Price Seeks Liquidity

Price Seeks Liquidity

Price Seeks Liquidity

Be able to identify liquidity runs/grab is a key skill to master in trading. It requires some practice but once you get the hang of it you will only take trades in these areas.

Example

In this example, (1- hour chart) we can clearly see that FDAX has previously been in a range. The price broke up on Thursday and touched the week's open level initiating selling pressure.

On Friday the price opened around 15 500 which coincided with the previous lower range. The lower range can be seen as a support level and the price could potentially reverse.

Why did price break the support level?

1) One major factor - the lower range has already been tested 4 times, the more a level is tested the more likely is it that we break it.

2) When a range level breaks it will definitely trigger liquidations hence big players can get the size they want without impacting the price movements that much.

3) In this case, we got 2 nice wicks around 15 450 - 15 420 that have never been tested before. Fresh levels (not tested before) are absolutely amazing places to enter trades at. Especially when liquidation occurs.

Source for liquidity

So this vacuum from the lower range (around 15 500) to the wicks 15 450 - 15 420 - is a source for liquidity! High volume and great volatility will occur!

Look for entries around these wicks! However, be aware of high volatility and you may experience some drawdown before the price eventually takes off!

If you're unsure whether a reversal will come or not, wait for a re-test of the level. A good sign that the price will respect the level and take off is if the re-test occurs with declining momentum or with a divergence.

Enter in lower timeframes

• 1 min chart