ICT Mentorship Core Content - Month 1 - Liquidity Runs

Summary

The script explains the concept of liquidity in financial markets, referring to the ease with which an asset can be traded without dramatically impacting its price. It discusses how price action traders identify areas where buy and sell orders are likely clustered based on previous price swing highs and lows. When price moves away from these levels, stops are presumed to exist which the market seeks to take out. The ideas of high resistance and low resistance liquidity runs are introduced - the former having difficulty driving price to faraway stops, while the latter offers an easier path as price breaks recent levels.

Takeaways

• 😀 Liquidity refers to the degree to which an asset can be quickly traded without dramatically affecting its price.
• 👍Buy and sell orders resting in the market represent liquidity.
• 😯 Target areas where liquidity likely resides - above old highs and below old lows.
• 🤔 Avoid high resistance liquidity runs where price has to breakthrough many swing points.
• 🎯 Focus on low resistance liquidity runs with one-way price action and little retracements.
• 🔝 Buy stops representing willing buyers will rest above short term highs in uptrends.
• 🔚Sell stops representing willing sellers will rest below short term lows in downtrends.
• 😎 Trade with overall institutional order flow direction for best results.
• 📈 In uptrends, buy retracements targeting short term highs with buy stops above.
• 📉 In downtrends, sell bounces targeting short term lows with sell stops below.

Q & A

What is liquidity in trading?

Liquidity refers to the degree to which an asset or security can be quickly bought or sold in the market without dramatically affecting its price. High liquidity means an asset can be traded quickly without much impact on its price.

How does liquidity relate to buy and sell orders?

Liquidity relates directly to buy and sell orders in the market. When traders place buy and sell orders at certain price levels, it creates liquidity at those levels that other market participants can trade against.

Where is liquidity likely to reside in price charts?

Liquidity is likely to reside just above previous swing highs and just below previous swing lows in price charts. This is where stop loss orders tend to cluster.

What is meant by high resistance liquidity runs?

High resistance liquidity runs refer to attempts by price to run through multiple layers of resistance to reach liquidity resting far away, for example a previous significant high. It is difficult for price to access that distant liquidity.

What are the trading conditions for low resistance liquidity runs?

Low resistance liquidity runs occur after price breaks a previous low and rapidly moves lower with very little retracement. The move down from the break of the low to the test of nearest resistance above defines the low resistance zone.

How can traders take advantage of low resistance liquidity runs?

Traders can look to sell retracements in a low resistance zone, targeting liquidity below recent swing lows formed during the run down. Each new low will likely have sell stops resting below it.

When does a low resistance run change to high resistance?

When price retraces back up to test the previous broken low as resistance, the conditions change from low to high resistance for that subsequent move up.

How do institutions defend liquidity above old highs?

Institutions look to defend liquidity above old highs by leaning on subsequent rally attempts as high resistance liquidity runs. Repeated failure swing highs reinforce the defence of that old high liquidity.

What market conditions support low resistance buy side runs?

After an old low forms on the charts, rally attempts get repeatedly rejected. This allows subsequent sell-offs to easily take out recent swing lows. Each new low sets up buys targeting old high liquidity above.

When is it easiest to trade with order flow trends?

It is easiest to trade when you align trades with the prevailing order flow bias. Low resistance liquidity runs indicate the path of least resistance and allow trend trades with minimal drawdown.

Outlines

00:00

😀 What is liquidity and how it relates to price action

This paragraph defines liquidity as the degree to which an asset can be quickly traded without dramatically affecting its price. It relates liquidity to buy and sell orders in the market. When price swings up or down, there are corresponding long or short positions with stop losses resting at significant highs or lows. Price tends to be drawn back to these areas where there is a large body of liquidity or interest.

05:02

😊 Liquidity runs targeting previous highs and lows

This paragraph explains that price tends to run out previous highs and lows to target liquidity. However, it's difficult to run far to target an older level if there are many minor highs/lows in between. So high resistance liquidity runs targeting older levels are less probable without a major market event driving volatility.

10:03

😎 Identifying high and low resistance liquidity runs

This paragraph contrasts high and low resistance liquidity runs. In a low resistance run, price breaks a level sharply and has little retracement as it fills the break. New minor highs/lows will be easy to take out. But as price approaches the original broken level, resistance increases. The opposite patterns apply for high resistance runs.

15:04

🤓 Example of low resistance liquidity run on sell side

This gives an example of identifying a low resistance liquidity run on the sell side. When price breaks above a short term high, establishing bullish structure, then breaks below an old low sharply with little retracement, it signals the start of a low resistance run targeting stops below subsequent minor lows.

