Trading Course Day 3: Liquidity & Corrections

Summary

Day Three of ICC focuses on 'corrections'—how price grabs liquidity after a breakout and forms the pullback that creates reliable entries. The instructor reviews indication (price breaking swing highs/lows), explains consolidation, and emphasizes reading swing highs/lows on 1-hour/4-hour charts while monitoring corrections on the 15-minute timeframe. He frames corrections psychologically: FOMO-driven buyers and clustered orders are hunted to collect liquidity before the next leg. The video shows using corrections to set entries, stop losses (below previous levels), and targets at prior highs, and previews the next lesson on spotting when corrections end and continuation begins.

Takeaways

• 😀 Corrections happen after price breaks a high or low, followed by a pullback, which is a key phase in trend continuation.
• 😀 Traders often enter the market too early or late due to FOMO, and the correction phase helps liquidate these traders before the next major move.
• 😀 Price action during a correction is essential for resetting the market before it continues its trend.
• 😀 The correction phase involves grabbing liquidity and resetting the market, which prepares it for the next movement in the trend direction.
• 😀 Traders should use multiple timeframes (1-hour, 4-hour, 15-minute) to analyze the market during the correction phase and spot entry points.
• 😀 The speaker stresses the importance of waiting for price to go above the previous high (for buy positions) or below the previous low (for sell positions) to confirm trend continuation.
• 😀 Setting stop-loss orders below the previous low and targeting the previous high is a key strategy when trading corrections.
• 😀 Trends are defined by higher highs and higher lows (in uptrends) or lower highs and lower lows (in downtrends), and price will often not break these levels unless the trend reverses.
• 😀 The longer a price holds a support level during an uptrend, the more opportunities there are to hold trades and target new highs.
• 😀 The next steps in the trading strategy involve understanding when a correction is over and entering the market with a clear plan for stops, entries, and take-profits.
• 😀 The speaker encourages taking time to understand corrections and advises not to overwhelm the brain with too much information at once, ensuring clarity before moving to the next phase.

Q & A

What is a correction in trading?

A correction in trading refers to a price retracement or pullback that occurs during a trend, typically after a significant move up or down. It is often seen as a temporary reversal before the trend resumes, allowing traders to enter positions at more favorable levels.

Why is the trend important in identifying corrections?

The trend is crucial because it helps determine whether the market is in a bullish or bearish phase. In a bullish trend, corrections are typically viewed as opportunities to buy at lower levels, while in a bearish trend, corrections are seen as chances to sell at higher levels.

What does 'higher highs and higher lows' signify in a trending market?

'Higher highs and higher lows' indicate that the market is in an uptrend. This pattern suggests that the price is consistently moving upward, with each peak being higher than the last, and each trough also rising. It is a sign of continued bullish momentum.

How do corrections allow traders to enter the market?

Corrections offer traders an opportunity to enter the market at more favorable prices before the trend resumes. By waiting for a pullback after a strong move in one direction, traders can place their trades with a more favorable risk-to-reward ratio.

What is the importance of the support level in a correction?

The support level during a correction is important because it acts as a point where price tends to bounce back. If the price holds above this level, it suggests that the trend is still intact, and traders can continue to hold their positions with confidence.

What should a trader do once a correction is complete?

Once a correction is over, a trader should look for continuation patterns that signal the resumption of the trend. This is typically accompanied by a strong move in the direction of the trend, with traders entering at favorable prices, using stop-loss orders below the support level.

How does one determine if a correction is over?

A correction is considered over when price breaks out of the corrective range and begins to move in the direction of the trend again. Indicators such as a return to a key support level or the formation of a continuation pattern (like a bullish engulfing or breakout) can signal that the correction is complete.

What is the role of stop-loss orders in trading corrections?

Stop-loss orders protect traders from significant losses if the price moves against their position. In a correction, a stop-loss is typically placed below the most recent support level to ensure that the trader is protected if the trend reverses or the correction extends.

Why should traders target previous highs when trading corrections?

Targeting previous highs allows traders to capitalize on the continuation of the trend. If the price successfully breaks past a prior high, it suggests that the uptrend is intact, and the market may continue to rise, offering an opportunity for profits.

How can one maximize profits during a trending market?

To maximize profits in a trending market, traders should hold their positions as long as the trend remains intact. This can be done by using trailing stop-loss orders or manually adjusting stop levels to lock in profits while allowing the position to continue benefiting from the trend.