3. Order flow

Summary

In this technical analysis series lesson, we delve into the basics of institutional order flow, exploring how significant market movements are influenced by institutional trades. We cover the concepts of liquidity, liquidity pools, and the strategic placement of stops by retail traders, providing insight into how institutional traders engineer liquidity to execute large orders without causing market disruption. Through practical examples and chart analyses, we illustrate the concept of stop hunting and how it plays a crucial role in understanding market dynamics. The lesson emphasizes the importance of recognizing high probability liquidity pools and offers strategies to avoid being caught in stop hunts, aiming to enhance trading strategies by incorporating institutional order flow insights.

Takeaways

• 💭 Institutional order flow is crucial for understanding market movements and can significantly change how one perceives the markets.
• 📈 Markets are influenced by the actions of institutional traders who face unique challenges due to the size of their trades, including slippage and front running.
• 💡 Engineering liquidity is a strategy used by institutional traders to create the necessary conditions for executing large orders without drastically affecting the market.
• 🤷‍♂️ Liquidity pools are areas with a high concentration of stop losses or pending limit orders, acting as untapped sources of liquidity.
• 🔨 Stop hunting occurs when price moves to trigger the stop losses, creating liquidity for institutional traders to enter or exit positions.
• 👀 Identifying high probability liquidity pools involves looking for areas where retail traders are likely to place their stops, such as below swing lows or above swing highs.
• 📉 Not every swing high or low qualifies as a liquidity pool; selection should focus on those with significant market attention and visibility.
• 🚨 Strategies for retail traders to avoid being caught in stop hunts include adjusting stop placement, monitoring price action, and understanding market dynamics.
• 💰 Trading involves risks, and understanding institutional order flow can provide an edge, but it's not foolproof or a guarantee of success.
• 📺 The script emphasizes the importance of education and practice in trading, recommending following experienced traders and utilizing demo accounts to hone skills.

Q & A

What is institutional order flow in the context of financial markets?

Institutional order flow refers to the buying and selling orders executed by large institutional investors, which can significantly influence market prices due to the size of their trades.

Why do institutional traders face difficulties executing large orders?

Institutional traders face difficulties such as slippage and front running because their large orders can significantly impact the market price, making it hard to execute orders at the desired price without moving the market.

What is slippage in trading?

Slippage occurs when there is a difference between the expected price of a trade and the price at which the trade is actually executed, often resulting in a worse price for the trader.

How do institutional traders engineer liquidity?

Institutional traders engineer liquidity by creating conditions that encourage trading at certain levels, thereby ensuring that there are enough buyers or sellers at those levels to fill their large orders without significantly moving the market.

What are liquidity pools?

Liquidity pools are areas in the market where there is likely to be a concentration of limit orders or stops, offering a source of liquidity that can be tapped into by traders looking to execute large orders.

What is stop hunting?

Stop hunting is a strategy where traders intentionally push the price to levels where many stop-loss orders are placed, triggering them to create sudden price movements that the hunters can profit from.

How can retail traders distinguish between a genuine market move and stop hunting?

Retail traders can look for signs like price action, divergence, and candlestick patterns around key levels, and avoid placing stops at obvious levels to reduce the risk of being caught in a stop hunt.

Why is trading based on institutional order flow considered advantageous?

Trading based on institutional order flow is considered advantageous because it aligns smaller traders' actions with the movements caused by large institutions, potentially leading to more successful trades by following the market's dominant direction.

What is front running?

Front running is a practice where traders anticipate large institutional orders and enter positions ahead of them to profit from the subsequent price movement caused by the execution of these large orders.

Why are some assets more influenced by technical analysis and institutional order flow than others?

Some assets are more influenced by technical analysis and institutional order flow because they have higher liquidity and institutional interest, making their price movements more predictable based on order flow analysis compared to assets dominated by retail traders.

Outlines

00:00

📊 Introduction to Institutional Order Flow Basics

The lesson focuses on institutional order flow basics, outlining how market prices are influenced by institutional actions. The presenter explains the format of the lesson, which resembles a lecture with pre-prepared slides and charts, emphasizing a conversational approach to teaching. A disclaimer clarifies that the presentation is not financial advice but for educational and entertainment purposes. The video also gives shoutouts to individuals who introduced the presenter to concepts of order flow, liquidity, and market analysis, acknowledging the value of both free and paid resources available on their Twitter profiles. The outline promises to address the challenges institutional traders face, the mechanics of order flow, liquidity pools, and how these concepts can be applied to develop trading strategies.

05:01

🔄 The Challenge of Large Institutional Trades

This section discusses the dilemma faced by institutional traders due to their large order sizes, highlighting the issues of market impact, slippage, and front running. It explains that institutional traders cannot simply use market orders without affecting the price significantly due to the volume of their trades. The video then introduces the concept of 'engineering liquidity' as a strategy used by institutional traders to execute large orders more efficiently. This involves creating market conditions that encourage other participants to take the opposite side of their trades, thus mitigating the problems of slippage and front running.

10:01

📈 Understanding Liquidity and Its Engineering

The video explains the fundamental principle that for every buyer, there needs to be a seller and vice versa, introducing the concept of liquidity in trading. It further elaborates on how institutional traders engineer liquidity by manipulating market conditions to create the necessary buyers or sellers for their large orders. This manipulation is achieved by influencing retail traders' perceptions of the market direction, thereby generating the opposite trading interest needed for the institution's orders to be filled.

15:02

💧 Identifying Liquidity Pools

Liquidity pools are defined as areas on the price chart where a significant number of limit orders or stop-loss orders are likely to be placed by retail traders. The video delves into how these pools are formed and why they represent untapped liquidity for institutional traders. It uses examples to illustrate how market movements towards these pools can trigger a cascade of orders, thereby releasing liquidity. The discussion includes how retail traders typically place their orders and how institutional traders exploit these behaviors.

20:05

🔍 Techniques for Spotting Liquidity Pools

This part of the video outlines methods for identifying high-probability liquidity pools on charts, emphasizing the importance of being selective. It suggests focusing on deep swing points, ranges, and significant highs and lows that are visible across multiple time frames. The presenter argues that these points are more likely to attract retail stop orders, making them prime targets for institutional traders looking to engineer liquidity. The section encourages traders to think critically about where retail traders are likely to place their stops and to focus on the most obvious and significant levels for potential liquidity pools.

