ICT Mentorship Core Content - Month 1 - Liquidity Runs

Summary

The 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.