20:05

😯 More examples contrasting high and low liquidity runs

This shows additional examples differentiating between high and low resistance liquidity runs. Low resistance runs break levels fast with little pullback. High resistance runs struggle to break previous highs/lows due to increased price action and interest around those levels.

Keywords

💡Liquidity

Liquidity refers to how easily an asset can be bought and sold in the market without impacting the asset's price. The video explains liquidity in relation to market orders and buy/sell orders resting in the market. When old highs and lows are reached, liquidity often exists just beyond those levels in the form of stop orders.

💡Market orders

Market orders are orders to immediately buy or sell an asset at the best available market price. The video discusses market orders in the context of liquidity, explaining that when market orders are executed, they take out ('run') the buy/sell stop orders resting just beyond recent highs and lows.

💡Stop orders

Stop orders are orders placed to buy or sell an asset when its price reaches a specified level. The video explains that stop orders often rest just above old highs and just below old lows, providing liquidity when price moves back to those levels.

💡High resistance liquidity run

When price has to move through a lot of recent peaks and troughs to reach an older significant high level, it faces high resistance. Running above that older high is difficult without a major market event acting as a catalyst due to all that resistance.

💡Low resistance liquidity run

After price breaks below an older low and starts trending down, moving back down through new short term lows faces little resistance. This makes targeting sell stops below those lows easier.

💡Buy stops

Buy stops are buy orders placed above the current market price to take advantage of upward price moves. The video discusses targeting buy stops just above short term highs in low resistance liquidity runs.

💡Sell stops

Sell stops are sell orders placed below the current market price to take advantage of downward price moves. The video discusses targeting sell stops below short term lows in low resistance liquidity runs.

💡Old highs/lows

The video constantly references old swing highs and lows in price, explaining that liquidity often exists just beyond those old levels. Old highs and lows are also discussed regarding high/low resistance areas.

💡Expansion

Expansion refers to the trending move after price breaks out of a trading range. Expansion moves face little resistance as price trends freely, allowing targeting of stops beyond short term highs/lows.

💡Retracements

Retracements refer to short term price moves against the prevailing trend. The video explains entering trades in the direction of the trend after retracements complete.

Highlights

Liquidity refers to the degree to which a market can be quickly bought or sold without dramatically affecting the asset's price.

We look for reference points where there is a high probability of liquidity resting in the marketplace - buy and sell orders.

We target areas where the market has already shown a willingness to move higher or lower, removing retail perspectives.

High resistance liquidity runs occur when price must breakthrough many old highs/lows to reach a significant faraway level.

Low resistance liquidity runs offer easier trading as price breaks through levels with little struggle.

After an old high is made, old highs act as resistance and old lows have buy stops - high resistance to go higher.

After an old low, old highs have buy stops for low resistance up and old lows act as support - easier path up.

When structure breaks lows, selling retracements targeting short term lows has little resistance down.

When structure breaks highs, buying retracements targeting shorts has little resistance up.

Repeated failures to break a level indicates it is being defended by institutional orders.

Get in sync with institutional order flow for low resistance and avoid trading against strong levels.

Clean levels attract buying/selling - retracements set up runs through old highs/lows.

More price action around a level indicates it is strongly defended.

Trade away from defended levels in sync with institutional orders for low resistance.

Following market generated information produces profitable exits and little drawdown.