25:09

🎣 Exploring Stop Hunting Tactics

Stop hunting is introduced as a strategy where price is deliberately moved to trigger retail traders' stop-loss orders before reversing direction. The video explains how this practice benefits institutional traders by providing them with the liquidity to execute large orders. It discusses the mechanics of stop hunting, the types of orders involved, and the psychological aspects that make retail traders vulnerable to such tactics. Through examples, it demonstrates how institutional traders might initiate selling to trigger a wave of stop losses and then capitalize on the resulting liquidity to execute their own large orders at more favorable prices.

30:10

📊 Chart Examples and Analysis

The video presents several chart examples to illustrate the concepts of liquidity pools and stop hunting in action. It shows how institutional traders might manipulate the market to trigger retail stop losses, using price movements around significant highs and lows as case studies. These examples underscore how understanding these tactics can provide insights into market dynamics and potentially improve trading strategies by anticipating and avoiding common traps set by institutional traders.

35:11

🛠️ Strategies to Avoid Being Caught in Stop Hunts

This final section offers practical advice on how traders can avoid falling victim to stop hunts and liquidity pool traps. It emphasizes the importance of placing stop-loss orders thoughtfully, monitoring price action for signs of manipulation, and considering divergences as indicators of potential false breakouts. The presenter suggests being cautious with stop placements and advises against putting stops at too obvious levels. Additionally, the use of a trading journal is recommended to identify patterns in stop hunts and improve decision-making in future trades. The conclusion reinforces the educational nature of the video and invites viewers to consider the complexities of institutional trading tactics.

Keywords

💡Institutional Order Flow

Institutional order flow refers to the buying and selling activity conducted by large financial institutions, such as banks, hedge funds, and investment firms. In the video, this concept is crucial for understanding how these entities influence market prices through their large transactions. The presenter explains that institutional traders face unique challenges, such as avoiding slippage and front-running, due to the size of their orders. These traders engineer liquidity to execute their trades more effectively, impacting the market's direction.

💡Liquidity

Liquidity in financial markets refers to the ease with which an asset can be bought or sold without causing a significant change in its price. The video discusses how institutional traders create liquidity by generating buying or selling interest, crucial for executing their large orders. Liquidity pools, identified as areas with high potential for limit orders or stops, are targeted by institutional traders to fulfill this need.

💡Slippage

Slippage occurs when there is a difference between the expected price of a trade and the price at which the trade is actually executed. This concept is significant in the video as it highlights one of the challenges institutional traders face when entering or exiting large positions. The presenter emphasizes that to minimize slippage, these traders must strategically engineer liquidity in the market.

💡Front Running

Front running is a practice where traders capitalize on advance knowledge of large pending transactions to execute orders that benefit from the subsequent market move once the large transaction is processed. The video discusses how institutional traders aim to avoid being front-run by others, as it can lead to unfavorable execution prices for their large orders.

💡Liquidity Pools

Liquidity pools are defined in the video as areas on the price chart where a significant number of limit orders or stop-loss orders are likely to be placed. Institutional traders look for these pools as they represent potential sources of liquidity necessary for executing their large orders without causing drastic price movements.

💡Stop Hunting

Stop hunting is a strategy where traders seek to drive the market price to levels where stop-loss orders are congregated to trigger those orders intentionally. In the video, this technique is presented as a method used by institutional traders to create liquidity by activating the stop-loss orders of retail traders, thereby facilitating the execution of their large orders at desired prices.

💡Retail Traders

Retail traders are individual investors trading their own money, typically in smaller amounts compared to institutional traders. The video contrasts these traders with institutional ones, noting that retail traders' stop-loss orders often create liquidity pools that institutional traders can exploit for their benefit.

💡Technical Analysis

Technical analysis involves evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. The video situates institutional order flow within the broader context of technical analysis, indicating that understanding these flows can provide insights into potential market movements and improve trading strategies.

💡Liquidity Engineering

Liquidity engineering is a process where institutional traders manipulate market conditions to create liquidity, which they can use to execute large orders more efficiently. The video explains how these traders may intentionally push the price to trigger stop-loss orders or entice other market participants into creating the liquidity they need.

💡Market Sentiment

Market sentiment refers to the overall attitude of investors toward a particular security or financial market. It's an underlying theme in the video, as institutional order flow and liquidity engineering tactics can significantly influence market sentiment, leading to price movements that align with the institutional traders' objectives.

Highlights

Introduction to institutional order flow basics, covering what moves price, where it moves to, and the objectives.

Disclaimer highlights that the presentation is not financial advice and emphasizes the risks involved in trading.

Shout outs to individuals who introduced the presenter to order flow concepts, liquidity, and trading strategies.

Overview of the problems institutional traders face, such as slippage and front running, due to their large order sizes.

Explanation of how institutional traders engineer liquidity to mitigate issues of slippage and front running.

Definition and importance of liquidity pools, areas likely to have a lot of limit orders or stops.

Discussion on stop hunting, where price trades through an area where retail stops are resting before moving in the opposite direction.

Strategies for developing an understanding of institutional order flow to improve trading.

Clarification that the concepts of institutional order flow are visible on any timeframe and are not a 'magic voodoo' but can significantly impact market understanding.

Warning against getting too obsessed with the concepts and marking out every single swing high and swing low as a liquidity pool.

Techniques for distinguishing a stop run from a genuine breakdown, acknowledging the inherent difficulty.

Definition of a retail trader versus an institutional trader, highlighting the scale of trading and the capital involved.

The necessity for an institutional trader to find or create liquidity for executing large orders without significantly impacting the market price.

Detailed examples of liquidity pools and how they are identified, including below swing lows and above swing highs.

A cautionary note on the importance of being selective in identifying genuine liquidity pools to avoid being misled by market movements.

