What Is LIQUIDITY? In SMC | HINDI | BANKNIFTY| LECTURE~5

Name: What Is LIQUIDITY? In SMC | HINDI | BANKNIFTY| LECTURE~5
Uploaded: 2023-12-02T18:48:04.000Z
Duration: 3 h 2 min 45 s

What is Liquidity and Its Types?

Introduction to Liquidity

The speaker introduces themselves as Gwyar and states that this is the fifth lecture in the SMC series, focusing on liquidity types and how to mark liquidity.

New viewers are encouraged to watch previous lectures (1-4) for better understanding before proceeding with this one.

Understanding Liquidity

Liquidity is explained as a market's ability to move prices up or down; it acts as fuel for market momentum.

If there is no liquidity in the market, it will come to a halt, emphasizing its critical role in trading dynamics.

Types of Liquidity

External vs. Internal Liquidity

The discussion transitions into external liquidity, which consists of two parts: previous day high and low liquidity.

Forex traders need to understand session liquidity, which will be covered later in the ICT series after completing the current SMC series.

Previous Day High and Low Liquidity

Analyzing Market Movements

The speaker illustrates how price movements relate to previous day highs and lows using an example from December 1st.

They explain that when today's market opens, it may target the previous day's high or low based on current trends.

Price Action Dynamics

As price collects liquidity from previous highs/lows, it can either trend upwards or downwards depending on overall market direction.

The importance of recognizing whether the trend is upward or downward is emphasized for effective trading strategies.

Practical Examples of Price Action

Collecting Liquidity

A detailed explanation follows about how price targets specific points (previous highs/lows), collecting stop losses along the way.

The speaker reiterates that significant liquidity exists at these points, crucial for traders' decision-making processes.

Gap Openings and Market Reactions

They discuss scenarios where gap openings occur in relation to previous day closes, affecting subsequent price actions.

Observations are made about how gaps can lead to immediate reactions in price movement towards previously established levels of liquidity.

Conclusion on Price Behavior

Final Thoughts on Trends

Understanding Market Trends and Liquidity Grabs

Analyzing Price Movements in Uptrends and Downtrends

When the price increases, a green candle forms, indicating an uptrend. The target remains at the previous high if the trend is upward.

In a downtrend scenario, if the price closes after a gap down opening, it may grab liquidity before falling further. Observing lower time frames can reveal order blocks that affect price movement.

If the trend is downward and liquidity from previous day lows is being grabbed, targets will be limited to where remaining orders are located; otherwise, prices will continue to drop.

In an uptrend with liquidity grabbing at previous day lows, targets extend to previous highs. However, in a downtrend with liquidity grabbing at highs, targets do not reach as far.

Prices often move towards previous day's highs or lows based on market trends; understanding this helps predict future movements.

Importance of Trend Direction in Trading Strategies

The direction of the trend significantly influences trading strategies; if an uptrend exists but liquidity grabs occur at highs, prices may not fall far before continuing upwards.

Recognizing whether the market is trending up or down allows traders to adjust their strategies accordingly—buying during dips in an uptrend or selling during peaks in a downtrend.

A flat opening following an uptrend can lead to price movements that test previous high liquidity before potentially reversing direction.

Traders must remain aware of how trends influence potential targets; for instance, even when liquidity grabs occur at highs during an uptrend, prices may still rise rather than fall significantly.

To effectively trade within these frameworks requires monitoring lower time frames for precise entry points aligned with overall market trends.

Navigating Market Dynamics: Liquidity Grabs and Price Targets

If a downtrend occurs while attempting to grab higher liquidity levels without sufficient support below, traders should expect limited upward movement before resuming downward pressure.

Understanding that trades should align with prevailing trends ensures better outcomes; buying opportunities arise when markets are bullish while selling aligns with bearish conditions.

Traders need to focus on current market conditions rather than solely relying on past performance indicators like previous day’s low or high for setting targets effectively.

Recognizing that price behavior changes based on trend direction helps traders anticipate potential reversals or continuations more accurately within their trading plans.

