Boot Camp Day 8: Liquidity Pt 1
Introduction and Overview
In this video, the speaker introduces the topic of liquidity in trading and its importance. The speaker mentions that liquidity will be discussed in three parts, with today's focus being on understanding what liquidity is and why it is used in the market.
What is Liquidity and Why Use It?
- Liquidity refers to resting orders in the market, including stop orders and limit orders.
- Resting orders can either take traders out of a trade or enter them into the market.
- Liquidity represents a pool of money that gets cycled through the market when certain price points are achieved.
- Understanding liquidity helps traders have a better understanding of why prices move in certain ways.
Importance of Targeting Areas with Liquidity
This section explores why targeting areas with liquidity is important for traders.
Market Movers and Massive Orders
- Banks, institutions, and other market movers have massive orders that need to be filled.
- When placing buy orders, someone needs to sell those shares back to us.
- Brokerages and exchanges simplify this process by matching buyers with sellers digitally.
- Some offshore brokerages may trade against traders by assuming they will lose the trade.
Filling Massive Orders
This section discusses how market movers fill their massive orders.
Exchanging Orders
- Market movers need to exchange their massive orders for them to be filled.
- The process involves finding counterparties willing to sell or buy at specific price points.
These notes provide an overview of the transcript, highlighting key points about liquidity in trading. The sections cover an introduction to liquidity, its importance in targeting areas with liquidity, and how market movers fill their massive orders.
Liquidity and Market Movement
In this section, the speaker discusses the role of liquidity in market movement and how banks seek liquidity to influence the direction of the market.
Understanding Liquidity and Market Movement
- Banks seek liquidity to move the market in their desired direction.
- Liquidity allows banks to fill orders by having many people entering or exiting the market in the opposite direction.
- It is important for traders to go in the same direction as the market, which is influenced by banks.
- Traders should understand where liquidity lies in order to identify potential trade opportunities.
Confirmation through Market Structure Shift
The speaker explains why it is important to take trades based on confirmation through a market structure shift.
Importance of Confirmation and Market Structure Shift
- Confirmation through a break of structure indicates a change in trend direction.
- A break of structure confirms that liquidity has been swept and orders have been filled.
- Trades should be based on this confirmation rather than arbitrary price levels.
- Waiting for confirmation helps avoid false signals and improves trade entry timing.
Executing Trades with Confidence
The speaker emphasizes the importance of executing trades with confidence based on understanding liquidity and market structure shifts.
Executing Trades with Confidence
- Traders need to wait for banks to execute their orders before entering trades.
- By understanding where liquidity lies, traders can still achieve good entry points even after banks execute their orders.
- Catching tops and bottoms of moves is possible by aligning with market movers' orders and identifying market structure shifts.
- The speaker's strategy allows for taking trades with confidence, considering confluence with the market.
Summary and Future Topics
The speaker concludes by summarizing key points about liquidity and announces future topics related to liquidity.
Summary and Future Topics
- Understanding where liquidity lies helps traders align with market movers' orders.
- Liquidity is sought by banks to execute their orders and move the market in their desired direction.
- Future topics will cover how to spot liquidity, identify price points, execute trades, and gain a deeper understanding of liquidity.