Master Draw On Liquidity In 10 Minutes!

Summary

In this video, viewers will learn how to master drawn liquidity in just 10 minutes. The content explains key concepts like drawn liquidity, fair value gaps, and swing points, highlighting the importance of candlestick behavior in identifying liquidity seeking or offering moments. By understanding when price is respecting or disrespecting these levels, traders can make informed decisions about market movements. The video also offers practical steps for gauging price action and provides examples from charts to help viewers apply these concepts to real market scenarios, with the goal of improving their trading strategies.

Takeaways

• 😀 Price action is always either seeking liquidity at swing points or offering fair value at fair value gaps.
• 😀 Swing points are critical for understanding liquidity, with two types: swing highs (a high, a higher high, and a lower high) and swing lows (a low, a lower low, and a higher low).
• 😀 Fair value gaps occur when there is an imbalance between buyers and sellers, typically formed by a three-candle pattern.
• 😀 Smart money plays a key role in price action by engineering liquidity to ensure that their large orders are filled.
• 😀 Liquidity is the opposing buyer or seller that is needed to fill an order, and price moves to seek this liquidity at old highs and lows (swing points).
• 😀 Offering fair value refers to price providing a chance for buyers and sellers to engage in the market by filling imbalances created by fair value gaps.
• 😀 A bullish fair value gap indicates an imbalance of buyers in the market, which will likely cause price to retrace to that gap and allow sellers to engage.
• 😀 Candlestick behavior, particularly the wicks and bodies, is essential for gauging whether price is respecting or disrespecting fair value gaps and swing points.
• 😀 If price disrespects a fair value gap (i.e., closes strongly through it), it is seeking liquidity in the opposite direction.
• 😀 When analyzing price action, start by marking the most recent swing high and low, then assess whether price is offering fair value or seeking liquidity at those levels.

Q & A

What is drawn liquidity and why is it important in trading?

Drawn liquidity refers to the concept where price seeks liquidity at swing points or offers fair value at fair value gaps. It's crucial because understanding liquidity can help traders anticipate price movements, either towards liquidity (seeking opposing buyers/sellers) or offering fair value (giving buyers/sellers a chance to enter the market).

What are swing points and how do they relate to liquidity?

Swing points are key levels in price action, defined as swing highs and swing lows. A swing high is a peak followed by a drop, while a swing low is a trough followed by a rise. Liquidity often rests at these points, and price tends to seek liquidity at these levels.

What are fair value gaps, and why are they important?

Fair value gaps are areas where there is an imbalance in the market, often created by a three-candle formation consisting of a consolidation or expansion followed by a large price movement and then a retracement or further expansion. These gaps show areas where price is inefficient, and smart money may step in, leading to price returning to those gaps to 'offer fair value.'

What does it mean when price is offering fair value?

Offering fair value occurs when price retraces to areas of imbalance, such as fair value gaps, to give both buyers and sellers a chance to participate in the market. Essentially, price offers a fair chance to engage before continuing its trend.

What is meant by price seeking liquidity?

Price seeking liquidity means that price is aiming to find an opposing buyer or seller. This happens when large orders from smart money need to be filled, and the market has to induce liquidity at swing highs or lows to match those orders.

How does candlestick behavior help in understanding price action?

Candlestick behavior, particularly the analysis of wicks and bodies, helps traders assess whether price is respecting or disrespecting key levels like fair value gaps or swing points. Wicks show price reactions, while bodies tell the story of the price’s true movement direction.

What is the significance of respecting or disrespecting a fair value gap?

When price respects a fair value gap, it indicates that the imbalance has been accepted and price will likely continue in the anticipated direction. If price disrespects a fair value gap (e.g., by closing through it), it suggests the gap is no longer valid, and the market may be seeking liquidity in the opposite direction.

How do you use a checklist to identify drawn liquidity?

To identify drawn liquidity, start by marking the most recent swing high and swing low. Next, identify the fair value gap in the price leg. Then, assess whether price is offering fair value (by retracing towards a gap) or seeking liquidity (by breaking through key levels or respecting swing points). This allows you to anticipate price movement effectively.

How can lower time frames help confirm price behavior in relation to drawn liquidity?

Lower time frames help confirm the price behavior by showing shifts in order flow that reflect whether price is respecting or failing to respect key levels such as fair value gaps. A shift from bearish to bullish on a lower time frame can confirm a larger trend on higher time frames, making it easier to spot drawn liquidity.

What should a trader do when they see price failing to offer fair value?

When price fails to offer fair value, as seen in situations where a fair value gap is disrespected, traders should anticipate price to seek liquidity in the opposite direction. This may indicate that the price action is reversing, and traders should adjust their bias accordingly.