Liquidity (part 2)

Summary

This video script delves into the concept of 'inducement' and 'structural' liquidity in trading, emphasizing their importance for anticipating market movements. It explains how to identify a bearish trend, the necessity of swing structure confirmation through liquidity, and the pitfalls of acting on inducement liquidity without proper structural support. The speaker illustrates the dos and don'ts of structural liquidity, highlighting the need for it to be close to the money zone and to be in a recognizable pattern like V or A-shaped. Examples from AUD/USD trades are used to demonstrate the application of these concepts, aiming to help traders avoid losses and make informed decisions.

Takeaways

• 📉 Inducement liquidity is a temporary high or low that lacks structural support and is expected to be taken out by the market trend.
• 🔄 Price action should follow the current trend, and traders should look for confirmation through structural liquidity before making trades.
• 🚫 Without structural liquidity, a high or low is considered inducement and should not be relied upon for trade decisions.
• ⏳ Traders should wait for the market to take out inducement liquidity before considering a trade, as this indicates the true direction of the market.
• 📈 Structural liquidity is crucial for confirming the strength of a trend and should be near the 50% point of the swing's range or below it.
• 📊 Structural liquidity should be either V-shaped or A-shaped, indicating a clear and obvious pattern that the market is likely to follow.
• 🚫 Avoid mistaking a few candles for structural liquidity; it needs to be a distinct pattern that signals high potential for the trade to play out.
• 📌 Remember that structural liquidity must be closed to where the 'money is,' meaning it should be at or below the 50% level of the swing's range.
• ❗ Be cautious of false signals; a shaped or V-shaped pattern in liquidity is a must for a valid trade setup.
• 📉 Inducement liquidity often leads to expansions and continuations in the market, which can be anticipated by understanding the concept of inducement.
• 📝 Keep in mind that even experienced traders can make mistakes by not recognizing inducement liquidity and structural liquidity correctly.

Q & A

What is inducement liquidity in the context of the script?

Inducement liquidity refers to a high or low point in the market that does not have structural support and is expected to be taken out by the price action. It is a temporary point that traders should wait to be surpassed before considering a trade.

Why is it important to identify structural liquidity in trading?

Structural liquidity is important because it provides confirmation for a trade. It is a sign of a significant accumulation or distribution of positions that can indicate potential support or resistance levels, giving traders more confidence in their trading decisions.

What does the script suggest about the relationship between price action and structural liquidity?

The script suggests that price action should follow a trend, and traders should look for structural liquidity within a swing structure to confirm potential trade entries. Without structural liquidity, the high or low points may not hold and could lead to inducement liquidity.

How does the script define a 'sweep' in trading terminology?

A 'sweep' in the script refers to a price action that moves past a previous low or high, indicating a potential change in the market's direction.

What is the significance of the 50% level in relation to structural liquidity?

The 50% level is significant because structural liquidity should be either at or below this level to be considered valid. If it is above the 50% level, it is too far away from the money zone and may not provide accurate support or resistance.

Why should traders avoid trading based on inducement liquidity?

Traders should avoid trading based on inducement liquidity because it is not a reliable indicator of support or resistance. Prices are likely to surpass these points, leading to potential losses if a trade is entered based on them.

What are the characteristics of valid structural liquidity according to the script?

Valid structural liquidity should be close to the money zone, either at the 50% level or below it, and should be in a shape that is obvious, such as A-shaped or V-shaped, indicating a significant accumulation or distribution of positions.

What is the difference between inducement liquidity and structural liquidity?

Inducement liquidity is a temporary high or low point without structural support, expected to be taken out by the price. Structural liquidity, on the other hand, is a significant accumulation or distribution of positions that provides a reliable support or resistance level.

How can traders use the concept of structural liquidity to avoid unnecessary losses?

Traders can use the concept of structural liquidity to avoid unnecessary losses by waiting for the price to establish a clear support or resistance level before entering a trade. This approach helps them to avoid premature trades based on inducement liquidity.

What is the potential outcome when the price takes out inducement liquidity?

