ICT Mentorship Core Content - Month 04 - Liquidity Voids

Summary

This video lesson delves into the concept of liquidity voids in the financial market, explaining how price delivery is influenced by imbalances in market liquidity. The instructor highlights how these voids form, typically when prices move aggressively in one direction with minimal opposition. The video demonstrates how smart money plays a significant role in driving price action, leading to the filling of liquidity voids. Key techniques for anticipating price movements and understanding gaps between candles are also covered, with practical examples showing how to trade these price imbalances for potential gains.

Takeaways

• 😀 Liquidity voids refer to areas in price delivery where one side of the market liquidity is missing, often seen as wide, long, one-sided price moves.
• 😀 A liquidity void occurs when there is a lack of buying interest (buy-side liquidity), and prices tend to move away aggressively in one direction, filling that void later.
• 😀 Price typically moves away from these voids with a displacement, indicating that smart money is participating in the market, pushing prices significantly.
• 😀 The time it takes for a liquidity void to fill varies and depends on the market conditions, and it can remain open for months or close within a short session.
• 😀 A liquidity void is often characterized by a few large candles moving in one direction with little price action in the opposite direction, leaving a gap or space.
• 😀 Smart money, due to their deep pockets, may work their positions into the market gradually, taking multiple steps or even pushing price above the void before filling it.
• 😀 When a liquidity void occurs, it often indicates an imbalance in price delivery, and we expect price to eventually retrace and fill the void with opposing price movement.
• 😀 Liquidity voids can be seen on various timeframes, and their impact can vary based on the scale of the price move observed, such as a 1-minute, 5-minute, or 15-minute chart.
• 😀 When a price gap appears after a liquidity void, it may signal further movement in the direction opposite to the initial move, and such gaps can be used to place limit orders.
• 😀 In practice, once the liquidity void is filled, it balances the market, closing the void and facilitating further price movement, with specific buy or sell opportunities arising from stop hunts or price action breaks.

Q & A

What is a liquidity void in market analysis?

A liquidity void is a range in price delivery where one side of the market's liquidity is absent, resulting in a gap or thin area in price action. These voids can occur when the market moves aggressively in one direction with minimal opposition from the other side, typically caused by a lack of buy-side liquidity in a down move.

What is the significance of smart money in market movements?

Smart money refers to institutional investors or entities with substantial capital who can influence price movements. Their involvement typically causes significant market moves, as they have the capacity to execute large orders over time. This participation leads to price imbalances or displacement in the market, which may result in liquidity voids.

How long can liquidity voids remain open in the market?

Liquidity voids can remain open for varying amounts of time. They can stay open for a few minutes, a day, or even months, depending on the market conditions and the price action around the void. There is no fixed time limit for these voids to close in.

What causes a liquidity void to close or fill?

A liquidity void is typically filled when the market revisits the price range where the void occurred. This may happen when the price moves back into the range, delivering a more balanced price action with both buying and selling activities filling the void. This process helps restore equilibrium in the market.

What does 'price in balance' mean in market analysis?

Price in balance refers to a situation where the market is in a consolidation phase, or equilibrium, where price does not exhibit a clear trend. During this phase, buying and selling pressures are relatively equal, creating a stable price range until a breakout occurs.

How can traders anticipate when a liquidity void might close?

Traders can anticipate when a liquidity void might close by analyzing the market's price action around the void. If the market shows signs of returning to the void area or if smart money starts to push the price toward the void, it becomes more likely that the void will close. However, the exact timing remains uncertain.

What role do sell stops play in the context of liquidity voids?

Sell stops are orders placed below a certain price level, which can trigger when the price falls to that level. In the context of liquidity voids, sell stops often accumulate near the lows of a consolidation area, and when price breaks these lows, it can trigger a run on sell stops, further pushing the price in the void's direction.

How does the concept of gaps in price action relate to liquidity voids?

Gaps occur when there is a separation between two price candles, where one candle's close is far from the next candle's open. In the context of liquidity voids, these gaps can signal price imbalances, where the market has moved sharply in one direction without fully filling the void. Gaps often indicate areas where price might retrace or revisit in the future to fill the void.

What is the importance of understanding liquidity voids and gaps for a trader?

Understanding liquidity voids and gaps allows traders to identify potential areas of price imbalance where the market might revisit. These areas can offer trading opportunities, especially when price retraces to fill the void or gap, providing profitable entry or exit points.

What can traders expect after the liquidity void is filled?

Once the liquidity void is filled, the market is typically considered to be in balance, as both buy and sell side liquidity are now represented. Traders might expect further price movement in the opposite direction, or a continuation of the previous trend, depending on the broader market conditions and subsequent price action.