
going to teach a concept called open
float
while that's not going to be covered in
this specific tutorial or this month of
training
it's important to understand that the
beginning foundations to understanding
liquidity as it relates to
buying and selling in the marketplace
our first fundamental understanding is
is that there's going to be liquidity
above old highs and below old lows
when we understand that we can see that
they will eventually
target these same levels
moving price just above the previous
high
knocking out the liquidity that would be
resting just above those highs in the
form of buy stops
the low old lows the market will seek
liquidity for the sell side or the cell
stops
taking those 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 most
truest
purest view
of how price is
we have no
confidence or
direct relationship to our directional
bias on price relative to anything
except for price itself
if the market's moving from an old high
we know that there's going to be
liquidity resting above that old high if
the market's moved from an old low we
know there's going to be resting
liquidity below those lows it's just
that simple
now there's another concept when we
understand liquidity
the market has a tendency to run out old
highs and old lows
but it has a very difficult time to do
that when the market has conditions like
this
when the market moves higher
okay generally we can see a move higher
and then it moves lower here now in the
context of this entire move lower
there's a lot of peaks and troughs here
a lot of peaks and troughs
the idea is if this is an old high back
here
for this high to be ran out okay or to
seek the liquidity resting above that
old high
if this is where the current market
action is right now or current price at
market price
for it to get all the way up there it
has to encounter a lot of resistance in
the form of old lows
and old highs
so you have
the old lows acting as standard
resistance
then you have
the old highs
acting as
buy stop liquidity so even if the
market's going to go up
if the market's going to seek the
liquidity above this high
how do we know it's going to stop there
it could go another level higher for
these buy stops
and it could reach for this level of buy
stops and then maybe this buy stop level
here
in
the direction to run all these buy stops
it's got to go through a lot of
resistance in the form of these old lows
just to get back up to this old high
when the market presents these
opportunities and again this is not
specific to any time frame it's
universal
but when we see the market give this
this very
thick
area of resistance okay it's a lot of
price action that the market has to
trade through to get back to an old high
of significance
we view this as a high resistance
liquidity run
the market's going to have a very hard
time getting through all these previous
lows and previous highs just to run out
the liquidity that will be resting above
this old high
when we trade
we are not looking for these
opportunities
while there are opportunities to trade
with this in mind
in other later teachings it's important
to understand that this is the least
probable
trading condition to look for longs
because you have so many levels of
resistance and old
highs to encounter before you get back
to the old significant high
we understand that the market has been
presenting lower lows and lower highs
and
somebody in this market is obviously
would be
being profitable
those individuals with stops above this
old high in the form of a fund they're
actually very highly defended because of
this type of price action so it's going
to take a very
sharp
economic
market release the data kind of like
non-farm payroll or fomc that type of
event will knock through all of these
levels of resistance to run out that
liquidity but generally without that
type of influence or injection of
volatility
these old highs generally are well
defended
obviously the opposite can be said when
we see the market make a
low of some kind it could be a take a
long time really to form this
but the old low would obviously have
sell stops below it or sell liquidity
and as the market makes higher highs and
higher lows if we're seeing price action
right here we can't reasonably expect
the market to just drop straight down
and make a run on the sell stops below
this low without encountering first all
of these
higher lows
and higher highs as the market went
higher
so to get through each one of these
highs
okay there's going to be a lot of
resistance to just run down out
the stops that would be resting below
this low
again just like we just mentioned with
the high resistance liquidity run
for
old highs the same is true here for high
resistance liquidity runs on an old low
it's going to be very difficult for
price to reach down through all of this
price action and
the more time it's spent in this area
again the more unlikely it is to make a
market move all the way down to this old
low
despite the fact that there may be
really high levels of liquidity resting
below that whole low without the
evidence of a significant market driver
coming into play with like an fomc
interest rate announcement or non-farm
payroll
or something that would be completely
unexpected in the marketplace black swan
event something like that that's
generally the only type of thing you see
that will cut through this type of price
action to get to the sell side of the
liquidity here
so for shorts we avoid these types of
occurrences
there are opportunities that we'll learn
with trading with this profile or this
market condition
for high resistance liquidity runs but
for now we want to understand that this
is the element of price action that we
want to trade very less
frequent in
now obviously
there's going to be times when the
market really provides us
