High and Low Resistance Liquidity Runs (HRLR and LRLR)

Summary

The speaker discusses how to identify high resistance and low resistance liquidity runs in the market. They emphasize the importance of recognizing when conditions are favorable for low resistance liquidity runs, which lead to easier price movements and better trading opportunities. The speaker shares their experience of over 30 years of trading, explaining how to avoid challenging market conditions and focus on opportunities where price movement is clear, obvious, and free from major resistance. The goal is to teach students how to anticipate favorable market conditions and make confident, strategic trades.

Takeaways

• 😀 The market can experience periods where prices run with very low resistance, making it easier to trade.
• 😀 High resistance liquidity runs are difficult to trade, often resulting in frequent stop-outs and frustration due to deep retracements.
• 😀 Trading in high resistance liquidity conditions requires a lot of mental capital and patience as trades move slowly and with frequent pullbacks.
• 😀 The goal is to avoid trading in high resistance liquidity environments and instead focus on times when low resistance liquidity runs are likely to occur.
• 😀 Low resistance liquidity runs occur when there is little opposition to price movement, making trades smoother and faster.
• 😀 A good economic calendar with only a few medium or high-impact news events is an indicator of a low resistance liquidity run.
• 😀 When there are multiple high-impact news drivers, the market can become a chaotic ‘landmine field,’ making price movement unpredictable and difficult.
• 😀 After major news events, any inefficiencies or untapped liquidity in the market can allow for smoother price runs.
• 😀 Low resistance liquidity runs are identified when there is a clear and obvious entry point for trades, and the direction of the market is overwhelmingly obvious.
• 😀 A clear inefficiency or unfilled liquidity target can make the trade direction so obvious that there’s little room for second-guessing or doubt.
• 😀 The key to success in trading is to focus on identifying the right conditions for low resistance liquidity runs and avoiding the market during high resistance periods.

Q & A

What is a low resistance liquidity run, and why is it important in trading?

A low resistance liquidity run is when the market moves in one direction with minimal opposition, making it easier to trade. It is important because it allows smoother price movements, less retracement, and lower resistance to price action, providing traders with better opportunities to profit without frequent stops and frustrating reversals.

What is the challenge of trading in high resistance liquidity environments?

High resistance liquidity environments are difficult because prices take longer to move in a given direction. Traders face frequent stop-outs due to price retracements, and it can be mentally taxing as trades require a longer time to overcome spreads and show profits.

How can a trader anticipate a high resistance liquidity environment?

A high resistance liquidity environment can be anticipated by observing the economic calendar for news events that may cause volatility. If there are multiple high or medium impact news drivers scheduled, it's a sign that the market might be unstable, with potential for high resistance in price movements.

What impact does a landmine field analogy have on trading?

The landmine field analogy illustrates the unpredictable nature of trading in volatile market conditions. Just like navigating a field full of landmines, it's difficult to move in one direction, and traders will face sudden price reversals, making it tough to sustain trades.

How do news drivers influence the market's resistance liquidity?

News drivers with high or medium impact can cause sudden volatility in the market, leading to price movements that are hard to predict. After these news events, once the impact settles, the market might enter a phase where liquidity is more stable, allowing for clearer and less obstructed price movement.

What does inefficiency in the market mean in the context of trading?

Inefficiency refers to situations where prices do not fully reflect all available market information, leading to gaps or areas of imbalance in the market. These inefficiencies often present opportunities for traders to profit as the market corrects itself.

What is the significance of identifying a clear entry point in trading?

Identifying a clear entry point, where the direction of the market seems overwhelmingly obvious, is crucial. This allows traders to enter a trade with confidence, minimizing second-guessing and ensuring they can take advantage of price movements that have low resistance.

How does identifying low resistance liquidity runs improve trading outcomes?

By identifying low resistance liquidity runs, traders can focus on conditions that favor smooth and predictable price movement. This reduces the likelihood of stop-outs and increases the chances of a profitable trade, as the market behaves more favorably during these runs.

What role does mental capital play in high resistance liquidity environments?

In high resistance liquidity environments, mental capital is crucial because traders need the psychological resilience to endure longer periods of uncertain price movement, frequent retracements, and possible stop-outs before they see any significant profit.

Why is it important to study both low and high resistance liquidity environments?

Studying both environments allows traders to better understand market behavior in different conditions. This knowledge helps in preparing for difficult market situations (high resistance) and knowing when to seize opportunities during favorable market conditions (low resistance).