Learn to identify liquidity levels. Before we begin, we need to understand what liquidity is.
A market with high liquidity is one where there is a large number of buyers and sellers willing to trade in that particular asset. This means that there is a high availability of buy and sell orders, allowing transactions to be executed quickly and with minimal impact on prices.
Where are the most liquid points located on a chart?
These points are found at the highs and lows. This is because at these points, many people are waiting for the zone to act as support or resistance, or for the price to break the zone (breakout) to continue its direction. I always use daily, weekly, and monthly timeframes to identify these zones.
Why the liquid points are importante on a chart?
Liquidity is extremely important because it is the direction in which the price moves. The price will always move towards these points to attract liquidity to the market. Without liquidity, financial markets cannot function.
Which indicator can you use to identify liquidity levels?
Previous Days Week Highs & Lows by sbtnc
Certainly, this indicator will facilitate the process of identifying these points, but it will not identify all of them.
-----Remember, like everything in trading, this needs to be combined with other confluences. It won't work by itself.-----
Explanation of the example presented in the chart.
I had some strong confluences indicating that the price was likely to have a bullish move. As seen in the COT report, there was aggressive selling of JPY. One of the things that helped me take this trade with confidence is that, as you can see in the circle, there was a weekly and monthly high together without being cleared. This created a double top pattern. Since this was such a liquid point, it gave me the confidence that the price would move towards this point before changing direction. And it did exactly that after consolidating for several days. These liquidity points can be used as confluence in our analysis, as well as a potential take profit level.