Effective trading involves identifying key points where price action interacts with established order blocks and adjusting strategies based on observed market dynamics.

Conclusion: Mastering Trend Analysis for Successful Trading

Understanding Liquidity Grabs in Trading

Introduction to Liquidity and Market Trends

The discussion begins with the importance of understanding liquidity, particularly focusing on previous day high and low levels. The speaker emphasizes that grasping these concepts is crucial for applying them effectively on charts.

A reiteration is made about the necessity of comprehending liquidity; without this understanding, concepts like order blocks become ineffective. The focus shifts to analyzing external liquidity related to previous day highs and lows.

Analyzing Chart Behavior

The analysis transitions to a one-day timeframe chart, indicating an upward trend. The speaker notes that they are examining recent market behavior rather than historical data from 152 days ago.

Observations are made regarding specific candles on the chart, highlighting how certain candles grab liquidity from previous lows, using examples from December.

Detailed Candle Analysis

A specific black candle's low is discussed as it relates to grabbing liquidity from earlier price points. This example illustrates how traders can identify significant market movements based on candle behavior.

Further clarification is provided about which points represent significant lows in the context of liquidity grabs, emphasizing the importance of recognizing these levels.

Lower Time Frame Insights

Transitioning to a lower time frame (5-minute), the speaker highlights marked lines representing key candle lows and discusses their relevance in identifying market trends.

As the next trading day opens with prices moving downwards, there’s a focus on how this movement relates back to previously established lows.

Entry Planning Strategies

Questions arise regarding entry strategies based on observed price movements. The speaker suggests that while no clear order block exists at first glance, further analysis may reveal potential entry points.

Emphasis is placed on recognizing swings within lower time frames and their significance in planning trades based on prior price action.

Understanding Swing Points and IDM Concepts

Discussion turns towards swing points identified through structure mapping techniques. It’s noted that left-side swings play a critical role in determining market directionality.

Clarification is given about how previous day highs and lows influence trading decisions when planning entries around these liquidity zones.

Trend Changes and Market Dynamics

A distinction between traditional IDM (Immediate Demand Model) approaches versus current market dynamics is made. The speaker argues for adapting strategies based on real-time observations rather than rigid models.

Finally, insights into directional changes are shared; traders should be aware of potential reversals while also considering where big players might be placing orders within established blocks.

Trading Strategies Based on Previous Day's Liquidity

Understanding Target Planning

The target for trading is based on the previous day's low liquidity, with a focus on achieving the previous day's high as a target.

Entry planning involves analyzing lower time frames to capture liquidity at the previous day's low, which can lead to successful buy-side trades.

Analyzing Market Behavior

Big players manipulate market liquidity by trapping retail traders into selling positions, especially when breaking below the previous day's low.

Understanding how to plan around the previous day’s high and low is crucial for effective trading strategies.

Execution of Trades

When targeting trades, it’s essential to consider that if an uptrend exists, the target should be set at the high of the candle where liquidity was grabbed.

Professional traders utilize specific methods to capture price movements effectively; understanding these methods can enhance trading success.

Risk Management and Trade Confirmation

A clear understanding of risk-to-reward ratios is vital; professional traders often aim for significant targets while managing their risks appropriately.

In cases where both highs and lows from the previous day are targeted, it's important to recognize trend reversals before executing trades.

Utilizing Candlestick Patterns

Observing candlestick patterns helps in identifying potential entry points; for instance, recognizing when a candle grabs liquidity from prior lows can signal buying opportunities.

Gaps in price movement should be treated as significant indicators (FPG), guiding traders in their decision-making process.

Order Blocks and Price Action

Inside bars within larger candles indicate order blocks; understanding these formations aids in predicting future price movements.

After confirming entries based on order blocks and tapping into them post-sweep of previous lows, traders can position themselves for upward trends.

Final Thoughts on Strategy Implementation

Identifying remaining FPG levels assists in determining potential targets during downtrends or retracements.

Successful trade execution relies heavily on capturing external liquidity while maintaining awareness of market structure changes.

