How to work with liquidity grab?

Hello everyone👋 Today we will discuss how to effectively work with areas of increased liquidity. Actually, it would be appropriate to make this post after we have examined how order flow is formed in the market in order to understand the technical aspect of working with liquidity. Therefore, first, we will provide some introductory information using a long position as an example.

When a trader buys an asset, they usually set a stop loss at a certain level or, if they don't use protective orders, their position will have a liquidation price depending on the chosen leverage. Based on this, when a specific price level is reached (stop loss or liquidation), their asset will be sold with a market order that will match the nearest limit order. Hence the conclusion: any exit from a losing position, as described above, is someone else's entry into a position with a limit order, often at a favorable price. This is how the positions of all major market participants are accumulated.

So, we simply need to estimate where the maximum number of active stop losses is located and make a trading decision based on that.

Most often, stop orders are located in the following zones:

1️⃣Obvious levels with equal highs/lows.

2️⃣Above/below any high/low in an obvious trend.

After identifying such zones using our indicator or independently, you can take trades in the direction of liquidity grab (counter-trend trades with high potential but also high risk) or wait for actual liquidity grab and confirmation to enter a trend trade.

In the next post, we will explore the technical aspect of liquidity grab for a deeper understanding of the topic.

We look forward to your questions. Happy trading!

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