When the price takes out inducement liquidity, it is likely to lead to expansions and continuations of the current trend. This can provide a confirmation for trades in the direction of the trend, allowing traders to enter with more confidence.

Outlines

00:00

📉 Understanding Inducement and Structural Liquidity in Trading

This paragraph discusses the importance of recognizing inducement and structural liquidity in trading. The speaker explains that traders should identify a sweep of the previous low and a break of structure to anticipate price movements. They emphasize the need for confirmation in the form of structural liquidity before entering a trade. The paragraph also warns against mistaking inducement liquidity for a valid trading signal, as it can lead to unnecessary losses. The speaker illustrates the concept with examples and stresses the importance of waiting for the price to take out the inducement liquidity before making a trade.

05:03

💹 Dos and Don'ts of Structural Liquidity Placement

The second paragraph focuses on the dos and don'ts of structural liquidity in trading. The speaker advises that structural liquidity should be close to where the money is, ideally at or below the 50% mark of the price movement. They also highlight that structural liquidity should be shaped or V-shaped to be considered valid, providing examples of both types. The paragraph warns against mistaking a few candles for structural liquidity, which can lead to incorrect trading decisions and potential losses.

10:09

📈 Examples of Structural and Inducement Liquidity in Action

In this paragraph, the speaker provides real-world examples of structural and inducement liquidity on charts, specifically using the AUD/USD currency pair. They demonstrate how traders often misinterpret inducement liquidity as a valid signal, leading to losses. The speaker contrasts this with clear examples of A-shaped and V-shaped structural liquidity, showing how price movements confirm their validity. The examples serve to educate traders on the importance of correctly identifying liquidity patterns to make informed trading decisions.

15:10

🚫 Avoiding Mistakes with Inducement and Structural Liquidity

The final paragraph wraps up the discussion by emphasizing the importance of understanding inducement liquidity and its implications for trading. The speaker points out common mistakes made by traders who misinterpret inducement liquidity as a bullish signal, leading to poor trade placements. They illustrate the consequences of such misunderstandings with a chart example, showing how price eventually rejects the inducement and expands, causing losses for those who entered trades prematurely. The speaker encourages traders to develop anticipatory skills to avoid these pitfalls and to wait for clear structural liquidity before engaging in trades.

Keywords

💡Inducement Liquidity

Inducement liquidity refers to a temporary high or low in the market that is expected to be taken out or surpassed as the price moves in the direction of the prevailing trend. It is a concept used in trading to anticipate price action. In the video, the speaker explains that if there is no structural liquidity within a swing, the high is considered inducement liquidity and traders should wait for the price to take it out before making a trade.

💡Structural Liquidity

Structural liquidity is a term used to describe significant price levels where there is a concentration of buying or selling interest, often resulting from a break of a previous structure or pattern. It is crucial for traders as it provides a zone of confidence for potential trades. The video emphasizes that structural liquidity must be closed to where the money is, typically at or below the 50% level of the swing, to be considered valid.

💡Sweep

A sweep in trading terms refers to a rapid price movement that takes out a previous low or high, indicating a potential shift in the market's sentiment or trend. In the script, the speaker mentions a sweep of the previous low or high as a precursor to a break of structure, which is a setup for potential trading opportunities.

💡Break of Structure

A break of structure occurs when the price moves past a previously established support or resistance level, indicating a change in the market trend. The video script discusses the importance of identifying a break of structure to confirm the direction of the trend and to look for subsequent trading opportunities.

💡Bearish

Bearish is a term used to describe a market condition where the price of an asset is expected to decline. In the script, the speaker uses the term to describe the overall market trend and to guide the viewer on how to anticipate and trade based on this expectation.

💡Bullish

Bullish is the opposite of bearish and indicates a market condition where the price of an asset is expected to rise. The speaker in the video cautions against prematurely identifying a bullish structure due to inducement liquidity, emphasizing the importance of waiting for structural liquidity confirmation.