Transcripts

how's it going everyone we have got

another lesson as part of the technical

analysis Series today and this one is

going to be on institutional orderflow

Basics so essentially we're going to

cover what moves

price where it moves price to and for

what

objective um now before I jump into the

disclaimer if you're not too familiar

with the format of these lessons um

typically the way it works is kind of

just like a lecture I have some pre-prep

pre-prepared slides and some

pre-prepared charts and we just go

through them in a sort of no editing uh

free flow conversation very one-sided

conversation more of a lecture but

anyway that's how we run things and

let's jump into it uh disclaimer

presentation or basically anything I say

isn't financial advice I mean I'm

obviously not a financial advisor um

trading is very risky you might lose all

your money and um so trade demo accounts

that's a good way of not losing your

money if you only trade demo accounts

and this is for entertainment purposes

only with that said let's jump into a

few shout outs very quickly essenti

essentially these are the people who

introduced me to orderflow Concepts and

liquidity and all that type of stuff uh

Trader

danty ICT Trader SZ and Trader Simon now

these are their Twitter handles and if

you go on their Twitter

um there's a wealth um of free and paid

information that you can get it's all

very good and recommended by myself um

so go ahead and check them out and thank

you to those gents for the content that

they

provide with that said let's jump into

the outline what are we going to cover

nothing's different compared to how we

normally run this we're going to have

some general remarks to start off we're

then going to essentially frame um this

lesson in the following context we're

going to assess the problems that

institutional Traders face and then by

analyzing how they solve them we can get

an idea of how order flow institutional

order flow works and we'll then cover

liquidity liquidity pools uh put those

together to get an idea of stop hunting

and then put all of that together to

just develop some strategies and see how

we can use this in our

trading General remarks uh again this

isn't some totally magic voodoo Guru

type thing but certainly it's made a

very big difference in the way I look at

markets um and as it says here markets

tend to make a lot more sense uh once

you get this once you get the idea uh of

the basics of institutional order flow

uh some assets are more technical than

others you know gold Euro Yen a lot of

Forex pairs uh Bitcoin to an extent um

follow the follow this stuff really well

uh on stuff like lower cap altcoins with

so much retail presence you know I doubt

you have any banks trading shitcoins uh

that essentially means the technical

analysis can stay quite simple and by

that I mean you know your triangles your

flags you know your chart pattern

Candlestick type stuff um but certainly

once you get into the more liquid bigger

assets this stuff and where you know the

big boys are playing this stuff plays a

much more prominent role these concepts

are visible on any time frame and we'll

jump into time frames and discussing

those a bit later uh this point is quite

important don't get obsessed with these

Concepts and essentially don't take them

too far uh I'll drone on a lot about

what makes a good liquidity pool and you

know that type of stuff they really the

areas we should be paying attention to

on our charts just don't be that person

who gets really excited at this idea and

starts marking out every single swing

high and swing low as a um liquidity

pool but again that will be covered at

some detail we'll look at techniques for

distinguishing a stop R from a breakdown

um but it's inherently quite difficult

to do which is why it works uh any but

regardless we'll look at some techniques

to try to protect your capital and then

defining some terms at the end a retail

Trader is an individual trading a

personal account with usually smaller

size not as much Capital whereas

institutional Trader is someone trading

other other funds not their own accounts

you know that might be a firm desk um

whatever it may be so they're trading

money for an institution as opposed to

their own

account so let's contextualize

essentially why order flow is important

and um how we frame this discussion so

if you're an Institutional Trader you're

trading a lot of size right if you're

one of these big Banks desks firms funds

whatever uh and you're an experienced

Trader you know you've been there for a

bit they've taken you off the sim ages

ago and you're in there with quite big

amounts now with that said a quick

reminder or a refresher hope hopefully

um you can't buy and sell to yourself

right there needs to be someone on the

opposite side of your trade so for every

buyer there needs to be a seller and for

every seller there needs to be a buyer

okay now going back to our institutional

dilemma if you're trading big size you

can't smash the market buy and sell

button to get positions at least not

very often um and these big Traders

really do have issues um if they were to

employ technique or just generally as

well putting away their position size

you know you might think oh well you

know I risk 1 to 3% of my capital and I

get filled just fine no slippage I can

get in and out of Market sure you can

but if you're trading one to three% of a

massive account at some institution

that's going to be a bit different and

so what are the difficulties um that

these that these Traders face well the

first would be slippage and slippage is

essentially um the difference between

the price at which a Trader expects an

order to be executed uh and then the

price at which it is actually executed

you know the discrepancy in the uh the

price between those two things so the

order that you put in and the order that

you actually get and that difference is

slippage which makes your position worse

usually and then the other thing is

front running which essentially means

that if you're a big player moving big

size in the market trying to get trying

to buy or offer a certain level um

you'll get essentially front run which

means smaller Traders getting ahead of

where you want to be and essentially not

giving you your fill um and that's

because you live uh a big you leave a

bigger footprint you know your actions

as a big Trader visible um also through

the you know a bunch of tools the ladder

the order book The Chart itself you know

by the candlesticks and the volume Etc

so those the difficulties you face you

can't just tuck away your full position

size at Market Market because you

probably get slipped uh and there's a

very good chance you get front run as

well when the retail Traders notice that

there's a big boy in town and they want

to jump ahead of

you so that's the Dilemma now the

question is how do the institutional

Traders get around this issue well the

answer is by engineering liquidity and

we'll get to what that means

shortly engineering liquidity great

sounds like a very useful term what does

it actually mean well we need to first

talk about what liquidity itself means

so let's revisit this concept that for

every seller there needs to be a buyer

and for every buyer there needs to be a

seller right again you can't just trade

with yourself there needs to be someone

uh on the opposite side of your position

if you get a

fill now what are the implications of

this as simple as it sounds well that

means that

longs provide short liquidity and shorts

provide long liquidity right let's take

a moment to consider what that means

that means if you want to short if you

want to sell you need someone to be

buying from you so the liquidity for

your shorts will be the buyers the Longs

okay and the opposite is true of course

that if you want to go long if you want

to buy you need people to sell to you so

how do buyers get their liquidity that's

via shorts via sellers right should be

obvious but if you need to pause and

replay whatever do it at your own pace

um now how does this apply to our

institutional Trader dilemma well if

you're a big if you're a big player and

