Understanding Market Maker's Perspective: Liquidity Sweeps and Fair Value Gaps (FVG)
In this educational post, I'll dive into the smart money concepts (SMC) that help traders understand market behavior from a broker or market maker's perspective. This analysis will focus on liquidity sweeps, Fair Value Gaps (FVG), and how market makers use these strategies to manipulate price movements.
This post aims to educate traders on avoiding common pitfalls and developing a more strategic approach to trading using smart money concepts.
In this educational post, I'll dive into the smart money concepts (SMC) that help traders understand market behavior from a broker or market maker's perspective. This analysis will focus on liquidity sweeps, Fair Value Gaps (FVG), and how market makers use these strategies to manipulate price movements.
- What is a Liquidity Sweep?
A liquidity sweep occurs when the market pushes through a known level of liquidity, such as stop losses or pending orders. This action often creates sharp wicks or sudden moves, typically engineered by smart money to gather liquidity for their positions. - Fair Value Gap (FVG) Explained
An FVG is a price gap between a consecutive bullish and bearish candle (or vice versa), leaving a void in the market. These gaps often act as magnets for price, as market makers seek to "fill" these gaps, using them as traps for retail traders. - The Retail Trader's Perspective
Many new traders view the FVG as a signal to enter the market, expecting price to move in their favor immediately. They often set stop losses below recent lows, providing market makers with a clear liquidity target. - How Market Makers Exploit Liquidity
Market makers often execute a classic trap strategy:
Push the price up slightly to create a false sense of security for retail buyers.
Execute a sharp move down to trigger stop losses and capture liquidity below key levels.
Finally, reverse the price direction sharply to the upside, aligning with their true market intent. - Practical Trading Strategy
For new traders, understanding this concept can help avoid common traps:
Avoid entering trades at the FVG without confirmation.
Look for signs of a liquidity sweep, such as long wicks or strong rejections.
Enter trades only after seeing a market structure shift (MSS) that confirms the true direction. - Conclusion
By thinking like a market maker, traders can align their strategies with smart money concepts, improving their chances of success. Always remain patient, seek confirmation, and avoid the traps set by market manipulation.
This post aims to educate traders on avoiding common pitfalls and developing a more strategic approach to trading using smart money concepts.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.