Understanding Market Trends and Liquidity Grabs

Analyzing Price Movements Against Trends

The market opened at a previous day's high, indicating a potential liquidity grab before moving downwards. This behavior suggests that the market is forming a weak trend.

Observing the price movement, it is crucial to identify where the trend is heading; in this case, despite the downward movement, an upward trend remains intact. Thus, one should focus on tapping into lower price points for potential gains.

Identifying Key Levels and Order Blocks

On November 29th, the price opened at a previous day's high and subsequently moved downwards. This action indicates that liquidity was grabbed from that high level before any significant movements occurred.

It’s essential to recognize that while targeting downside levels may seem logical, maintaining awareness of the overall upward trend is critical for effective trading strategies. Counter trades should be considered instead of solely focusing on downward targets.

Executing Counter Trades Effectively

When executing counter trades, traders should place stop losses strategically below key order blocks or fair value gaps (FVG) to manage risk effectively while capitalizing on upward movements after tapping into liquidity levels.

A successful counter trade can yield favorable risk-to-reward ratios (e.g., 1:4), especially when all lower price points have been tapped out prior to entering a position based on market structure shifts. This emphasizes understanding both current trends and historical price actions.

Planning Entries Based on Market Structure

Traders must plan their entries based on clear market structures rather than relying solely on instinct or incomplete information about order blocks or FVGs present in the market context. Waiting for clearer signals can lead to more informed decisions and better outcomes in trading strategies.

Recognizing when to enter trades involves understanding whether there are existing order blocks or FVGs available for tapping into liquidity before making moves towards higher targets established by previous swings in price action.

Advanced Trading Concepts: External Liquidity

The discussion transitions towards external liquidity concepts related to swing highs and lows, emphasizing how these elements play into broader trading strategies beyond just immediate price actions observed during daily sessions. Understanding these dynamics helps traders navigate complex market conditions effectively.

Previous day highs/lows serve as critical reference points for planning trades around external liquidity grabs which can significantly influence future pricing behaviors within trending markets.

By analyzing swing highs/lows through this lens of external liquidity, traders can develop more robust strategies tailored to prevailing market conditions rather than relying solely on historical data without context.

Overall comprehension of how external factors impact internal trading decisions will enhance strategic planning capabilities across various timeframes within financial markets.

Understanding Market Structure and Liquidity

Concept of IDM and Market Structure

The concept of IDM (Initial Demand Model) is introduced, explaining how it relates to market structure mapping. It emphasizes the importance of identifying higher lows and confirming trends.

The discussion highlights the significance of swing highs and swing lows in determining liquidity levels within the market, indicating where price movements may occur.

Liquidity Collection Mechanism

After establishing a boss level, liquidity above this point is collected as prices fluctuate. This process involves tapping into previous highs to gather stop losses from traders.

In an uptrend, many stop losses are located above higher highs; when retail traders sell based on patterns like head and shoulders, their stop losses are targeted by price movements.

Trading Strategies Based on Market Behavior

Retail traders often place stop losses below significant levels while big players buy at these points, leading to a collection of liquidity that influences price direction.

Many traders mistakenly believe they can trade immediately after a boss level is established without understanding the underlying mechanics of liquidity collection.

Importance of Timing in Trades

Emphasizes buying low during downtrends and selling high during uptrends. Traders should focus on order blocks rather than simply following market trends blindly.

The same principles apply in downtrends; recognizing when to tap into liquidity can lead to successful trades.

Understanding Price Action During Trend Changes

When observing lower lows in a downtrend, it's crucial for traders to recognize that selling below these points may not always yield expected results due to potential traps set by larger players.

Acknowledges that after a trend change or "choke" point occurs, buying pressure may emerge unexpectedly even if the prevailing sentiment suggests otherwise.

Recognizing Choke Points in Trading

Traders need to understand that choke points indicate potential reversals; aggressive selling might lead them into traps set by larger market participants who anticipate buying opportunities.

