Liquidity zones

What the market is fetching

The goal for institutions is to grab liquidity as efficiently as possible. Look at any chart and you will see it is not clean: price is constantly fetching buying and selling liquidity before it makes its real move. Once you recognize that, you can see the liquidity zones and tell a fake-out from a real breakout.

Liquidity grabs

Liquidity grabs happen often, and you need to be able to spot them around the retail zones, because the entry you want is where retail places its stops. There is buy-side liquidity above the highs, where breakout buyers enter and short sellers keep their stops, and sell-side liquidity below the lows.

Internal and external liquidity

Internal liquidity is the liquidity inside a range on the lower timeframe. External liquidity is on the higher timeframe: the impulse and correction moves of the higher-timeframe structure. If the structure you are trading is on the 4-hour chart, mark your Fibonacci on the 4-hour, not on the 1-hour. And if you are looking at a retracement on the 1-hour, read the 4-hour structure before you enter, because the market will wipe out the 1-hour impulse on its way to the higher-timeframe level.

The cycle

Banks and institutions are always moving price from internal to external liquidity. They take the 1-hour and 4-hour liquidity, sometimes respect the daily, and are always hunting for more: internal, then external, then internal again. Never trade inside a range between the internal and the external liquidity, and make sure the structure is validated before you look for a grab.

A day when the market takes both the internal and the external liquidity, along with the previous day's high and low, is a search and destroy day, in George Angell's phrase.

Why you were stopped first

Institutions wanted more liquidity in a certain direction, so they moved price to where the retail stops sat and took them before the real move. Stop hunts, fake-outs and spring moves are all the same event seen from the wrong side. Three kinds of candle mark where it happened, the stop-run candle, the buy-before-you-sell candle and the imbalance, and the Institutional candles lesson takes each in turn.

Mark the pools

Your stops and entries sit on the Trade Desk chart at their exact prices, so when a candle sweeps a level you can click it and see whose liquidity it took, and whether yours was part of the pool.