When I first started trading, I did the same thing as most traders.
I looked at indicators.
RSI.
MACD.
Moving averages.
And almost always the same thing happened.
I entered a position —
and after a few minutes the market went against me.
My stop got taken.
And then the price went exactly where I predicted.
For a long time I thought it was just bad luck.
Then I realized one simple thing:
the market moves not because of indicators.
the market moves because of liquidity.
What is liquidity
Liquidity is the place where the money of other traders lies.
More specifically:
stops
liquidations
pending orders
And that’s where the market maker leads the price.
Not because he wants to.
But because there is money there.
Where liquidity hides
I started looking at the chart differently.
Not “where will the price go”.
But where people’s stops are.
And almost always they lie:
below local lows
above local highs
at support and resistance levels
in ranges
That is, where most people think alike.
What it looks like on the chart
Typical scenario:
the price stays in a range for a long time
↓
everyone places stops below the level
↓
the market sharply breaks through it
↓
takes liquidity
↓
and reverses
And at that moment, most people are knocked out of their positions.
I looked at indicators.
RSI.
MACD.
Moving averages.
And almost always the same thing happened.
I entered a position —
and after a few minutes the market went against me.
My stop got taken.
And then the price went exactly where I predicted.
For a long time I thought it was just bad luck.
Then I realized one simple thing:
the market moves not because of indicators.
the market moves because of liquidity.
What is liquidity
Liquidity is the place where the money of other traders lies.
More specifically:
stops
liquidations
pending orders
And that’s where the market maker leads the price.
Not because he wants to.
But because there is money there.
Where liquidity hides
I started looking at the chart differently.
Not “where will the price go”.
But where people’s stops are.
And almost always they lie:
below local lows
above local highs
at support and resistance levels
in ranges
That is, where most people think alike.
What it looks like on the chart
Typical scenario:
the price stays in a range for a long time
↓
everyone places stops below the level
↓
the market sharply breaks through it
↓
takes liquidity
↓
and reverses
And at that moment, most people are knocked out of their positions.