Discusses how price action around choke points can mislead traders into thinking a trend has reversed when it may just be temporary volatility before resuming its original direction.

Conclusion: Strategic Trading Approaches

Highlights the necessity for strategic planning around choke points—understanding when to buy or sell based on market structure rather than emotional reactions.

Understanding Market Trends and Order Blocks

The Concept of Selling and Buying Traps

The market will initially create a selling opportunity to trap retailers on the downside before moving back up. This involves tapping into lower price points before reversing.

After a trend change, it’s crucial not to sell immediately; instead, wait for a buying signal that indicates potential upward movement after tapping into lower liquidity levels.

Identifying Order Blocks

When a stock is at a critical point (or "chock"), the first order block on the left side will be tapped by the price, leading to downward movement before potentially continuing upwards.

The initial order block is significant as it dictates where prices may fall before they rise again. Recognizing this can help in predicting market movements effectively.

Analyzing Price Movements Post-Chock

After identifying higher highs and lows, one must mark these points clearly on charts to understand future price actions better.

A chock point signifies where confusion arises in trends; understanding this helps in determining whether to buy or sell based on market structure.

Strategies Following Trend Changes

Once a downtrend is established post-chock, expect an initial buying phase followed by continued downward movement. This pattern should guide entry strategies.

Always remember that after an uptrend ends with a chock, there will typically be one last buying opportunity before significant drops occur due to liquidity grabs.

Planning Trades Based on Historical Data

To identify potential buying points, zoom out on charts to find older order blocks that could indicate where prices might reverse or stabilize.

Set targets below current prices at previous order blocks for effective trading strategies during downtrends while being aware of potential reversals.

Final Thoughts on Trading Dynamics

Transitioning from downtrends to uptrends often leads to temporary declines; traders should avoid jumping in too early without confirming actual buying signals.

Understanding Market Trends and Trading Strategies

Key Concepts of Uptrends and Downtrends

The discussion begins with the importance of recognizing market trends, emphasizing that after a "shock," buying occurs in an uptrend while selling follows in a downtrend.

The speaker plans to illustrate these concepts on a chart, indicating that they will share real-time trading experiences from live streams to demonstrate effective trading strategies.

Focus shifts to analyzing the Bank Nifty chart on a 30-minute timeframe, where the speaker explains how to plan trades following shocks in market trends.

Analyzing Chart Structures

The speaker identifies higher highs and lower lows within the current trend structure, noting that price movements indicate potential points for marking new highs or lows.

Discussion includes identifying order blocks and liquidity zones critical for making informed trading decisions; specific attention is given to extreme order blocks as indicators for future price movements.

Real-Time Trading Examples

A significant event is recalled where aggressive selling occurred after a shock, illustrating how traders react during volatile market conditions.

The speaker recounts personal experiences from August 2nd when the market opened significantly lower, highlighting their strategy of preparing to buy despite widespread negativity among other traders.

Order Blocks and Trade Planning

Emphasis is placed on identifying key order blocks on the left side of the chart as essential components for planning trades effectively.

The process involves zooming into lower timeframes to refine entry points based on previously identified order blocks and liquidity levels.

Execution of Trades

The speaker discusses executing trades by marking significant points such as previous day highs/lows and external liquidity areas, which guide buying decisions post-shock events.

Understanding Market Trends and Liquidity

Analyzing Price Movements and Order Blocks

The speaker discusses capturing market movements using a 30-minute chart, marking significant swings and order blocks that indicate potential trading opportunities.

Emphasizes the importance of recognizing lower time frame order flows to identify buying opportunities after a price reversal, highlighting the need for strategic entry points.

After identifying a buying opportunity, the discussion shifts to anticipating a continuation of the downtrend following an initial upward movement.

The highest point is identified as crucial for planning sell trades; understanding swing points helps in determining where to enter or exit trades effectively.

Highlights the significance of liquidity grabs in lower time frames, which can provide actual entry points for traders looking to capitalize on market movements.

Trading Strategies Post-Chalk Patterns

Discusses how traders can plan entries based on observed price actions around order blocks, emphasizing that without clear signals, making trades can be challenging.

