Understanding LIQUIDITY

OANDA:XAUUSD   Gold Spot / U.S. Dollar
In this video I try to explain liquidity as it pertains to training in a simple manner.

Liquidity are basically orders in the marketplace. Since trading is a zero-sum game, without liquidity, there is no trading. Simply put, If you wanted to BUY, then you would need someone to SELL to you, and vice versa.

Smart Money has deep pockets and needs a large amount of liquidity to facilitate their positions. They want to be able to get in and our of their trades, as well as to be able to trade with capital that would be worth the reward.

The largest pools of liquidity usually reside above swing highs and lows, and equal highs and lows (double/triple tops and bottoms). Support and Resistance ideologies dominate the market, and besides that, psychologically it makes sense to put stoplosses at such areas rather than at some random area within a range. There are also breakout traders who see price breaking out of an area as a sign of strength (or weakness if bearish) and they set their entries above/below these levels. This is how liquidity is "engineered" in the market and sentiment manipulated. These pools of liquidity can be seen as a magnet, drawing price to these levels, either to grab liquidity before reversing or continuing in its current direction.

- R2F


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