💡Expansion

Expansion in the context of trading refers to a significant price movement away from a recent consolidation or range, often following a breakout. The script mentions expansion as a phase that can occur after inducement liquidity is taken out, leading to potential trading opportunities.

💡Confirmation

Confirmation in trading is the process of verifying a potential trade setup by looking for additional signals or patterns that support the expected direction of a trade. The video script discusses the need for confirmation, such as structural liquidity, before entering a trade to avoid false signals.

💡A-Shaped Liquidity

A-shaped liquidity is a specific pattern that traders look for, which resembles the letter 'A'. It signifies a potential area of structural liquidity that can lead to a price breakout. The speaker in the video uses this term to illustrate a valid structural liquidity pattern that traders should consider for trades.

💡V-Shaped Liquidity

V-shaped liquidity is another pattern that traders identify, which resembles the letter 'V'. It indicates a sharp reversal in price and can be a sign of strong buying or selling pressure. The script describes v-shaped liquidity as having high potential for price action and a valid form of structural liquidity.

💡POI (Point of Interest)

Point of Interest (POI) in trading is a price level that traders pay particular attention to, often because it has historical significance or represents a potential turning point in the market. The video script mentions POI in the context of structural and inducement liquidity, highlighting the importance of identifying the correct POI for trading decisions.

Highlights

Introduction to the concept of inducement and structural liquidity in trading.

Importance of identifying a sweep of the previous low/high and a break of structure in price action.

Explanation of how to anticipate inducement liquidity and its impact on trading decisions.

The necessity of structural liquidity for confirmation in trading setups.

Risks of trading without structural liquidity and the potential for price to take out inducement highs/lows.

The difference between inducement and structural liquidity in the context of trading.

How to identify valid structural liquidity that is close to the money.

The requirement for structural liquidity to be at or below the 50% level of the price swing.

The dos and don'ts of structural liquidity, emphasizing its shape and proximity to the price action.

Examples of V-shaped and A-shaped structural liquidity and their significance in trading.

The pitfalls of mistaking random candles for A-shaped liquidity and the resulting losses.

Real-world trading examples illustrating the effectiveness of structural liquidity identification.

The importance of not engaging in trades without obvious structural liquidity.

How to avoid unnecessary losses by recognizing inducement liquidity and waiting for confirmation.

The psychological aspect of trading and the discipline required to wait for structural liquidity.

The impact of understanding inducement liquidity on anticipatory skills in trading.

Final thoughts on the importance of liquidity in trading and avoiding common mistakes.

Transcripts

inducement

liquidity why is the

I so IND this midity

yeah I want to show you guys how to

anticipate it

[Music]