Explains how to recognize low lows and internal demand models (IDM), which are essential for navigating downtrends effectively while maintaining clarity in trade execution.

Reiterates that after capturing short-term buying opportunities, traders should prepare for selling strategies as market conditions shift back towards downtrends.

Encourages understanding short-term ranges post-chalk patterns to better anticipate market continuations and reversals during trading sessions.

Transitioning from External to Internal Liquidity

Introduces internal liquidity concepts while summarizing external liquidity insights; emphasizes the need for deeper analysis into liquidity sweeps and their implications on trading strategies.

Describes what constitutes a "boss sweep" in trading terminology—highlighting when higher highs are broken but not confirmed until specific closing criteria are met.

Clarifies that body closures above higher highs signify successful boss sweeps; this is critical for validating bullish trends before executing trades.

Discusses how price action behaves around these key levels, indicating whether it will continue downward momentum or reverse based on previous liquidity collections.

Planning Trades with Stop Loss Considerations

Outlines effective trade planning by setting stop losses just above recent candles while targeting downside momentum based on established price structures.

Understanding Liquidity Grabs and Market Dynamics

The Concept of IFSI Candles

The term "IFSIC candle" refers to a candle that grabs liquidity, closing either at the top or bottom after moving right and down. This concept is crucial for understanding market behavior.

When liquidity is grabbed, it collects all stop losses below higher lows, leading to potential buying opportunities as the price moves upward.

Market Behavior After Liquidity Grabs

A liquidity grab does not necessarily indicate a market reversal; instead, it often leads to further upward movement if there are no order blocks present.

Similar patterns can be observed in downward trends where candles will also sweep through levels before closing.

Price Action and Trend Changes

Price action may show a green candle closing after sweeping through lower levels, indicating a trend change while maintaining small stop losses.

In downtrends, similar sweeps can occur where the price grabs liquidity without confirming a full reversal.

Analyzing Chart Patterns

The analysis of charts reveals how prices interact with previous highs and lows, emphasizing the importance of understanding these movements for trading strategies.

Observations from recent days highlight how lower time frames reveal significant price actions related to liquidity grabs.

Internal vs. External Liquidity

A deeper understanding of internal liquidity is essential for traders aiming to think like institutional players. Recognizing retail mindset differences can enhance trading strategies.

Understanding Retail Trader Behavior and Internal Liquidity

The Importance of Observing Retail Traders

The discussion begins with the need to understand how retailers trade and where they get trapped, which is crucial for identifying the footprints of big players in the market.

An analogy is drawn using cricket; observing a skilled player does not equate to having the experience needed to replicate their success in trading.

The concept of internal liquidity is introduced, emphasizing that one's ability to mark trades effectively depends on their experience and understanding.

Identifying Patterns and Traps

Previous day high and low points are highlighted as critical areas for liquidity traps, where traders often plan their trades based on these levels.

Various patterns such as M patterns, double patterns, symmetric triangles, and others are discussed as common traps for retail traders who may not be aware of larger market movements.

It’s emphasized that recognizing how big players manipulate these patterns can help traders execute profitable trades alongside them.

Swing Highs and Lows

The significance of swing highs and lows is explained; higher highs indicate an uptrend while lower lows suggest a downtrend.

Retail traders are often misled into thinking they should buy at certain points due to psychological traps set by big players who control market direction.

Psychological Manipulation in Trading

Common patterns like W patterns, M patterns, head-and-shoulders formations, etc., are used by big players to create false signals that lead retail traders into poor decisions.

In downtrends, similar tactics are employed where retail buyers are trapped before a sharp decline occurs.

Observing Market Dynamics

A deeper analysis into what needs observation reveals that price action will not move linearly but will create various patterns before making significant moves.

Price behavior around support and resistance levels is crucial; it often leads to false breakouts designed to trap retail traders into buying or selling at the wrong times.

