How to gain an edge keeping track of Liquidations/Liquidity. Read this before using the signals.
Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.
Our Liquidity Algorithm scans the market where liquidity can be obtained and where liquidations are likely to happen. These spots are areas where liquidity flows into the market and high volume is often seen. Liquidations/areas of liquidity are KEY market events that often, most likely have an impact on the future price action. That is why professional traders keep a close eye on these levels.
Liquidations happen when traders face margin calls due to insufficient funds to keep their trades open. The broker will automatically sell the position. Huge losses are often seen. When this happens, liquidity flows into the market.
Liquidity is an area where traders can accumulate/distribute large amounts of contracts/shares without affecting the price. Basically, everyone has the chance to buy or sell at a stable price point. It's a pool of exchanges. Golden areas for institutions, they can execute large orders without exposing their strategies.
The market is sophisticated and complex so we keep all explanations on a basic level.
These signals are not meant to be followed blindly since they simply give insights about liquidity areas.
- Liquidity (Up) means that liquidity is found on an up move.
- Liquidity (Down) means that liquidity is found on a down move.
Think of it like this. A breakout happens because a current order block is absorbed at a certain price level. It takes liquidity in order for an order block to be absorbed. That is why we get liquidity signals on potential breakouts.
The price has been in a tight range and finally pushing through with a big candle and with high volume.
- We got a Liquidity (Up) alert when the price made a new high. A sign of a breakout.
In a positive trend, we get areas of supply and in a negative trend, we get areas of demand. For many reasons, traders secure profit, contrarian traders. In order for the market to push through a supply/demand area, we need liquidity. That is why we get liquidity signals on potential trend continuation moves.
First of all, the price broke up from the negative trend (the red line) and made a new high. (The market is forming a bullish structure).
- We got a Liquidity (Up) alert when the price broke up from the zone. A sign of a trend continuation.
When a trend ends, we often get "the very last push" that takes out most of the contrarian traders. Stop losses triggers and it "looks like" the trend is going to continue. These are areas where liquidity flows into the market and we get a liquidity signal.
We can clearly see that the market is in a negative trend and has been in a negative trend for a while.
- We got a Liquidity (Down) alert at the lower trend line. This was the "Very last push" and the market reversed.
In ranging markets, false breakouts are likely to happen. It looks like the market is finally breaking out and traders enter aggressively to not miss the breakout. Stop losses triggers for the ones that were contrarian the move. (They will most likely not want to stay in the trade if a breakout happens). So at these false breakouts, liquidity flows into the market and we get a signal.
We can clearly see that the market is ranging.
- We got a Liquidity (Down) alert at the lower range line. This was a fake-out.
- We got a Liquidity (Up) alert at the upper range line. This was a fake-out.