here how to anticipate

inducement

liquidity so for instance here you have

um a cell

setup the first thing you want to see is

a sweep of the previous eye then a break

of structure

yeah or let just assume price is um the

arish so you know price is bearish and

you want to follow price action I mean

the current trend but you need a swing

structure here and this is now your

swing

structure right that means you now have

a swing structure you have a a sweep of

this low and a break and price is

obviously

bearish and you know you're looking for

only sales but to look for sales you

need confirmation I mean you need to see

structural liquidity but in this current

swing here there is no structural

liquidity there

that means this high is an inducement

liquidity here and what will happen to

it remember price is overall bearish the

me you can't see any structural

liquidity within this swing within your

current swing you always need to wait

for price to take out the inducement

liquidity you wait for price to take out

the the inducement liquidity because

that high will always go if you don't

have structural liquidity

the

high you don't if you don't have

structural liquidity within your

swing the high will always go and that

high is inducement then what happens

after inducement we have expansions then

you have sells you have the

continuations right and sometimes here

when price takes out high like this it

gives confirmation for sells again then

you now sell then no price

expands so you you want to be very very

careful you want to be sure that on this

trade you are

taking you want to be very very sure

that there is structural liquidity

within

that

swing right be a bearish or or or

bullish movement

Ure either you see a sweep of the

previous high or no not some tra this is

Cho and they believe price has already

changed character like this is yeah

however in the real world it doesn't

work all the time this is why we have

structural

liquidity it gives more confidence it

makes that okay this is a very good Zone

to actually trade off from so this is

something you want to focus on you have

this sweep this break you don't just get

your you don't just you know sell from

any POI there thinking this I will

be um protected if there is no structal

liquidity this is an inducement

liquidity that what will happen price

will take it out and boom and a lot of

people don't actually know this a lot of

trailers don't know this yeah and then

that is where your H comes in if you you

want to you know have it in your plan

that okay if I don't do if I do not see

structural liquidity there is no trade

for me automatically in your head that

high will be taken out that high or low

will be taking out right it's like you

don't need to you know even if it

doesn't happen but for you to avoid

unnecessary losses here you want you

want to just keep that at back of your

mind that even if you have a sweep of

this low and a break this low is not

protected until there is structural

liquidity until there is structural

liquidity if not this will happen this

is an inducement liquidity and press to

take it out and

expand this happens all the time now

let's move on to structural liquidity

how the the dos and don'ts of structural

liquidity basically structural liquidity

I hope you guys understand IND this

here

structural

liquidity structural liquidity so the

dos and don'ts of structural

liquidity but one thing about structural

liquidity is this

your structural liquidity must be

closed it must be close to where the

money is and when I say where the money

is this is pretty much

it you have uh a sweep of this low then

you have a break of

structure you see from this break to the

low

this is where the money

is whatever happens

here is

liquidity and that being said your

structural liquidity must be very close

to where this money

is right your structural liquidity must

be either be on at the 50% either be at

the 50% or below it please take note of

this

your structural liquidity must either be

at the 50% of where the money is or

below

it you want to keep that at the back of

your mind it's very very important your

structural liquidity cannot be here then

you you know assume that price that this

your PO High here will hold don't make

that mistake your social liquidity

cannot be here and you expect this Zone

here it is too far away it is too far

away because price goes to the closest

POI to the

liquidity and you don't want to engage

in the market if if will not come to

this zone right you don't want to engage

yeah so your stral liquidity must either

be on top of this 50% or below

it I hope you you actually got that now

it's very very very important and that

is number one

that is number

one number

[Music]

[Music]

two number two your structural liquidity

must be a

shaped or V shaped

yeah this is a shaped and this is

v-shaped like it must be

obvious it must be obvious let me let me

explain a shied par type of um

structural

liquidity a a

shaped sorry B shaped brother sorry

please a few minutes

[Music]