you want to go

long you need someone to be selling to

you and if again this is just basically

rehashing this and if if you're an

Institutional Trader wanting to go short

you need people to be buying your short

from you you always need to pay your

order with someone else if you're

long there need to be shorts to pair it

with if you're short there need to be

longs to pair it with right so that

leaves us with the question how do

institutional Traders create sellers if

they want to go long so engineer long

liquidity and how do they create buyers

if they want to go short engineer short

liquidity and that in itself sounds

quite difficult to do you know how do

you

convince the market participants that

it's going in One Direction before you

know bamboozling them and taking it in

the other direction

completely you know how do you create

sellers for your buyers and how do you

create buyers for your sells well the

short version

is if you need to create sellers you

want you want to make the market looks

like look like it's going to itself

even though it isn't and if you want to

create buyers you need to make the

market look like it's going to go

vertical even if it doesn't but we we'll

cover this in great detail so now that

we've understood liquidity what are

liquidity pools now my definition is

liquidity pools are areas where there

are likely to be a lot of limit orders

or stops uh and we'll cover this in

great detail a tiny bit

later but essentially pending limit

orders are sources of untapped

liquidity uh which is released or

triggered by Price trading through a

certain

area right so if we draw up a rough

example so this is our level okay let's

say this is our support level and the

market is let's say in a

downtrend okay and see have Market

trades into the

level bounces and everyone's saying oh

it's a deadcat bounce maybe hit some

resistance and then it actually comes

back down into the level

now what is below what is either at this

level or slightly below it well there

are orders what type of orders uh we'll

cover this in Greater detail again in a

couple of slides but if you're a retail

Trader if this low gets taken out you

know if the market goes through and

makes a lower low most retail Traders

will want to be short this so they've

seen this they''re missing the downtrend

thinking okay this is a dead cat bounce

dude I really want get short this asset

if it takes out this low my textbook

tells me it's made a lower low and it's

going to go to so what does that

mean what is actually below this low

well a couple things actually and again

this will be covered oh this is so ugly

anyway there are two things below it one

is the limit order to sell for people

who want to get in on this move you know

they're seeing it dump they're like oh

man I want to short this it's made this

low and now it's coming down and they're

salivating at their mouth thinking oh

dude if this low gets taken I'm short

it's going to that means it's made a

lower low baby pip says it falls off a

cliff and it's going lower that's one

type of limit order that's below this

low what is the other type of limit

order and that's that's a that's the

cell right what is the other type of

limit order below this slow well if you

longed the dead cap bounce or whatever

this bounces so let's say you're

watching this bang and you bought

somewhere here and you didn't sell here

and now it's coming down where is your

stop loss going to be well typically

retail Traders would put their stop loss

below the most recent or you know

relevant swing low now what is a stop

loss if you're long well if you're long

that means your bought

contracts and your stop loss is

essentially the reverse so that would be

an order to

sell so we know that below this level

and more importantly below this low

there are two sources of selling the

first is the people who are waiting for

this low to get broken to jump on board

the short that's one source of selling

it's a limit order to sell if price

takes out this low and then your second

source of selling is people who longed

and have a stop loss below this low and

when the market takes it out their stop

loss is triggered they're long and that

means means they sell the contracts that

they bought that's two sources of

selling again we'll cover this in

excruciating detail that's just to give

you an idea that unta there is untapped

liquidity um in these areas in the form

of you know you've got untapped

liquidity um let's actually go back to

the to the slides because they're very

useful

here if this ever decides to

load I'm not sure why it's so difficult

hold on let me try this one more

time you it take however long you need

darling no you're not going to

cooperate I'll give you three seconds

one two a this is so annoying let's try

a different

slide can I present from

beginning yay okay sorry about that so

pending limit orders are essentially

untapped liquidity which is released or

triggered by Price trading through a

certain area so from an Institutional

perspective um buy orders when buy

orders flood the market that's short

liquidity and when sell orders flood the

market that's long liquidity so in the

example that we just had and again don't

worry if I'm moving quickly because I

will address this very thing a bit later

so if we have price doing this in our

example and then it comes back and takes

out this level what the retail Traders

are doing is they're selling below here

the fact that this low gets taken out

creates Sellers and again this goes back

to our two sources Source One of selling

is people who have a limit order to

short below this low hey it's made a

lower low it's going to the and the

second source of selling is people who

longed at An Inconvenient position

didn't take any profits and then have a

stop loss below the low so essentially

just by the market taking out this low

it creates a source two sources of

selling and if we go back to our basic

order flow things when sell orders flood

the market that actually provides long

liquidity right and again this will be

covered I'm tired of I know I've

repeated it a million times but uh you

will see

so this looks really cool how but how do

we identify liquidity pools um well the

simple test is where retail Traders

taught to put their

stops um and if you're like me who well

like probably 99% of people who started

off with essentially um retail sources

of Education you know your gurus your

YouTube videos your textbooks and so on

um these four things are

typically where it goes so either below

swing lows above swing highs right so in

in sort of trending markets and so on

you know if price takes out a swing low

oh well it's made a lower low so it's

going to go lower right and then the

same in the other direction that if you

have a high and the market trades above

it it's made a higher high and then it's

supposed to go to the moon right and the

other thing is range highs and range

lows and what I mean by that is

essentially when you have a period of

consolidation where price is doing this

type of thing you know price is ranging

and so you will

have liquidity on both sides of the

range so you'll have people waiting with

their orders just above to buy the

breakout and you have people with their

orders just below waiting for the

breakdown more on liquidity pools

because that's not

enough I'll reiterate that newer Traders

get too excited and assume that above

every little high or below every little

low there's liquidity pool this is wrong

okay if this model of understanding

order flows to be successful you must be

selective in what makes a good liquidity

pool so how what are some of the filters

we can apply um to essentially be able

to map out good liquidity pools from bad

ones or essentially higher probability

areas from lower probability

areas

um so let's look at some of the

categories the first one is the deeper

the swing

you know the ones that really stand out

on the chart as a big swing in and a big

swing away um those tend to be you know

above those deep swing highs and Below

those deep swing lows those are your

high probability areas for one um and

