Internal vs External: Decode Liquidity with Draw On Liquidity | SMC & ICT Concepts - द्विभाषीय उपशीर्षक
Hey traders, and welcome to another episode of Smart Risk.
Imagine the ability to foresee where price is likely to move based on the hidden forces of liquidity and fair value gaps.
It's like having a roadmap to market momentum.
A roadmap we're about to unfold right before your eyes.
In this advanced episode,
we're diving deep into the intricate relationship between internal and external liquidity,
revealing how price ebbs and flows between them, all while filling the gaps that define market equilibrium.
Whether you're a seasoned trader or just starting your journey,
understanding this concept can help you gain a clearer perspective on price dynamics,
and potentially enhance your So, join us because we're about to embark on a journey that could reshape the way you approach the financial markets.
So traders,
if that's something you're interested in,
please give this video a thumbs up to show your support and subscribe to our channel if you are new.
See you after intro.
Welcome back traders.
So let's get started with the draw on liquidity.
Drawing on liquidity involves anticipating the likely price movement based on liquidity and fair value gaps.
This aspect is among the most critical subjects in trading that you should absolutely grasp before entering any position in the market.
It empowers you to predict the potential direction of price movement and the type of behavior price might exhibit.
For example, where it might retrace before making an upward or downward move.
What drives market movements?
The behind market movements can be boiled down to two key factors that consistently influence price direction.
First, liquidity zones.
The market continually seeks to sweep liquidity to generate momentum.
Essentially, serves as the lifeblood of the market, playing a vital role in its overall dynamics and functions.
We have extensively covered how to identify liquidity zones in a previous video, which you can find linked in the description.
If you haven't watched it yet, you can easily access it through the description of this video.
The second factor revolves around fair value gaps.
The market consistently shows a tendency to fill and rebalance the gaps present within it.
example, you can notice that the price sharply dropped with inefficiency, leaving a fair value gap behind.
Subsequently, the price moved back up and filled the fair value gap.
It also moved upward to clear out external liquidity.
Once external liquidity was swept, the price reversed back down to fill the most recent fair value gap.
This cyclical pattern reflects how the market operates, where price tends to both clear accumulated liquidity and fill fair-value gaps.
Let's have a quick breakdown of fair-value gaps and see how we can identify them in the market.
Fair-value gaps are typically formed within a three-candle sequence and are easily noticeable on the chart as a large chart.
The distinguishing feature is that the upper and lower wicks of the neighboring candles do not completely overlap with its body.
This creates what we call the Fair Value Gap Zone,
which essentially fills the space between the wicks, and is drawn on the body of the candle.
Imagine the scenario where the price experience a downward movement.
In this case,
a fair value gap,
also known as a liquidity gap, emerges due to the absence of buying pressure that spans across that specific downward price movement.
Recognizing fair value gaps hinges on a specific method.
The gap's identification is solely based on considering the impulse up or impulse down candle, along with the adjacent value.
Other candles outside this range do not play a role in determining the gap.
These pockets of liquidity voids hold significant importance as they can serve as potent entry points due to the market's attraction to liquidity.
When the price is inclined to move downward, it aims to clear the potential liquidity zones above it.
These zones become favorable regions,
where the price might witness an upward movement, only to eventually fill the gaps and then continue its bearish momentum with greater strength.
Now let's move on to the next topic, external internal liquidity.
But before diving into the detail of these topics, It's important to note a crucial step in your trading journey, back-testing your strategies.
Before using a strategy or setup in a real account, it's recommended to back-test it at least 100 times.
Various factors like market conditions, trader psychology, sessions, risk management and time frame influence a strategy's win rate.
Backtesting helps traders gain insights and enhance their trading strategies.
To help you with this critical step, we use the Trader Edge platform for backtesting our exclusive trading strategies and setups.
If you're interested in using Trader Edge as your backtesting tool, be sure to check out the link in the description below.
Now, when it comes to liquidity, we categorize it into two types, internal external liquidity.
To better comprehend this, let's imagine a market structure like a rally wave, consisting of a high and a low.
These highs and lows represent external liquidity.
Essentially, external liquidity pertains to the highs and lows within the market.
On the other hand, the fair value gaps found within the range of the high and low are considered our internal liquidity.
It's important to note that when zooming in on a lower time frame, you'll encounter numerous internal highs and lows, along with various market structures.
