Liquidity (part 2)
Summary
TLDRThis video script delves into the concept of 'inducement' and 'structural' liquidity in trading, emphasizing their importance for anticipating market movements. It explains how to identify a bearish trend, the necessity of swing structure confirmation through liquidity, and the pitfalls of acting on inducement liquidity without proper structural support. The speaker illustrates the dos and don'ts of structural liquidity, highlighting the need for it to be close to the money zone and to be in a recognizable pattern like V or A-shaped. Examples from AUD/USD trades are used to demonstrate the application of these concepts, aiming to help traders avoid losses and make informed decisions.
Takeaways
- 📉 Inducement liquidity is a temporary high or low that lacks structural support and is expected to be taken out by the market trend.
- 🔄 Price action should follow the current trend, and traders should look for confirmation through structural liquidity before making trades.
- 🚫 Without structural liquidity, a high or low is considered inducement and should not be relied upon for trade decisions.
- ⏳ Traders should wait for the market to take out inducement liquidity before considering a trade, as this indicates the true direction of the market.
- 📈 Structural liquidity is crucial for confirming the strength of a trend and should be near the 50% point of the swing's range or below it.
- 📊 Structural liquidity should be either V-shaped or A-shaped, indicating a clear and obvious pattern that the market is likely to follow.
- 🚫 Avoid mistaking a few candles for structural liquidity; it needs to be a distinct pattern that signals high potential for the trade to play out.
- 📌 Remember that structural liquidity must be closed to where the 'money is,' meaning it should be at or below the 50% level of the swing's range.
- ❗ Be cautious of false signals; a shaped or V-shaped pattern in liquidity is a must for a valid trade setup.
- 📉 Inducement liquidity often leads to expansions and continuations in the market, which can be anticipated by understanding the concept of inducement.
- 📝 Keep in mind that even experienced traders can make mistakes by not recognizing inducement liquidity and structural liquidity correctly.
Q & A
What is inducement liquidity in the context of the script?
-Inducement liquidity refers to a high or low point in the market that does not have structural support and is expected to be taken out by the price action. It is a temporary point that traders should wait to be surpassed before considering a trade.
Why is it important to identify structural liquidity in trading?
-Structural liquidity is important because it provides confirmation for a trade. It is a sign of a significant accumulation or distribution of positions that can indicate potential support or resistance levels, giving traders more confidence in their trading decisions.
What does the script suggest about the relationship between price action and structural liquidity?
-The script suggests that price action should follow a trend, and traders should look for structural liquidity within a swing structure to confirm potential trade entries. Without structural liquidity, the high or low points may not hold and could lead to inducement liquidity.
How does the script define a 'sweep' in trading terminology?
-A 'sweep' in the script refers to a price action that moves past a previous low or high, indicating a potential change in the market's direction.
What is the significance of the 50% level in relation to structural liquidity?
-The 50% level is significant because structural liquidity should be either at or below this level to be considered valid. If it is above the 50% level, it is too far away from the money zone and may not provide accurate support or resistance.
Why should traders avoid trading based on inducement liquidity?
-Traders should avoid trading based on inducement liquidity because it is not a reliable indicator of support or resistance. Prices are likely to surpass these points, leading to potential losses if a trade is entered based on them.
What are the characteristics of valid structural liquidity according to the script?
-Valid structural liquidity should be close to the money zone, either at the 50% level or below it, and should be in a shape that is obvious, such as A-shaped or V-shaped, indicating a significant accumulation or distribution of positions.
What is the difference between inducement liquidity and structural liquidity?
-Inducement liquidity is a temporary high or low point without structural support, expected to be taken out by the price. Structural liquidity, on the other hand, is a significant accumulation or distribution of positions that provides a reliable support or resistance level.
How can traders use the concept of structural liquidity to avoid unnecessary losses?
-Traders can use the concept of structural liquidity to avoid unnecessary losses by waiting for the price to establish a clear support or resistance level before entering a trade. This approach helps them to avoid premature trades based on inducement liquidity.
What is the potential outcome when the price takes out inducement liquidity?
-When the price takes out inducement liquidity, it is likely to lead to expansions and continuations of the current trend. This can provide a confirmation for trades in the direction of the trend, allowing traders to enter with more confidence.