now this is related to the first point

but swing points visible on the higher

time frames also tend to work better

because and this is this bit's really

important um it's not just the time

frame that's crucial but it's really

this that more Traders see them okay

we're trying to essentially suck in as

many retail Traders uh as we can with

these swing points and you know the more

they stand out the more visible they are

the more likely that there will be

orders above or below them right as I

say here a lot of the time as you know

simplistic as it well as simple as it

sounds it's kind of common sense as the

bits that really stand out and the bits

that're really going to attract the most

attention um and again uh we'll cover

this in the chart examples but 15

minutes hourly daily don't limit

yourself only to high time frames or

only to low time frames these are my

favorite time frames for what it's worth

for looking out for these setups uh

extended consol consolidation ranges are

good um for liquidity pools and as I

pointed out in the earlier amazing

diagram um with a screenshot rectangle

above the Range High and below the range

low uh tend to attract uh a lot of

orders of people essentially waiting for

break either way um High time frames

highs and lows you know what is where is

the daily High the weekly High um

sometimes the monthly High depends

depends how you trade but those types of

significant areas um tend to attract a

lot of orders as well uh equal highs and

equal lows you know those stand out like

a sore thumb anyway but just in case and

then if you're unsure always ask

yourself where the retail Traders stops

resting um but these categories should

be plenty uh to be able to identify

where these are at and we'll look at

some chart examples um now actually um

let me actually think about this now you

know what let's cover stop hunting then

once we've got the full picture we'll

look at some charts bear with me um now

what is stop hunting now that we know

the purpose of

liquidity

and how to identify high probability

liquidity

pools we can take a look at stop hunting

and see how it fits into the picture

well my definition of stop hunting is

that where price trades through an area

where retail stops we resting before

usually moving in the opposite direction

now this bit is important what do I mean

by stops and this is something I covered

in the rough drawing but we can cover it

in more detail here well in the bullish

case you know if the if you're long the

market you have a big candle down you

get stopped out and the market goes

higher that that I I guarantee that has

happened to every single person who's

ever traded anything um that you have a

the Market's you know you're long the

Market's trending up everything's good

you move up your stop or you have your

stop below or low one candle or you know

one move takes you out you think okay

well the uptrends broken at least I'm

out and then the market proceeds to

continue it's uptrend and you're kind of

sat there thinking what the hell just

happened um so in this examp that's a

very good example um and that's the one

I'm using as my reference

here so that's a bullish example where

the market takes out a low

or breaks support quote unquote it

doesn't actually break it obviously cuz

the market goes higher that creates

Sellers and long liquidity is engineered

now again you might need to go back a

few slides and if this doesn't make

sense to you but long

liquidity if you want to go long you

need sellers so by creating sellers so

you break support or take out a low

people start selling and you can get

filled on your long okay that should

make sense

now what I mean by stops that comes in

two

forms so let's take let's you know let's

draw it again who's it going to hurt

these ugly

diagrams

um let's just

draw the

market like this right with this low

being our

level

now what is below this low well anyone

who's long will typically Ally have

their stop loss below a recent or

standout swing low right so if you're

long the market let's say you're a

crypto Trader and then typical F and you

long the top uh a lot of the time

especially if you're a trend Trader you

know you only look you look for higher

lows and all that type of stuff you look

where the highs and lows are forming uh

your stop loss where you know you're

wrong or the trend has changed will be

below the swing low right so that's

where your stop loss is now if you're

long and again I've covered this but

again to reiterate if you're long and

you have a stop loss if your stop loss

gets triggered by the market going below

your stop let's say this level is your

stop if your stop loss gets triggered

you bought

contracts and so when your stop comes

into play that's an order to sell right

and we know that selling is long

liquidity so that's your your first

source of long liquidity your first

source of selling is the stop losses of

the people who went long and put their

stop loss below the swing low what is

the second source for liquidity is

essentially your fomo buyers who see

this low you know see this High form and

they're looking at this come down and

they're thinking okay look if this low

gets taken that means the trend is

broken um we've made you know if I made

this a bit longer doesn't really matter

we can just pay attention to this you

know they're seeing the market you know

fall off a cliff down into this low and

they're saying hey if the market takes

out this low it's going to make a lower

low and I want to be short that so

they're saying I'll put my limit order

to sell slightly below this low so I

know it's broken and then the market

ideally should tank and make a lower low

so you have two sources of selling at

these swing points right so you have

stop

losses of people who long at a bad time

and put their stop loss below the swing

low and again when those are triggered

if you're long with a stop it turns into

a cell and the second group of people

are the ones who are essentially foming

in on this dump and they're saying not

these people not in a position they're

waiting to short right they're saying oh

dude this low gets taken we're falling

off a cliff and typically the limit

order to sell will be a bit below this

low and so when the market takes out

this low it gets flooded with sell

orders the stop losses flood the market

and the limit orders flood the market

that's a lot of selling now what is

selling good

for well let's underline it what is

selling good for sellers created equals

long liquidity so if you're a big

player the amount of

selling that takes place below the swing

low is really good for you right at that

point no one's going to front run you

you're not going to get slipped there

are all the orders in the world to

sell in the market and you can just pick

them up pair your Longs with the retail

shorts and then ultimately Drive the

market higher and again those make sense

when we look at the charts and so what's

the result of what we've just shown here

the sell orders flood the

market the selling is long

liquidity and the institutional Traders

can pair their Longs with the retail

shorts and take take the market higher

they want they need people to sell to go

long when price takes out a

low and triggers stops of those who are

long so knocks them out and puts people

on the wrong side of the market there's

a ton of shorts which provide long

liquidity and the big players can just

pick them up um

happily right now a lot of the time and

this is actually the interesting thing

um if you're if you're an Institutional

Trader and you want to

trigger um you know you want to take out

I should make this a bit longer really

and you want to take out this low the

institutional Trader himself will

actually start

selling which sounds silly he like why

is he putting himself underwater because

if he wants to go

long why would he sell and put himself

in a losing position well it's because

he knows that if he takes out this

low that there's a ton of liquidity

which he can pick up and then without or

with much less risk and with more

liquidity you can take the market higher