However, upon shifting to a higher time frame, all of these elements would be perceived as fair value gaps.
Price in the market always moves between two types of liquidity, internal and external.
Imagine it like a continuous circle where price moves either from internal to external liquidity or from external to internal liquidity.
In simple terms,
price either goes from a high or low point towards a fair value gap or from a fair value gap towards a high value gap.
This is the basic movement pattern that the market follows.
If we look at the schematic figure here, it shows a rally wave that moves upward, sweeping the external liquidity gathered above the previous high.
After this, the price shifts toward internal liquidity, indicated by this fair value gap to fill the gaps left.
From internal the price transitions back to the external phase.
Essentially, the price moves from the fair value gap to external liquidity by sweeping the liquidity above this high.
With the external liquidity swept, the price then aims to balance by targeting internal liquidity.
This prompts the price to drop and fill the most recent fair value gaps.
In this case, once the price fills this fair value gap, it is likely to pursue external liquidity.
Now, the question arises, will the price move towards upper external liquidity or lower external liquidity?
To answer this question,
you should first consider the previous order flow of price on the higher time frame or the order flow within the same time frame.
For example, if you zoom out and see that price was predominantly in a down trend, you would anticipate a break of structure.
Consequently, price is more likely to continue downwards to sweep the lower external liquidity.
Conversely, if the price was in an up...
The expectation would be that price will rise to target the upper external liquidity.
Another crucial factor we can utilize to determine price direction is the price action that unfolds when price enters the fair value gap.
If the price respects the fair value gap and demonstrates a robust rejection towards the upside,
it suggests that the price will likely aim to reach the upper external liquidity.
Conversely, if the price does not exhibit a significant reaction upon reaching the fair
value gaps, it indicates that the price is more likely to move downward in order to target the external liquidity accumulated below the low.
Now let's move into the real chart and see some examples.
Here we have Euro dollar daily time frame chart on the screen.
Let's consider this bullish rally wave.
We can see that the price initially moved below the low, sweeping the external liquidity present below that level.
Subsequently, the price retraced upwards towards the internal liquidity, aiming to fill the fair value.
Following this rebalancing, the price reversed its direction and moved downwards to sweep the external liquidity.
Similarly, here another bearish rally wave was formed, which already swept the external liquidity associated with the previous rallies low.
At this point, the price shifted toward internal liquidity.
Now it's time for price to move toward internal liquidity.
Notably, the price moved towards the fair value gaps and experienced a reversal at the extreme fair value gap.
Once more we can see another rally movement on the chart.
Initially the price swept the external liquidity here, following this, the price exhibited a strong upward movement towards these three fair value gaps.
It's obvious that the price did not show respect for any of these gaps.
Despite rebalancing these gaps, the price did not shift its direction toward the downside.
Instead, the price pushed toward the upper external liquidity.
What's evident is that the price,
after sweeping the bi-side liquidity and forming a perfect piece POI, promptly reversed its direction back to its primary direction.
It's worth noting that the price is now poised to target the buy-side liquidity, indicating a significant reason behind this move.
The buy-side liquidity has been swept and the price is now eyeing the sell-side liquidity, which aligns with its dominant direction.
This potent trading setup is undoubtedly one of my And I've consistently aimed to capitalize on this strategy within my trading plan.
In fact, I'm excited to announce that I'll be dedicating an entire tutorial to this strategy in our upcoming episodes.
So to all of you watching,
make sure to stay tuned for this value your continued interest and engagement mean a lot,
and I can't wait to dive deeper into this topic with you in the next episodes.
Let's proceed further.
As you see, the price exhibited a strong downward movement, effectively sweeping the low of the preceding wave, which can be seen as external liquidity.
Following this, the price retraced upwards, moving towards internal liquidity and filling the fair value gaps.
Upon rebalancing these gaps, the price initiated another move toward external liquidity, as indicated here.
Just as before,
the price managed to sweep this external liquidity with a lengthy wick, and then pushed upwards to fill the gap of this Fair Value gap.
However, as seen, the price experienced a reversal after this and resumed its bearish momentum.
That's it, traders.
Remember trading is not just about making profits, but also about managing risks and being disciplined.
It takes time and practice to become a successful trader, so don't get discouraged by losses and always keep learning and improving your skills.
Keep up the good work, and I wish you all the best in your trading journey.
Thank you for watching this video.
I hope you found it informative and useful.
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