Transcripts

what is liquidity liquidity refers to

the degree to which a market or asset or

security can be quickly bought or sold

in the market without affecting the

assets price

dramatically

when we look at price

it doesn't matter what time frame you're

looking at

time

is irrelevant for right now

the

specifics about price action

as it relates to liquidity

we as price action traders we're looking

specifically for reference points where

we can hone in on where there is a high

probability of liquidity resting in the

marketplace now liquidity

as it relates to ict concepts it relates

to buy orders and sell orders

it's as simple as that

when we have a swing in the marketplace

as we note here

and the market trades lower

our understanding is there is someone

that went short here

this position would be net positive or

profitable

as the market moves lower

as the market turns around if those same

positions were still held

their open profits would be eroding and

at some point at this point right here

they would be at a losing position

our understanding is if there's a short

position or traders that are bearish on

the marketplace if they have positioned

a profitable trade here

and moved lower

their stop loss order would be resting

right above this high

or generally many times just rate at

that high

the market tends to find an interest in

going back to where that

large

body of interest

or what we call liquidity in the

marketplace

it would be by

liquidities

as the market finds these lows down here

as the market rallies away we are our

understanding is that there's going to

be buyers that have positions that are

net positive or profitable

as it trades higher

at some point when the market starts to

trade back down lower

back into the area in which the

buy orders would have

originated from

their open profits would be eroding

until eventually

moving into this area here

it would be at a net loss position

so when we look at when we look at price

the idea is

we're not looking for

specific patterns for the sake of

patterns we're looking at where

existing orders will reside

so

essentially what you do is you're

targeting areas at which the market has

already seen a willingness to go higher

or lower in this case we see a

swing high and the market moves lower

we view that

as a smart money trader or as a market

maker perspective we know that there's

going to be buy stop or buy liquidity

above that high

when we look at the lows when the market

moves away from these lows

we see that as cell liquidity

identifying both of these positions on

both sides of the marketplace we're

going to teach a concept called open

float

while that's not going to be covered in

this specific tutorial or this month of

training

it's important to understand that the

beginning foundations to understanding

liquidity as it relates to

buying and selling in the marketplace

our first fundamental understanding is

is that there's going to be liquidity

above old highs and below old lows

when we understand that we can see that

they will eventually

target these same levels

moving price just above the previous

high

knocking out the liquidity that would be

resting just above those highs in the

form of buy stops

the low old lows the market will seek

liquidity for the sell side or the cell

stops

taking those orders out

understanding this premise when we view

price action

it removes all of the retail minded

perspective but heavily leaning on

indicator based ideas

when we adopt these principles with

study of price it gives us the most

truest

purest view

of how price is

we have no

confidence or

direct relationship to our directional

bias on price relative to anything

except for price itself

if the market's moving from an old high

we know that there's going to be

liquidity resting above that old high if

the market's moved from an old low we

know there's going to be resting

liquidity below those lows it's just

that simple

now there's another concept when we

understand liquidity

the market has a tendency to run out old

highs and old lows

but it has a very difficult time to do

that when the market has conditions like

this

when the market moves higher

okay generally we can see a move higher

and then it moves lower here now in the

context of this entire move lower

there's a lot of peaks and troughs here

a lot of peaks and troughs

the idea is if this is an old high back

here

for this high to be ran out okay or to

seek the liquidity resting above that

old high

if this is where the current market

action is right now or current price at

market price

for it to get all the way up there it

has to encounter a lot of resistance in

the form of old lows

and old highs

so you have

the old lows acting as standard

resistance

then you have

the old highs

acting as

buy stop liquidity so even if the

market's going to go up

if the market's going to seek the

liquidity above this high

how do we know it's going to stop there

it could go another level higher for

these buy stops

and it could reach for this level of buy

stops and then maybe this buy stop level

here

in

the direction to run all these buy stops

it's got to go through a lot of

resistance in the form of these old lows

just to get back up to this old high

when the market presents these

opportunities and again this is not

specific to any time frame it's

universal

but when we see the market give this

this very

thick

area of resistance okay it's a lot of

price action that the market has to

trade through to get back to an old high

of significance

we view this as a high resistance

liquidity run

the market's going to have a very hard

time getting through all these previous

lows and previous highs just to run out

the liquidity that will be resting above

this old high

when we trade

we are not looking for these

opportunities

while there are opportunities to trade

with this in mind

in other later teachings it's important

to understand that this is the least

probable

trading condition to look for longs

because you have so many levels of

resistance and old

highs to encounter before you get back

to the old significant high

we understand that the market has been

presenting lower lows and lower highs

and

somebody in this market is obviously

would be

being profitable

those individuals with stops above this

old high in the form of a fund they're

actually very highly defended because of

this type of price action so it's going

to take a very

sharp

economic

market release the data kind of like

non-farm payroll or fomc that type of

event will knock through all of these

levels of resistance to run out that

liquidity but generally without that

type of influence or injection of

volatility

these old highs generally are well

defended

obviously the opposite can be said when