an opportunistic time to take action in
the market and trade with price action
and have
very little resistance in our trades and
obviously that comes by way of trading
in low resistance liquidity runs
a low resistance liquidity run would be
in the form of something similar to this
now the east
crude depictions while they are rather
elementary in the way that they're being
shown here the concept is very easy to
see in price action as we'll look at
when we get done looking at the actual
crude diagrams i've shared here
if we see the market come off the old
high okay and it comes down rather
quickly
if there is
a very sharp or
one-way type direction very little
retracements of any kind when we see
this okay once that market breaks below
an old low
from that point at which it breaks the
old low
until
it gets
through
a short term high in other words the
market comes down makes a low here
starts to trade off comes down makes a
higher low
once it starts running through if we get
a market break through
this short-term high
this run here begins its climb back up
into the range that's created by this
low being broken so it's being defined
by this
level here all the way down
to this high
once it's broken
this area of price action is deemed
low resistance
now every time that a new short-term
high is formed
before
this low is retreated to or retested as
resistance every time there's a new
short-term high
what's going to form above that short
term high
it's going to have by
stop liquidity so buy side liquidity is
going to be above these old highs if we
get a buy signal
after a retracement
we know that there's going to be very
little resistance
for that move to go higher running out
the buy stops just above
these short-term highs as we get closer
to coming up into hitting this load
that's been violated here
then we start encountering
high resistance liquidity runs
so the probabilities fall off
precipitously once we get back to the
area which the range
is defined in terms of low resistance
then it becomes a high resistance
liquidity run
to make any higher highs or run on
higher highs it becomes a lot more
resistance to do that because we move
back into an area where the market has
moved in a range
this
expansion
okay
that's the easiest part of trading when
we can trade inside that range so every
time we create another short term high
in here if we get a buy signal
that buy signal will have very little
resistance to get through the old high
that it retraced from
and you continuously look for those
until you fill in
that break on this old low
once it gets back to this old low over
here the market goes into what is
referred to as a high resistance
liquidity run anything higher than
this price point here
becomes a high resistance liquidity run
much like everything else i've always
taught everything i teach one-sided
obviously is easily communicated by
using the
reverse of it or just turning it upside
down
this is a
sell side of the marketplace low
resistance liquidity run
we have a consolidation in here the
market expands goes into expansion
it breaks above a short-term high so at
the moment the short-term high is broken
here market structure is bullish and
then we go into a real quick run-up the
market will create a high
start to break down and once the market
starts trading below an old low
the market will have a
very easy time trading back down into
the point which the short-term high was
broken on the upside so all this one-way
direction price action where all of it
looks this one-sided for buys only very
little retracements this is the easiest
time to trade in the marketplace right
in here
it's defined by the short-term high
that's broken on the upside here that's
where you would begin your point which
it's deemed a low resistance liquidity
run so you're focusing primarily on
selling short
every retracement is going to find very
little resistance going lower
to run out the previous low
there's going to be what resting below
these lows
sell stop liquidity
so the market goes lower breaks below
this short term low here expands has a
small little retracement what's going to
be forming below this short-term low
bottom chasers folks that want to be
long
but we understand that the market has
broken an old
high here and had real quick sudden
price action very little retracements so
we have very little resistance on the
downside getting back to that point at
which market structure broke so between
this point here
and where the market breaks down this
low here this is the easiest area to
trade
in price action because you have very
little resistance allowing price to just
cut through all that
but you're waiting for a short term load
form and every time a short term low
forms there's going to be cell stop
liquidity resting below those lows
okay so let's take a look at more
examples of a high resistance liquidity
run and a low resistance liquidity run
and what makes those
uh two types of liquidity runs different
we have an old high back here noted here
and the market starts to move lower and
we showed this example of price action
here with this old high violating this
old high here
selling off these old lows being
violated here and the market starts to
rally up
notice there was very little resistance
in the marketplace where this high
eventually traded lower taking out the
liquidity resting below these lows here
this run from this
high taking out these lows
is referred to as a low resistance
liquidity run because we have a
longer term high to the left of us and
the market has shown a willingness to
take out a low and then we came back
above cleared out a stop above the high
retraced
had an unwillingness to go above this up
candle here
so institutional order flow as you'll
learn more about throughout this entire
mentorship
moves back to bearish and expands to the
downside
