Liquidity = Money = fuel to move price!
I would say liquidity is where there is a lot of money and most people are looking to take trades. If this type of situation happens then we know millions of people are targeting to make profit from.
Then a lot of stop losses and entries will be at that liquidity zone. We can also say liquidity means a lot of stop losses and if there will be a lot of stop losses in a particular zone, then smart money will look for where there is a majority of stop losses, take them out before moving the initial direction.
Once market takes out liquidity, it takes it out sharply and doesn’t want the majority to take or place trades once they are grabbing liquidity, that’s why you see aggressive moves or spikes while they are grabbing liquidity in the market and you are wondering if there was news in the market or the market just wanted to move like that.
“IF YOU CANNOT SPOT THE LIQUIDITY, THEN YOU ARE THE LIQUIDITY”
Liquidity = fuel to move market in specific price area. Liquidity is like a salary to big institutions and big players.
Rule : your stop loss is my entry.
With all this you are creating a narrative. Liquidity is your confluence to your trade and edge where to enter.
On the chart, liquidity is in the form of stop losses and buy / sell stops. These are the most used stop loss patterns.
Buy and sell side liquidity are areas of price in which buy stops or sell stops are mostly residing. When we understand the higher timeframe, we can see where ‘smart money’ are possibly going to go long and short due to areas of price creating “support and resistance”.