we see the market make a

low of some kind it could be a take a

long time really to form this

but the old low would obviously have

sell stops below it or sell liquidity

and as the market makes higher highs and

higher lows if we're seeing price action

right here we can't reasonably expect

the market to just drop straight down

and make a run on the sell stops below

this low without encountering first all

of these

higher lows

and higher highs as the market went

higher

so to get through each one of these

highs

okay there's going to be a lot of

resistance to just run down out

the stops that would be resting below

this low

again just like we just mentioned with

the high resistance liquidity run

for

old highs the same is true here for high

resistance liquidity runs on an old low

it's going to be very difficult for

price to reach down through all of this

price action and

the more time it's spent in this area

again the more unlikely it is to make a

market move all the way down to this old

low

despite the fact that there may be

really high levels of liquidity resting

below that whole low without the

evidence of a significant market driver

coming into play with like an fomc

interest rate announcement or non-farm

payroll

or something that would be completely

unexpected in the marketplace black swan

event something like that that's

generally the only type of thing you see

that will cut through this type of price

action to get to the sell side of the

liquidity here

so for shorts we avoid these types of

occurrences

there are opportunities that we'll learn

with trading with this profile or this

market condition

for high resistance liquidity runs but

for now we want to understand that this

is the element of price action that we

want to trade very less

frequent in

now obviously

there's going to be times when the

market really provides us

an opportunistic time to take action in

the market and trade with price action

and have

very little resistance in our trades and

obviously that comes by way of trading

in low resistance liquidity runs

a low resistance liquidity run would be

in the form of something similar to this

now the east

crude depictions while they are rather

elementary in the way that they're being

shown here the concept is very easy to

see in price action as we'll look at

when we get done looking at the actual

crude diagrams i've shared here

if we see the market come off the old

high okay and it comes down rather

quickly

if there is

a very sharp or

one-way type direction very little

retracements of any kind when we see

this okay once that market breaks below

an old low

from that point at which it breaks the

old low

until

it gets

through

a short term high in other words the

market comes down makes a low here

starts to trade off comes down makes a

higher low

once it starts running through if we get

a market break through

this short-term high

this run here begins its climb back up

into the range that's created by this

low being broken so it's being defined

by this

level here all the way down

to this high

once it's broken

this area of price action is deemed

low resistance

now every time that a new short-term

high is formed

before

this low is retreated to or retested as

resistance every time there's a new

short-term high

what's going to form above that short

term high

it's going to have by

stop liquidity so buy side liquidity is

going to be above these old highs if we

get a buy signal

after a retracement

we know that there's going to be very

little resistance

for that move to go higher running out

the buy stops just above

these short-term highs as we get closer

to coming up into hitting this load

that's been violated here

then we start encountering

high resistance liquidity runs

so the probabilities fall off

precipitously once we get back to the

area which the range

is defined in terms of low resistance

then it becomes a high resistance

liquidity run

to make any higher highs or run on

higher highs it becomes a lot more

resistance to do that because we move

back into an area where the market has

moved in a range

this

expansion

okay

that's the easiest part of trading when

we can trade inside that range so every

time we create another short term high

in here if we get a buy signal

that buy signal will have very little

resistance to get through the old high

that it retraced from

and you continuously look for those

until you fill in

that break on this old low

once it gets back to this old low over

here the market goes into what is

referred to as a high resistance

liquidity run anything higher than

this price point here

becomes a high resistance liquidity run

much like everything else i've always

taught everything i teach one-sided

obviously is easily communicated by

using the

reverse of it or just turning it upside

down

this is a

sell side of the marketplace low

resistance liquidity run

we have a consolidation in here the

market expands goes into expansion

it breaks above a short-term high so at

the moment the short-term high is broken

here market structure is bullish and

then we go into a real quick run-up the

market will create a high

start to break down and once the market

starts trading below an old low

the market will have a

very easy time trading back down into

the point which the short-term high was

broken on the upside so all this one-way

direction price action where all of it

looks this one-sided for buys only very

little retracements this is the easiest

time to trade in the marketplace right

in here

it's defined by the short-term high

that's broken on the upside here that's

where you would begin your point which

it's deemed a low resistance liquidity

run so you're focusing primarily on

selling short

every retracement is going to find very

little resistance going lower

to run out the previous low

there's going to be what resting below

these lows

sell stop liquidity

so the market goes lower breaks below

this short term low here expands has a

small little retracement what's going to

be forming below this short-term low

bottom chasers folks that want to be

long

but we understand that the market has

broken an old

high here and had real quick sudden

price action very little retracements so

we have very little resistance on the

downside getting back to that point at

which market structure broke so between

this point here

and where the market breaks down this

low here this is the easiest area to

trade

in price action because you have very

little resistance allowing price to just

cut through all that

but you're waiting for a short term load

form and every time a short term low

forms there's going to be cell stop

liquidity resting below those lows

okay so let's take a look at more

examples of a high resistance liquidity