expands down to the downside
to run out these stops below these lows
the market rallies up again
and fails to get above this swing high
this run higher
is a
high resistance liquidity run
the fact that it's going to have very
difficult time getting above this high
is because we've already priced in a
longer term high
the intermediate term high
and this high is going to have a very
hard time struggling to get through this
height
it's going to have very difficult time
getting through it so this rally up if
we were buying long here we know that
there's going to be a high probability
that this is not going to be running out
the high is going to be in intact it's
going to be defended and the higher high
over here will be defended
so when price goes back up into this
high
this actually becomes a low resistance
liquidity run to see price come all the
way back down to take out this low here
the fact that we keep this old high
in place
and every low
that forms has very
little resistance as each time it moves
through it's like a hot knife through
butter very little resistance down every
time a low is formed price goes through
those lows this equal lows here price
trades through those this short term low
here price trades through it these short
term lows here price trades through it
so the the bias is
bearish
so you want to be focusing primarily on
a market rally
to take out
short term lows
or intermediate term lows
the difference between that is every
rally is going to be viewed as a high
resistance liquidity run it's going to
have very difficult time getting above
the previous highs sometimes it will
happen but generally you're going to
find that it's going to have a very
difficult time doing that
but because that's built into price
action having a high resistance
liquidity run here it turns into a
low resistance liquidity run for
you to see a move below the short-term
lows every short-term low is an
opportunity to seek liquidity or the
market to expand down
after a retracement up to take out the
stops that rest below the marketplace at
every old low
every single blow
that you see in price
once we identify where the market is
in terms of high resistance or low
resistance liquidity
we can find old lows to the left market
respects it here comes back but then now
we have a lot of liquidity resting below
this low here and this low here and the
market runs right through it
small little retracement there's more
liquidity below this low here so it's
going to expand down through it
we have old lows back here so the
market's going to do what it's going to
retrace a little bit and then do what
expand down to take out those
stops below this old lower here
the same thing is seen when the market
finds a
low in the market the market
creates a
smaller consolidation makes it a
long-term low
rallies up
retraces
moves into consolidation rallies through
again so now we have a lot of price
action here so this old low is going to
be well defended
the fact that we have a retracement
going lower each time every time the
market retraces that's going to be in
the form of a high resistance liquidity
run
it's going to find very stiff resistance
with
violating old lows
the old lows are going to be actually
defended and you're going to see
buying coming in the marketplace your
focus is going to be primarily on the
highs every short-term high is going to
have very easy
runs through them that forms a low
resistance liquidity run
the resistance levels are going to be
very
weak
the support or lows are going to be very
strong
because the market's going to be
capitalizing only on the buy side
just the reverse of what we saw over
here on the sell side everything's going
to be supporting bearish prices so every
retracement higher sets up another price
leg to go lower aiming for the lows to
be violated
we've changed the tide here and we made
an old low so every time the market
retraces lower that sets up new buying
opportunities to take out the short-term
highs or immune term highs above the
marketplace because what's going to be
resting above those highs
buy stops and you want to be buying low
and selling to willing buyers above the
current market action and that's what
the market makers do so every time the
market trades down it's actually just a
new low resistance liquidity run to make
a run above an old high and it makes it
very easy to find trades this way market
trades down smaller retracement its old
high will be easily ran out low
resistance liquidity run market trades
back
and has a retracement
very little resistance to get back up to
this old high it runs cleanly through
that
another retracement here the liquid is
going to be resting above this old high
and eventually the market expands
through it as well
[Music]
and eventually the market trades
through those lows as well okay so
there's many elements to the things i've
thought in this month's teaching looking
for clean highs where the levels are
just too clean
when the market shows those types of
levels it's going to be very
opportunistic for you to build the idea
that there's going to be buy stops above
that so any little retracement sets the
tone for another drive through that
and the market continues to find an ease
of getting back through
old highs
at some
point
you're going to look at price action and
it's going to be very
crystal clear
that
the more price action there is around a
specific level or a high or a low
that is indicating a levels being
defended
on an institutional price
model
so you're going to see very
easy trading when you trade away from
that level
and by doing that you're going to be
getting yourself in sync with the
institutional order flow then your
trades will find very low resistance in
the form of profitable exits
and very little draw down
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