so a lot of the time it's not the

market uh well it is the market

indirectly but it's actually the trader

Who Wants to Be Long who starts out by

taking

out the low so he dumps in order to get

more liquidity for a pump um you know he

doesn't mind holding an underwater

position for a bit if he knows that once

this low is gone he can collect all the

shorts in the world he wants all the

long liquidity in the world he wants and

take the market

higher okay last couple slides before we

go to charts I promise so the

relationship between liquidity pools and

stop hunting should now be clear uh

namely that retail Traders stops which

tend to accumulate around similar areas

and those similar areas being you know

the list we talked about a couple slides

ago they create the liquidity

pools you know the liquidity pools I say

here are simply areas where

stops and now we know that stops mean

two things stop losses of people on one

side of the market and limit orders of

people who want to get in on the market

have built up and have not yet been

triggered now you need to think like an

Institutional Trader if you needed to

collect liquidity

where would you get it and I reiterate

the principle here in terms of the

institutional trading mindset if you

want to go long where would price need

to go to create sellers sellers not

sillers um and Trigger sell

stops you know sellers equal long

liquidity which is why going back to the

example I just showed a lot of the time

the big Traders will engineer the

liquidity themselves

you know they will start selling to take

out a low and then go long so they hold

an underwater position for the means of

engineering liquidity and of course the

opposite is true that if you're looking

to go short um where would price need to

go to create buyers and Trigger buy

stops and buyers equal short

liquidity um you know so it's the same

it's exactly the same thing you can tell

I really like drawing on the screenshot

software if you have the mark Market

making

highs and you're an you're an

Institutional Trader who wants to be

short you know that a lot of people are

going to be looking at these highs right

now who is what is resting Above This

High well buy

orders what do you mean by buy orders

again it goes back to our two sources

anyone who's short or most people who

are short will have their stop loss

Above This high if you're short and have

a stop that's an order to buy right so

that's Source One of buying what's

Source two of buying that's your

breakout Traders Trend Traders whatever

it may be who are thinking hey dude if

the market takes out this high that

means it's made a higher high and it's

going to go to the

moon so what happens at this

level and again this goes back to the

institutional Trader engineering the

liquidity himself if he wants to go

short he could start actually well

probably a bit closer to the level um

but in theory you know if this happened

he could start buying right doing the

opposite of his desired objective to get

price Above This High you get the stop

losses get triggered flood the market

with buys the limit orders get triggered

flood the market with buys and then he

can sell into those buys as much as he

wants

okay and the general OB so the two

points being made is that this liquidity

is engineered a lot of the time by the

institutional Traders themselves they

will hold an underwater position um for

a bit in order to achieve the greater

desired outcome and the second Point

um is that yeah well it's pretty much

the same actually didn't read this fully

is that this one this way this is why

often markets will take out a low before

going up or take out a high before

falling off a cliff and it's the

institutional Traders themselves

creating buyers they can sell to or

creat a or creating sellers Tak can buy

from um you know what we can actually

look at some charts and then go into the

preventative strategies next let's look

at some of these charts so this is the

bond on the 15 minute time frame now

even without knowing any of this I

should hope that this area stands out to

you you can see the market had a deep

swing into

it right and then a deep swing away let

me actually close this before I get any

notifications so you can see the market

made a deep swing into this and then a

deeper swing away this is going to

attract a lot of attention you know

there's not much clutter and it kind of

stands out so we know

probabilistically I hope that's a word

that there are two types well well

basically this is a liquidity pool um

there are buyers Above This high right

people thinking well if it takes out

those high it's going to make a higher

high and go somewhere here or here right

or anyone who's short

um we'll be thinking you know if if they

if they're short somewhere you know

whatever at a bad time they're thinking

hey but if this High gets taken out I'm

wrong so that's your two again the two

sources of buying and what happens

Market rallies into it you can see it

takes it out by just a little bit with

this Wick right the high gets taken all

those and those two sources of buying

also get triggered the stops get

triggered and the limit orders to buy

get triggered and that provides your

institutional Traders with all the short

liquidity in the world they need buying

is short liquidity lots of buying Above

This high thank you very much and the

market falls off the cliff now

interestingly where does it fall off a

cliff 2 I mean if this doesn't stand out

to you as a swing point I don't know

what does right you can see a massive

dump into it and then a massive pump

away from it so what's below this low a

liquidity

pool people thinking hey if this low

gets taken we're going to go lower and

again I don't know what type of system

you're trading but anyy Longs is saying

um if this low gets taken I'm wrong and

I should short or I'll get stopped out

whatever it may be so what happens the

whole world is looking at this market

look at this scary candle

um where is

it look at the scary candle coming in to

this low this a 5 15 minute time frame I

mean look at this who's going to have

the balls to go long that but as you can

see it would have paid off quite nicely

lows below here lows get taken you can

see by these Wicks lows get taken the

market is flooded with what orders to

sell people wanting to short a break of

this low Source One people with a stop

loss below this low Source two the

market maker the big desk your

institutional Trader whatever firm you

pref whatever term you prefer they get a

lot of selling a lot of sellers below

this low what is selling selling is long

liquidity what does the market do

rallies higher low and then proceeds to

go vertical right and again you could

draw this and whatever else um but those

two are the examples that stand out the

most let's look at a couple more or a

few more now this is the daily time

frame on the dollar

Yen so again we're showing some

different some different time frames

here now I hope you'll agree that these

two swing points stand out like a sore

thumb on the chart big swing into it low

big swing away these are really big

moves so where's a what what are the

retail Traders looking

at the bits that stand out the most on

the chart and I hope this for you makes

sense it certainly does to me so let's

go for the lows first deep swing in deep

swing away you know higher low here

great we've made a higher low and then

the market comes here and at this stage

it's made you know it's closed

below essentially you know this level

has failed to act as support at this

stage it's broken here and everyone's

thinking okay well we sort of broken

this level and the only thing that's

left is this low if that low gets taken

I want to be sure this market and look

what happens again quite a cruel example

because you actually get a daily close

below it but the market takes out this

low although it does give you a slight

hint with this long Wick but again

nothing too crazy Market takes out the

low a bunch of selling happens below it

what is selling selling is long

liquidity and look at the next candle

the next day the market pretty much just

