Get started

Smcbasics

Learn 7 Types of Liquidity Zones in Trading In the today's article, we will discuss 7 main types of liquidity zones every trader must know. Just a quick reminder that a liquidity zone is a specific area on a price chart where a huge amount of trading orders concentrate. Read carefully, because your ability to recognize and distinguish them is essential for profitable trading. 1. Fibonacci Zones The zones based on Fibonacci levels can concentrate the market liquidity. Classic Fibonacci retracement levels: 0,382; 0,5; 0,618; 0.786 and Fibonacci Extension levels: 1,272; 1,414; 1,618 attract market participants and the liquidity. Above, you can see an example of a liquidity zone based on 0,618 retracement level. The reaction of the price to that Fib.level clearly indicate the concentration of liquidity around that. Also, there are specific areas on a price chart where Fibonacci levels of different impulse legs will match. Such zones will be called Fibonacci confluence zones. Fibonacci confluence zones will be more significant Fibonacci based liquidity zones. Above, is the example of a confluence zone that is based on 0,618 and 0,5 retracement levels of 2 impulses. The underlined area is a perfect example of a significant liquidity zone that serves as the magnet for the price. 2. Psychological Zones Psychological zones, based on psychological price levels and round numbers , quite often concentrate the market liquidity. Look at a psychological level on WTI Crude Oil. 80.0 level composes a significant liquidity zones that proved its significance by multiple tests and strong bullish and bearish reactions to that. 3. Volume Based Zones The analysis of market volumes with different technical indicators can show the liquidity zones where high trading volumes concentrate. One of such indicators is Volume Profile. On the right side, Volume Profile indicate the concentration of trading volumes on different price levels. Volume spikes will show us the liquidity zones. 4. Historic Zones Historic liquidity zones will be the areas on a price chart based on historically significant price levels. Market participants pay close attention to the price levels that were respected by the market in the past. For that reason, such levels attract the market liquidity. Above, you can see a historically significant price level on Silver. It will compose an important liquidity zone. 5. Trend Lined Based Zones Quite often, historically significant falling or rising trend lines can compose the liquidity zones. Above is the example of an important rising trend line on GBPJPY pair. Because of its historical significance, it will attract the market liquidity. Trend lined based liquidity zone will be also called a floating liquidity area because it moves with time. 6. Technical Indicators Based Zones Popular technical indicators may attract the market liquidity. For example, universally applied Moving Average can concentrate huge trading volumes. In the example above, a floating area around a commonly applied Simple Moving Average with 50 length, acts as a significant liquidity zone on EURJPY. 7. Confluence Zones Confluence zones are the liquidity zones based on a confluence of liquidity zones of different types. For example, a match between historic zones, Fibonacci zones and volume based zones. Such liquidity zones are considered to be the most significant. Look at the underlined liquidity zone on US100 index. It is based on a historical price action, psychological level 17000, significant volume concentration indicated by volume indicator and 618 Fibonacci retracement. Always remember a simple rule: the more different liquidity zone types match within a single area, the more significant is the confluence zone. Your ability to recognize the significant liquidity zones is essential for predicting the market movements and recognition of important reversal areas. Liquidity zones are the integral element of various trading strategies. Its identification and recognition is a core stone of technical analysis. Study that with care and learn by heart all the liquidity types that we discussed today. ❤️Please, support my work with like, thank you!❤️
OANDA:XAUUSDEducation
by VasilyTrader
4
Learn What is Inducement and Trap in Smart Money Concepts SMC Smart Money Concepts can be applied for the identification of trend reversal in Forex and Gold trading. In this article, we will discuss what is an inducement and a trap in SMC . And how to apply them to spot an accurate trading signal. We will study the important theory and go through real market examples on XAUUSD chart. Imagine that there is a strong historical resistance on a price chart. Because the price reacted to that strongly in the past, many sellers will place selling orders on that in future, anticipating a similar reaction. Placing short trades, their stop losses will lie above the resistance. In case of a bullish violation of the underlined resistance, sellers will be stopped out from their short trades and close their positions in loss . After the violation of a resistance, according to the rules, it should turn into support . Many traders will place their buy orders there, anticipating a bullish continuation. Bearish violation of such a support will stop out the buyers as well. Such a price action will be called an inducement and a bullish trap. With that, smart money grab the liquidity both from the buyers and from the sellers. After that, with a high probability, the market will drop . For example, Bullish violation of an all-time-high on Gold can easily be a bullish trap. To confirm that, the price should simply break and close below a broken horizontal resistance. That will confirm a local bearish reversal. With a bullish trap and inducement, smart money are quietly placing HUGE SELLING ORDERS , making the retail traders close short trades in loss (buy their positions) and buy from the broken structure, providing them the liquidity. The ability to recognize the traps will let you understand real intentions of smart money and trade with them. ❤️Please, support my work with like, thank you!❤️
OANDA:XAUUSDEducation
by VasilyTrader
2
SMC Trading Basics. Change of Character - CHoCH In the today's post, we will discuss one of the most crucial concepts in SMC - Change of Character. Change of Character relates to market trend analysis. In order to understand its meaning properly, first, we will discuss how Smart Money traders execute trend analysis. 🔘 Smart Money Traders apply price action for the identification of the direction of the market. They believe that the trend is bullish , if the price forms at least 2 bullish impulse with 2 consequent higher highs and a higher low between them. The market trend is considered to be bearish , if the market forms at least 2 bearish impulses with 2 consequent lower lows and a lower high between them. Here is how the trend analysis looks in practice. One perceives the price action as the set of impulse and retracement legs. According to the rules described above, USDCAD is trading in a bullish trend because the pair set 2 higher lows and 2 higher highs. 🔘Of course, trends do not last forever. A skill of the identification of the market reversal is a key to substantial profits in trading. Change of Character will help you quite accurately identify a bullish and bearish trend violation. 📉In a bearish trend , the main focus is the level of the last lower high. While the market is trading below or on that, the trend remains bearish . However, its bullish violation is a very important bullish signal, it is called a Change of Character, and it signifies a c onfirmed violation of a bearish trend. In a bearish trend , CHoCH is a very powerful bullish pattern. Take a look, how accurate CHoCH indicated the trend reversal on Gold. After a massive selloff, a bullish breakout of the level of the last lower high confirmed the initiation of a strong bullish wave. 📈In a bullish trend , the main point of interest is the level of the last higher low . While the price is trading above that or on that, the trend remains bullish . A bearish violation of the last higher low level signifies the violation of a current bullish trend. It is called a Change of Character, and it is a very accurate bearish pattern. Take a look at the example on Dollar Index below. In a bullish trend, bearish violation of the last higher low level quite accurately predicted a coming bearish reversal. Change of Character is one of the simplest, yet accurate SMC patterns that you should know. First, learn to properly execute the price action analysis and identify HH, HL, LL, LH and then CHoCH will be your main tool for the identification of the trend reversal. ❤️Please, support my work with like, thank you!❤️
OANDA:XAUUSDEducation
by VasilyTrader
7