Conclusion: Recognizing Patterns for Better Trading Decisions

Big players aim for maximum liquidity by creating multiple tops or bottoms before executing large moves against retail positions.

Understanding Market Psychology and Liquidity in Trading

The Role of the Red Line in Trading

The concept of a "red line" is introduced as a critical indicator in trading, believed to work effectively. However, it has a low success rate, functioning only 20% of the time.

Retail traders often trust the red line after witnessing two successful trades, leading them to ignore the eight failures that precede those wins.

Many traders struggle with psychological weaknesses, which prevent them from setting appropriate stop-loss levels and lead to significant losses.

Manipulation by Big Players

Big players manipulate market movements by exploiting retail traders' psychology and liquidity traps.

Observing charts can reveal where liquidity exists; patterns like W or M shapes indicate potential manipulation points.

A recent chart example illustrates how liquidity points can be marked for better understanding of market behavior.

Identifying Key Liquidity Points

Traders should identify buying points on charts where price action indicates potential upward movement after sharp declines.

Price movements are not linear; they often involve grabbing liquidity before moving significantly in one direction.

Execution of Trades Based on Chart Analysis

When observing live charts, emotional responses can influence trading decisions; thus, focus is crucial during execution.

Successful trades often occur when retail traders react to large candles without considering underlying market dynamics.

Recognizing Patterns and Avoiding Traps

Traders must be cautious about following trends blindly; many get trapped at key resistance levels leading to losses.

Analyzing previous price actions helps identify areas where buyers were trapped and subsequently led into selling positions.

Final Thoughts on Trading Strategy

Understanding where liquidity lies allows traders to plan their strategies more effectively while avoiding common pitfalls associated with emotional trading.

Understanding Order Blocks and Liquidity in Trading

Identifying Order Blocks

The discussion begins with the identification of a single order block, emphasizing its significance in trading strategies.

Liquidity is marked at specific locations where traders may be trapped; an example is given of observing extreme points for better planning.

Analyzing Resistance Levels

Price resistance is analyzed, noting multiple instances where sellers have emerged, leading to potential traps for buyers and sellers alike.

After identifying traps, the price movement is discussed as it moves downward, indicating that previous orders have been filled.

Trading Logic and Probability

Emphasis on the importance of logic behind trades; understanding probability helps traders avoid being misled by market movements.

The speaker introduces concepts like mitigation blocks and unique patterns that can aid in making informed trading decisions.

Observing Market Patterns

A unique setup involving liquidity lines is highlighted; traders are encouraged to observe these patterns closely for better insights.

Discussion on support levels and demand zones indicates how different terminologies can affect trader perceptions.

Execution of Trade Plans

The execution of trade plans based on observed market behavior is crucial; swing lows are identified as key points for setting stop-loss orders.

Traders are advised to recognize higher highs and lows while marking significant order blocks to guide their trading actions.

Final Insights on Market Behavior

Retail traders often exit positions during volatile movements, which creates opportunities for those who remain invested after significant price shifts.

The session concludes with a note about upcoming market gaps due to lack of liquidity, suggesting potential upward movement in prices.

Understanding Trading Challenges and Knowledge Gaps

The Reality of Becoming Profitable in Trading

No one can stop you from becoming profitable; it's not about shortcuts or relying on indicators. If it were easy, everyone would be trading successfully.

Recognize that the stock market is manipulated, and understanding this manipulation is crucial for success. Many traders experience daily losses due to a lack of knowledge.

A significant percentage of traders reported losses in 2022, highlighting the absence of genuine educational resources in the market.

The speaker emphasizes their commitment to providing real knowledge rather than superficial tips or indicators, aiming to enhance understanding among learners.

Engagement from viewers is encouraged through likes and comments, which will lead to more advanced content being shared.

Importance of Real Knowledge Over Shortcuts

Emphasizes the need for practice and understanding charts instead of seeking quick fixes in trading strategies.

Points out that large entities manipulate markets openly, making it essential for individual traders to grasp these underlying dynamics.

Highlights a critical gap in market education where many are left without proper guidance or knowledge about effective trading practices.