sorry please damn that

video all right so for vshape there this

a v-shaped kind of liquidity you can see

this is obvious liquidity structural

liquidity is V right that's v-shaped it

has um high potential actually playing

out so this is your structural liquidity

and what happens price comes about to

take it out and then boom this has high

potential right same thing here as well

sweep

break

protected structural liquidity and it is

a shaped can you see that it's is

obvious

now compared to having just a candle or

two candles let me give you guys a chart

example for that compared to having just

two candles and then you consider it

your a shaped liquidity or V shaped

no that is very very wrong let me show

you guys think the same happened on

audusd last

week a lot of people took losses

think it's a

USD all right

cool so on ausd look at what we have

here we have a sweep of this eye a break

of

structure this kind of liquidity here

would you say this is a shaped is it

obvious no it's just a couple of um

candles yeah a couple of candles and

when I say as

shaped on the chart this is typically

what I mean just give you guys example

as

well you can see what eventually

happened here so a lot of people that

consider this their structural

liquidity you can see how price took out

the inducement liquidity instead so

of right the L took this L took loss on

this trade because they consider this

the structural

liquidity and it's not a shaped it's not

obvious this a shaped it's not it's not

a shap liquidity it's just couple of

candle like bunch of candles right

compared to having this a shaped kind of

liquidity

here compared to having this v-shaped

liquidity big difference

here coming I want to show you guys more

examples think we had a trade an entry

on AU from the 4our time frame now

compared to

having this liquidity as well you can

see this is very obvious v-shaped yeah

is very obvious very very obvious

V this is also

v v shap liquidity and we had our

entry below

here entry below here below the vshape

liquidity this is

also this is a shape there

obvious this on on this particular cell

I took here you can see how obvious this

liquidity is the structural liquidity is

right we had this sweep we had this

break you can see how

obvious this stral liquidity is right

and that is

uh a shaped liquidity right I remember

what I said about and you guys remember

I took this sell I think I show it in

the group as

well this is your sweep this is your

break of structure from this break of

here you can see is actually directly

under of the

50% right and that's is my structural

liquidity and you can see it is

obviously a v shap a shaped rather a

shaped kind of liquidity yeah a shaped

liquidity and you can see what price did

boom and price sold up from

there skip the previous High break

structure creates an as shaped liquidity

boom price take it out and this a

lifetime chart life chart here and we

call this trade we call this St live as

well so you can see this is what I'm

talking about the same thing here as

well this is a shaped it's an a shaped

liquidity here this is a shaped you can

see what price did here same thing again

sweep took out the a shaped liquidity

and so of the same thing here the same

pattern

again over and over over and over now

let me show you

inducement inducement here so a lot of

Traders a lot of Traders will tell you

that um price is now bullish let me show

you why they will tell you it's

bullish in a situation like this let's

go to the 1 hour time

frame sorry this is quite slow

all right so a lot of Traders would see

this as a bullish structure already

because there is a sweep now this thing

goes back to inducement here there was a

sweep and there was a break now you guys

we we would all agree that this is a

swing structure

yeah this actually you know a sweep of

um of the previous low then a break of

structure here

we would all agree this is a swing

structure and this low is expected to be

protected yeah but look at this kind of

Swing now can you see strural liquidity

obviously no so what are you

anticipating that this low gets taken

out because this is your inducement

liquidity right this L get taken out but

a lot ofers will say no this is Cho and

then they want to press as change

character BMS just a lot of names and

then they would you know have either

probably out the order block here and

they want to just Place their buy tool

here but you that understand inducement

how inducement works you tell yourself

that no this is not going to happen that

price willward take out this low if

doesn't create structural liquidity that

price take out this low before it

eventually expands yeah and let's look

at what eventually

happened now you already created the

anticipatory skill yeah you already

anticipated

this you already anticipated what is

going to happen now let's

see compared to every other person you

see they probably in tra you know

already I'm probably happy that okay

they're in a good

trade let's see what

happens a lot of them probably you know

they'll be happy that didn't the trade

while you actually anticipating it

because you cannot see structural

liquidity let's see let's look at the

result anyway let me just cut the whole

stuff can you see that sweet SL and what

happens after afterwards price Rejects

and

expands price expands so let me just cut

the whole price back

[Music]

so while you've anticipated that and

avoided that loss yeah they took the

trade and you see what happens

immediately the buys the massive

buy right they had a correct buyers

their buyers is correct they were to

take a buy but they're buying at the

wrong Zone do you understand it now they

were actually buying at the wrong time

because of liquidity here so now you

that understand that you will have able

to you know avoid that

loss right avoid the loss even if you

don't get your entry immediately but at

least you've avoided the

loss right so you see that you can see

what eventually happened price now

expanded boom and we had the buys can

you see that so that is the purpose of

inducement understanding inducement

liquidity and spitting it before it even

happens yeah and then your structural

liquidity as well trying to understand

where and how it is valid you can't have

your stral liquidity here can you see

what I'm talking about can you see that

from

this break to this Zone can you see that

this guy is very far away so some some

of you would actually Mark out this low

now and consider it is your last low

before this

Zone can you see it doesn't actually

work like that can you see

it this cannot be AAL Liquidator it is

too far away from this Zone it is either

50% or below it if it's not there then

that then you don't have structural

liquidity

yet so that will be all for tonight the

next part I will also you know we

still talk a lot more about liquidity

before we move on

to um po High Yeah from po High then we

do top down analysis and then that will

be all then we'll move into the you know

Ling and all that so that'll be for

tonight I hope you guys learned

something and then stop making mistakes

silly mistakes that You' been making

there

[Music]