goes vertical back up to this level now

let's look at the opposite um of how to

engineer long liquid

I hope you agree again um that either

either one of these is a swing Point

either swing deep swing in deep swing

out and here as well deep swing in deep

swing out so sort of this level is what

we're paying attention to now what do

what do these especially this what what

do these candles do what do these Wicks

do well we know that there are going to

be buyers Above This

High let's do our routine again what are

the two sources of buying breakout

Traders saying the Market's made a

higher high we're going higher and also

people who are short will have their

stop loss above the high saying hey if

it makes a higher high I'm wrong and I

should get stopped

out when the market takes out these

highs buy orders flood the market

there's the limit orders of people

playing the breakout and the stop losses

of people who are short so quite cruel

that it knocks you out if you if you're

on the right side of the market cuz

you're short you get knocked out and

then it falls off a c or at least pulls

back in this case not really a cliff it

comes into sort of this level here but

again both sides of the market low deep

swing low that stands out Market takes

it out lots of selling lots of selling

as long liquidity rally away here highs

what do we have resting above highs

buys that sounds silly um but what are

the sources of buying breakout Traders

we've made a higher high we're going to

the Moon stop losses of people who are

short we've made a higher high I'm wrong

takes them

out buying is short liquidity and your

professional Traders your big players

whatever can get in and

short more chart examples this one is

especially cruel

um this is your New Zealand

dollar against the US dollar can you

have a swing Point Market comes into it

here toall Wick and then a deep swing

away right and then what does this

specific candle do well if you want to

look at other potential swing points

which aren't as great but certainly you

know this this comes back to our equal

highs kind of thing as a potential area

for a liquidity pool you can look back

on the slides equal highs is one of the

categories so what do you have here

essentially equal highs between here and

here and this candle takes them out and

what you'll notice a lot of the time

is um I don't want to make it too

complicated but there's a pattern called

the SFP which is traded dant pattern and

that's when the market takes out a high

and closes below it or takes out a low

and closes above it and basically

indicates that Traders are trapped and

so on um but what you have in this case

you might think hey are people really

going to have their stop just like a

tiny bit above the high and the answer

is yes um you can trade these sorts of

things with like one tick above a swing

High it doesn't need to be like a

massive move to bait everyone in

especially with a lot of retail Traders

um Unfortunately they will put their

order on the actual swing Point as

opposed to slightly above or slightly

below um and you can see the result here

Market with this candle takes out These

Guys these guys and these guys um closes

below that's your red candle all those

buyers are trapped and then it falls

back but again you see that these swing

points stand out quite a lot especially

this one and we're not going for any of

the smaller fish type of thing those are

really going to be your higher

probability setups um this is on the

dollar Canadian this looks a lot greater

if you will on like a on like a lower

time frame it's unfortunate Wick you can

see that if we look at the recent wigs

this one this one this one you know all

all these recent highs this is certainly

the highest one that stands out so we've

drawn it out and you can see the market

comes into it takes it out buy orders

flood the market you know stop losses

and people trading the breakout buy

orders equals short liquidity thank you

very much down it goes now when I say

down it goes you've got like a sort of

cascade here so this is one source you

can see a big dump in and a big swing

away so likely sellers below this low

what does the market do comes out takes

them out right this sell anyone who was

long has their stop loss triggered

that's a sell order everyone who's

saying oh dude I'm getting in on this

dump this low is

screwed their limit order gets filled to

sell and again selling below this low

those are our two sources cells equals

long liquidity thank you very much um

and again even if you prefer this low is

sort of Swing here and swing out you can

see a similar type of thing happens

Market dumps takes it out you can even

argue that you know this candle most

persuasively takes out both of these

levels selling equals long liquidity and

up it goes

right one of my favorite examples um and

actually one of the f one of my favorite

uh

assets that trade or markets that trade

really well technically off of this kind

of stuff we have gold you'd agree that

this High stands out like a sore thumb

right probably even more than this one

you had like a bit of consolidation here

and here uh but this is like a super

deep swing in and out you can see what

the market does and actually this is

quite good because at this stage when

the market is taken out this High people

are thinking oh dude it's going to go

vertical we've taken out the high I'm

going to go long a ton of long Stack Up

um and where does it go well we know

that there are going to be buyers Above

This high so anyone who's short I mean

they've probably been knocked out here

anyway but certainly you're going to

have breakout Traders um waiting for

here waiting for this level to get taken

there's liquidity here what happens

Market takes it out all of the buy

orders from this flood the market buy

orders equals short liquidity thank you

very much aggressive move

away and again this sort of speaks to

you know if you want sort of evidence

that this works or whatever else a lot

of the time you'll see like a really

violent reaction um coming off of these

types of setups and that's when your big

boys are trading right and you can see

here for example you'll agree that this

is a proper swing low big dump into it

big dump away and then you'll have

people saying oh it's a deadcat bounce

dude you know gold is going to take out

this low and then you know maybe come to

this you know come to a lower level

maybe even down here whatever so all

eyes on this and there's like a bit of a

gap really in the market between these

lows and this area so you know it stands

out that's always what you want to be

thinking what stands out and what's

going to attract the stops of the retail

Traders big swing in big swing out as

the market is painting all these scary

candles what are people thinking oh dude

if this low gets taken out I want to be

short this Market down to here it's

going to be an amazing trade and then

anyone who's long is thinking

and they get stopped Out Below this low

and look what happens Market doesn't

even close below it and again this is

like an SFP and then it proceeds to go

absolutely vertical right hope you're

starting to get the hang of these last

chart example I have um euro dollar

hourly chart hope you agree that this is

a deep swing um you know big swing down

and then a huge move away so lots of

attention on this low and then look what

happens Market comes back down to it

takes it out

goes up and now this is quite funny

because regardless of whether you've

adjusted your stop to this low or you're

staying at this one you still get taken

out by this move um and up it goes

before going lower and again right so

you see a big well reasonably size swing

in and swing away as the market starts

returning to this level everyone's going

to be eyeing this low here Market takes

it out and again pumps uh and then the

final two examples um this is when it

gets to your sort of double bottom type

thing Market big swing in big swing away

and as it's coming back down people are

thinking okay well it's either going to

double bottom or if it takes out this

low it's going to make a lower low and