Outlines
📉 Understanding Inducement and Structural Liquidity in Trading
This paragraph discusses the importance of recognizing inducement and structural liquidity in trading. The speaker explains that traders should identify a sweep of the previous low and a break of structure to anticipate price movements. They emphasize the need for confirmation in the form of structural liquidity before entering a trade. The paragraph also warns against mistaking inducement liquidity for a valid trading signal, as it can lead to unnecessary losses. The speaker illustrates the concept with examples and stresses the importance of waiting for the price to take out the inducement liquidity before making a trade.
💹 Dos and Don'ts of Structural Liquidity Placement
The second paragraph focuses on the dos and don'ts of structural liquidity in trading. The speaker advises that structural liquidity should be close to where the money is, ideally at or below the 50% mark of the price movement. They also highlight that structural liquidity should be shaped or V-shaped to be considered valid, providing examples of both types. The paragraph warns against mistaking a few candles for structural liquidity, which can lead to incorrect trading decisions and potential losses.
📈 Examples of Structural and Inducement Liquidity in Action
In this paragraph, the speaker provides real-world examples of structural and inducement liquidity on charts, specifically using the AUD/USD currency pair. They demonstrate how traders often misinterpret inducement liquidity as a valid signal, leading to losses. The speaker contrasts this with clear examples of A-shaped and V-shaped structural liquidity, showing how price movements confirm their validity. The examples serve to educate traders on the importance of correctly identifying liquidity patterns to make informed trading decisions.
🚫 Avoiding Mistakes with Inducement and Structural Liquidity
The final paragraph wraps up the discussion by emphasizing the importance of understanding inducement liquidity and its implications for trading. The speaker points out common mistakes made by traders who misinterpret inducement liquidity as a bullish signal, leading to poor trade placements. They illustrate the consequences of such misunderstandings with a chart example, showing how price eventually rejects the inducement and expands, causing losses for those who entered trades prematurely. The speaker encourages traders to develop anticipatory skills to avoid these pitfalls and to wait for clear structural liquidity before engaging in trades.
Mindmap
Keywords
💡Inducement Liquidity
💡Structural Liquidity
💡Sweep
💡Break of Structure
💡Bearish
💡Bullish
💡Expansion
💡Confirmation
💡A-Shaped Liquidity
💡V-Shaped Liquidity
💡POI (Point of Interest)
Highlights
Introduction to the concept of inducement and structural liquidity in trading.
Importance of identifying a sweep of the previous low/high and a break of structure in price action.
Explanation of how to anticipate inducement liquidity and its impact on trading decisions.
The necessity of structural liquidity for confirmation in trading setups.
Risks of trading without structural liquidity and the potential for price to take out inducement highs/lows.
The difference between inducement and structural liquidity in the context of trading.
How to identify valid structural liquidity that is close to the money.
The requirement for structural liquidity to be at or below the 50% level of the price swing.
The dos and don'ts of structural liquidity, emphasizing its shape and proximity to the price action.
Examples of V-shaped and A-shaped structural liquidity and their significance in trading.
The pitfalls of mistaking random candles for A-shaped liquidity and the resulting losses.
Real-world trading examples illustrating the effectiveness of structural liquidity identification.
The importance of not engaging in trades without obvious structural liquidity.
How to avoid unnecessary losses by recognizing inducement liquidity and waiting for confirmation.
The psychological aspect of trading and the discipline required to wait for structural liquidity.
The impact of understanding inducement liquidity on anticipatory skills in trading.
Final thoughts on the importance of liquidity in trading and avoiding common mistakes.