run and a low resistance liquidity run

and what makes those

uh two types of liquidity runs different

we have an old high back here noted here

and the market starts to move lower and

we showed this example of price action

here with this old high violating this

old high here

selling off these old lows being

violated here and the market starts to

rally up

notice there was very little resistance

in the marketplace where this high

eventually traded lower taking out the

liquidity resting below these lows here

this run from this

high taking out these lows

is referred to as a low resistance

liquidity run because we have a

longer term high to the left of us and

the market has shown a willingness to

take out a low and then we came back

above cleared out a stop above the high

retraced

had an unwillingness to go above this up

candle here

so institutional order flow as you'll

learn more about throughout this entire

mentorship

moves back to bearish and expands to the

downside

expands down to the downside

to run out these stops below these lows

the market rallies up again

and fails to get above this swing high

this run higher

is a

high resistance liquidity run

the fact that it's going to have very

difficult time getting above this high

is because we've already priced in a

longer term high

the intermediate term high

and this high is going to have a very

hard time struggling to get through this

height

it's going to have very difficult time

getting through it so this rally up if

we were buying long here we know that

there's going to be a high probability

that this is not going to be running out

the high is going to be in intact it's

going to be defended and the higher high

over here will be defended

so when price goes back up into this

high

this actually becomes a low resistance

liquidity run to see price come all the

way back down to take out this low here

the fact that we keep this old high

in place

and every low

that forms has very

little resistance as each time it moves

through it's like a hot knife through

butter very little resistance down every

time a low is formed price goes through

those lows this equal lows here price

trades through those this short term low

here price trades through it these short

term lows here price trades through it

so the the bias is

bearish

so you want to be focusing primarily on

a market rally

to take out

short term lows

or intermediate term lows

the difference between that is every

rally is going to be viewed as a high

resistance liquidity run it's going to

have very difficult time getting above

the previous highs sometimes it will

happen but generally you're going to

find that it's going to have a very

difficult time doing that

but because that's built into price

action having a high resistance

liquidity run here it turns into a

low resistance liquidity run for

you to see a move below the short-term

lows every short-term low is an

opportunity to seek liquidity or the

market to expand down

after a retracement up to take out the

stops that rest below the marketplace at

every old low

every single blow

that you see in price

once we identify where the market is

in terms of high resistance or low

resistance liquidity

we can find old lows to the left market

respects it here comes back but then now

we have a lot of liquidity resting below

this low here and this low here and the

market runs right through it

small little retracement there's more

liquidity below this low here so it's

going to expand down through it

we have old lows back here so the

market's going to do what it's going to

retrace a little bit and then do what

expand down to take out those

stops below this old lower here

the same thing is seen when the market

finds a

low in the market the market

creates a

smaller consolidation makes it a

long-term low

rallies up

retraces

moves into consolidation rallies through

again so now we have a lot of price

action here so this old low is going to

be well defended

the fact that we have a retracement

going lower each time every time the

market retraces that's going to be in

the form of a high resistance liquidity

run

it's going to find very stiff resistance

with

violating old lows

the old lows are going to be actually

defended and you're going to see

buying coming in the marketplace your

focus is going to be primarily on the

highs every short-term high is going to

have very easy

runs through them that forms a low

resistance liquidity run

the resistance levels are going to be

very

weak

the support or lows are going to be very

strong

because the market's going to be

capitalizing only on the buy side

just the reverse of what we saw over

here on the sell side everything's going

to be supporting bearish prices so every

retracement higher sets up another price

leg to go lower aiming for the lows to

be violated

we've changed the tide here and we made

an old low so every time the market

retraces lower that sets up new buying

opportunities to take out the short-term

highs or immune term highs above the

marketplace because what's going to be

resting above those highs

buy stops and you want to be buying low

and selling to willing buyers above the

current market action and that's what

the market makers do so every time the

market trades down it's actually just a

new low resistance liquidity run to make

a run above an old high and it makes it

very easy to find trades this way market

trades down smaller retracement its old

high will be easily ran out low

resistance liquidity run market trades

back

and has a retracement

very little resistance to get back up to

this old high it runs cleanly through

that

another retracement here the liquid is

going to be resting above this old high

and eventually the market expands

through it as well

[Music]

and eventually the market trades

through those lows as well okay so

there's many elements to the things i've

thought in this month's teaching looking

for clean highs where the levels are

just too clean

when the market shows those types of

levels it's going to be very

opportunistic for you to build the idea

that there's going to be buy stops above

that so any little retracement sets the

tone for another drive through that

and the market continues to find an ease

of getting back through

old highs

at some

point

you're going to look at price action and

it's going to be very

crystal clear

that

the more price action there is around a

specific level or a high or a low

that is indicating a levels being

defended

on an institutional price

model

so you're going to see very

easy trading when you trade away from

that level

and by doing that you're going to be

getting yourself in sync with the

institutional order flow then your

trades will find very low resistance in

the form of profitable exits

and very little draw down