really wall off a cliff Market takes out

the

low everyone you you know there's a lot

of selling under this low people who

want to get in on the Move limit orders

filled people who are long have their

stops turn into orders to sell lots of

long liquidity thank you very much and

more recently I think this is in the

last couple days on the Euro um this is

really the swing point that stands out

you know not a massive swing in but

certainly a big move away and this wick

on the hourly time frame is going to

Garner a lot of attention you can see

big scary candles coming into it clip

thank you very much sellers below this

low provide the long liquidity and up

goes the

price okay so now that you've seen that

you're probably thinking hey that's

really cool um and I'm glad it works but

how can I tell whether I'm going to be a

victim of a liquidity Pool Stop hunt

whatever or whether the market has

actually just broken a level and I can

actually safely go long or

short so the answer is you can't

distinguish a genuine breakout from a

stop run with 100% accuracy which is why

they work so well in so many markets but

there are certain things you can do to

increase your probability of not being

trapped or put on the the wrong side of

the market stopped out prematurely

whatever you want to call it and that

there are five points to this one is

that if possible avoid putting your

stops and again both your stop losses

and your limit orders obvious liquidity

ball targets as discussed earlier now

that you know how to look for them try

not to be a victim of them that's the

first and most simple point the second

thing is monitor the price action so a

lot of the time um as we saw on those

charts if a move is a stop run or you

know a dip into a liquidity pool you'll

see these long Wicks come in as it takes

out the low and a lot of the time the

price will close above the low or again

with the high it'll take out the high

but with a tall Wick and close below it

now technically that's an SFP you can

you know I've got a Twitter post about

sfps which I'll leave in the description

uh but basically the price action a lot

of the time and again another reference

here uh slow down in momentum a failure

to close above or below the low on a

higher time frame like an hourly candle

close or a 4H hour candle close the

price action can give you a lot of

evidence of whether the level's going to

break or whether it's just a hunt and

those are some of the things I look at

you know Wick momentum and candle

closes now if you're waiting for a clean

break of a level you know if you're

looking at a low and you're thinking

well am I do I want to be short a break

of this level or you know I want to be

long a break of this High whatever it

may be um you don't even need to be a

levels Trader you could just be a trend

Trader looking at highs and lows um

there are a couple things you can look

for for a clean break uh one of them is

a clean High time frame candle close

through the level you know an hourly a

4H hour even a daily time frame uh

candle close depending on how you're

trading the setup can be good evidence

just to make sure you don't turn into a

wick but what I prefer doing personally

is waiting for the breakdown and then

playing the retest of that high uh of or

of that level when the market comes back

to it um but tends to be sort of a lot

safer and I've had better experience

with it

personally one of my f another one of my

favorite tools so you can determine

whether you're being stop hunted or not

uh is Divergence so for example if

you're watching the market attack a low

and then it's forming a bullish

Divergence the likelihood of that low

being broken and the market continuing

lower is obviously reduced and the

opposite is true if you're waiting for

High to be broken and the market trades

you know starts trading through a little

bit but you're also having bearish

Divergence coming into that high the

likelihood of the market breaking it and

continuing higher is lower um or is

reduced whatever and if you're not sure

what Divergence is please watch my RSI

video again part of the technical

analysis uh series and I cover

Divergence at Great length um and then

actually another thing probably not as

popular but your trading journal A lot

of the time will also tell you um

whether you're being stop hunted or

whether it's an actual genuine breakdown

and the simple trick if you will here is

if you take enough of these trades and

you know you have your screenshots of

the chart and how you managed it and so

on um you'll be able to look back at the

trades where you got stopped out early

or where you got hunted and see what

links those trades together and be able

to avoid them um now obviously you know

the elephant in the room is that a lot

of the time if you just set your stop

loss and you're not there at the

computer at the desk whatever to look at

the trade you simply don't know um or

you can't keep an active eye on it if

you're going to get stop hunted uh or

not um so you know a couple things you

can do is if you do have the privilege

uh of being able to just watch the

screen do all these things and set

alarms instead um but if you are setting

an automatic stoploss um and you're not

able to watch the market really the only

thing um that you can do is don't make

yourself an easy target um for the

professionals and try to avoid being the

glaringly obvious uh

liquidity so putting it all together

let's get our

summary what's the difficulty and what

what is the context well it's that

institutional Traders can't Market masch

their orders they need to engineer

liquidity especially especially if they

want a big move right if they want to

buy a lot they need people to sell a lot

if they want to sell a lot they need

people to buy a lot how do they create

sellers they take out a low they'll

break support and they'll make the

market seem like it'll the bed and

the opposite is true for buyers how do

you create buyers you know it's the

basic stuff of how do you make people

fomo in you take out a high you break

resistance you know big green candles

and all that and get that buying

interest for you for them to be able to

pair their sales with liquidity pools

are areas where retail Traders are

taught to put their stops and we now

know that stops mean both limit orders

and also stop losses if you're already

in the market um and then we also have

the slides which again are in the link

of the are in the there's a link to them

in the description about how we really

refine um what a liquidity pool is and

increase our probability of drawing out

the important ones and then stop hunt

are when those areas and where retail

Traders put their stops get deliberately

hunted in order to engineer liquidity

and we just covered some preventative

measures um on how how to not be a

victim of

that and that's it um conclusion

obviously thank you for watching

hopefully you've learned something new

um if this is totally new to you and

you're flabbergasted interested whatever

it may be I quite like looking back

through some charts on the on a few

different time frames you know 15 minute

hourly daily and so on and see if the

moves have made more sense now that you

have this type of framework in mind

again look at the Deep yeah well before

I go on to that euro dollar gold and

cable are really good for this but you

know whatever markets you trade check

them out and see if it applies the

overwhelming majority of the time it

should um and just to reiterate not

every single swing high or low is a

liquidity pool uh I I've hopefully

hammered that point home and giving you

a lot of guidance for how to choose the

highs and lows or the areas on the chart

that are a lot more likely um to be used

in that way but you know stick to the

really obvious ones sort of the Common

Sense ones that stand out uh if you want

to be

conservative and the last thing uh we're

up to I don't even remember how many

lessons now articles videos live streams

telegram whatever uh it's all free uh

but do consider a Bitcoin donation if

you found it helpful and that is all

from me and I'll see you for the next

video