Transcripts
inducement
liquidity why is the
I so IND this midity
yeah I want to show you guys how to
anticipate it
[Music]
here how to anticipate
inducement
liquidity so for instance here you have
um a cell
setup the first thing you want to see is
a sweep of the previous eye then a break
of structure
yeah or let just assume price is um the
arish so you know price is bearish and
you want to follow price action I mean
the current trend but you need a swing
structure here and this is now your
swing
structure right that means you now have
a swing structure you have a a sweep of
this low and a break and price is
obviously
bearish and you know you're looking for
only sales but to look for sales you
need confirmation I mean you need to see
structural liquidity but in this current
swing here there is no structural
liquidity there
that means this high is an inducement
liquidity here and what will happen to
it remember price is overall bearish the
me you can't see any structural
liquidity within this swing within your
current swing you always need to wait
for price to take out the inducement
liquidity you wait for price to take out
the the inducement liquidity because
that high will always go if you don't
have structural liquidity
the
high you don't if you don't have
structural liquidity within your
swing the high will always go and that
high is inducement then what happens
after inducement we have expansions then
you have sells you have the
continuations right and sometimes here
when price takes out high like this it
gives confirmation for sells again then
you now sell then no price
expands so you you want to be very very
careful you want to be sure that on this
trade you are
taking you want to be very very sure
that there is structural liquidity
within
that
swing right be a bearish or or or
bullish movement
Ure either you see a sweep of the
previous high or no not some tra this is
Cho and they believe price has already
changed character like this is yeah
however in the real world it doesn't
work all the time this is why we have
structural
liquidity it gives more confidence it
makes that okay this is a very good Zone
to actually trade off from so this is
something you want to focus on you have
this sweep this break you don't just get
your you don't just you know sell from
any POI there thinking this I will
be um protected if there is no structal
liquidity this is an inducement
liquidity that what will happen price
will take it out and boom and a lot of
people don't actually know this a lot of
trailers don't know this yeah and then
that is where your H comes in if you you
want to you know have it in your plan
that okay if I don't do if I do not see
structural liquidity there is no trade
for me automatically in your head that
high will be taken out that high or low
will be taking out right it's like you
don't need to you know even if it
doesn't happen but for you to avoid
unnecessary losses here you want you
want to just keep that at back of your
mind that even if you have a sweep of
this low and a break this low is not
protected until there is structural
liquidity until there is structural
liquidity if not this will happen this
is an inducement liquidity and press to
take it out and
expand this happens all the time now
let's move on to structural liquidity
how the the dos and don'ts of structural
liquidity basically structural liquidity
I hope you guys understand IND this
here
structural
liquidity structural liquidity so the
dos and don'ts of structural
liquidity but one thing about structural
liquidity is this
your structural liquidity must be
closed it must be close to where the
money is and when I say where the money
is this is pretty much
it you have uh a sweep of this low then
you have a break of
structure you see from this break to the
low
this is where the money
is whatever happens
here is
liquidity and that being said your
structural liquidity must be very close
to where this money
is right your structural liquidity must
be either be on at the 50% either be at
the 50% or below it please take note of
this
your structural liquidity must either be
at the 50% of where the money is or
below
it you want to keep that at the back of
your mind it's very very important your
structural liquidity cannot be here then
you you know assume that price that this
your PO High here will hold don't make
that mistake your social liquidity
cannot be here and you expect this Zone
here it is too far away it is too far
away because price goes to the closest
POI to the
liquidity and you don't want to engage
in the market if if will not come to
this zone right you don't want to engage
yeah so your stral liquidity must either
be on top of this 50% or below
it I hope you you actually got that now
it's very very very important and that
is number one
that is number
one number
[Music]
[Music]
two number two your structural liquidity
must be a
shaped or V shaped
yeah this is a shaped and this is
v-shaped like it must be
obvious it must be obvious let me let me
explain a shied par type of um
structural
liquidity a a
shaped sorry B shaped brother sorry
please a few minutes
[Music]
sorry please damn that
video all right so for vshape there this
a v-shaped kind of liquidity you can see
this is obvious liquidity structural
liquidity is V right that's v-shaped it
has um high potential actually playing
out so this is your structural liquidity
and what happens price comes about to
take it out and then boom this has high
potential right same thing here as well
sweep
break
protected structural liquidity and it is
a shaped can you see that it's is
obvious
now compared to having just a candle or
two candles let me give you guys a chart
example for that compared to having just
two candles and then you consider it
your a shaped liquidity or V shaped
no that is very very wrong let me show
you guys think the same happened on
audusd last
week a lot of people took losses
think it's a
USD all right
cool so on ausd look at what we have
here we have a sweep of this eye a break
of
structure this kind of liquidity here
would you say this is a shaped is it
obvious no it's just a couple of um
