What is Liquidity

Liquidity refers to how active a market is. It is determined by the amount of traders trading and the total volume they’re trading. One reason the foreign exchange market is so liquid is because it’s a very deep market, with nearly $6 trillion turnover each day. 

Liquidity is a settlement in the market where smart money is used to take out sellers / buyers.

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Smart money sees an area of money left in a pool where retail traders have seating. This is the same concept of looking at Higher Highs, Lower Lows, S/R being respected.

How to spot Liquidity

Spotting liquidity pools is actually quite simple. First lets go over what a settlement looks like? Well a settlement is seen as Swing Highs , Swing lows in the market. These areas are what can also be identified as liquidity pools.

Notice how each swing low respects a liquidity pool. These areas can be retested again. Which is where all of the other structural strategies can come into play, such as Support/Resistance, Supply/Demand, Major Key levels, instructional levels, Order blocks etc.…

How to trade Liquidity grabs

First we must know the overall bias. Try to spot this on the higher time frames. Once you establish your bias head to the smaller time frames to look for your liquidity pool.

Once we establish the market flow. Next we must look for imbalance within the rally (impulsive wave). To have an idea of where price can pull back to before creating new lows in the market.

Pay attention to how the market decided to pull back to an area of supply / imbalance . Which can also be seen as a liquidity pool. 

Once price hits that area of imbalance or supply / demand from the impulsive wave. You are now able to look for your entries. Which is talked about in the Three Man Standing concept.