candles yeah a couple of candles and
when I say as
shaped on the chart this is typically
what I mean just give you guys example
as
well you can see what eventually
happened here so a lot of people that
consider this their structural
liquidity you can see how price took out
the inducement liquidity instead so
of right the L took this L took loss on
this trade because they consider this
the structural
liquidity and it's not a shaped it's not
obvious this a shaped it's not it's not
a shap liquidity it's just couple of
candle like bunch of candles right
compared to having this a shaped kind of
liquidity
here compared to having this v-shaped
liquidity big difference
here coming I want to show you guys more
examples think we had a trade an entry
on AU from the 4our time frame now
compared to
having this liquidity as well you can
see this is very obvious v-shaped yeah
is very obvious very very obvious
V this is also
v v shap liquidity and we had our
entry below
here entry below here below the vshape
liquidity this is
also this is a shape there
obvious this on on this particular cell
I took here you can see how obvious this
liquidity is the structural liquidity is
right we had this sweep we had this
break you can see how
obvious this stral liquidity is right
and that is
uh a shaped liquidity right I remember
what I said about and you guys remember
I took this sell I think I show it in
the group as
well this is your sweep this is your
break of structure from this break of
here you can see is actually directly
under of the
50% right and that's is my structural
liquidity and you can see it is
obviously a v shap a shaped rather a
shaped kind of liquidity yeah a shaped
liquidity and you can see what price did
boom and price sold up from
there skip the previous High break
structure creates an as shaped liquidity
boom price take it out and this a
lifetime chart life chart here and we
call this trade we call this St live as
well so you can see this is what I'm
talking about the same thing here as
well this is a shaped it's an a shaped
liquidity here this is a shaped you can
see what price did here same thing again
sweep took out the a shaped liquidity
and so of the same thing here the same
pattern
again over and over over and over now
let me show you
inducement inducement here so a lot of
Traders a lot of Traders will tell you
that um price is now bullish let me show
you why they will tell you it's
bullish in a situation like this let's
go to the 1 hour time
frame sorry this is quite slow
all right so a lot of Traders would see
this as a bullish structure already
because there is a sweep now this thing
goes back to inducement here there was a
sweep and there was a break now you guys
we we would all agree that this is a
swing structure
yeah this actually you know a sweep of
um of the previous low then a break of
structure here
we would all agree this is a swing
structure and this low is expected to be
protected yeah but look at this kind of
Swing now can you see strural liquidity
obviously no so what are you
anticipating that this low gets taken
out because this is your inducement
liquidity right this L get taken out but
a lot ofers will say no this is Cho and
then they want to press as change
character BMS just a lot of names and
then they would you know have either
probably out the order block here and
they want to just Place their buy tool
here but you that understand inducement
how inducement works you tell yourself
that no this is not going to happen that
price willward take out this low if
doesn't create structural liquidity that
price take out this low before it
eventually expands yeah and let's look
at what eventually
happened now you already created the
anticipatory skill yeah you already
anticipated
this you already anticipated what is
going to happen now let's
see compared to every other person you
see they probably in tra you know
already I'm probably happy that okay
they're in a good
trade let's see what
happens a lot of them probably you know
they'll be happy that didn't the trade
while you actually anticipating it
because you cannot see structural
liquidity let's see let's look at the
result anyway let me just cut the whole
stuff can you see that sweet SL and what
happens after afterwards price Rejects
and
expands price expands so let me just cut
the whole price back
[Music]
so while you've anticipated that and
avoided that loss yeah they took the
trade and you see what happens
immediately the buys the massive
buy right they had a correct buyers
their buyers is correct they were to
take a buy but they're buying at the
wrong Zone do you understand it now they
were actually buying at the wrong time
because of liquidity here so now you
that understand that you will have able
to you know avoid that
loss right avoid the loss even if you
don't get your entry immediately but at
least you've avoided the
loss right so you see that you can see
what eventually happened price now
expanded boom and we had the buys can
you see that so that is the purpose of
inducement understanding inducement
liquidity and spitting it before it even
happens yeah and then your structural
liquidity as well trying to understand
where and how it is valid you can't have
your stral liquidity here can you see
what I'm talking about can you see that
from
this break to this Zone can you see that
this guy is very far away so some some
of you would actually Mark out this low
now and consider it is your last low
before this
Zone can you see it doesn't actually
work like that can you see
it this cannot be AAL Liquidator it is
too far away from this Zone it is either
50% or below it if it's not there then
that then you don't have structural
liquidity
yet so that will be all for tonight the
next part I will also you know we
still talk a lot more about liquidity
before we move on
to um po High Yeah from po High then we
do top down analysis and then that will
be all then we'll move into the you know
Ling and all that so that'll be for
tonight I hope you guys learned
something and then stop making mistakes
silly mistakes that You' been making
there
[Music]
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