Summary of Liquidity Trading strategy - Smart money concepts

The video "Liquidity Trading Strategy - Smart Money Concepts" focuses on the importance of understanding liquidity in trading to enhance entry and exit strategies, minimize losses, and achieve better risk-to-reward ratios. The presenters explain how Liquidity Zones are critical for identifying optimal trading opportunities, particularly from a smart money trading perspective.

Main Financial Strategies and Concepts:

Understanding Liquidity: Liquidity refers to the availability of money in the market, which affects how easily large transactions can occur without significantly impacting prices.
Liquidity Zones: These are areas on the chart where retail traders and smaller institutions place buy or sell orders, often leading to price movements. The key is to identify where these zones are located, especially below demand zones where stop losses are set.
Market Dynamics: When large players (like corporations) need to trade significant amounts, they prefer to do so in liquid markets to avoid price spikes.
Identifying Trading Opportunities: Recognizing Liquidity Zones can help traders spot potential reversals and trend continuations.

Step-by-Step Liquidity Trading Strategy:

Identify the Trend:
- Use the 50-period Exponential Moving Average (EMA) to determine the market trend.
- Look for price movements that break the EMA and create a series of higher highs or lower lows.
Look for Liquidity Sweep Patterns:
- Wait for the price to create a support level, then look for a wick that dips below this support (liquidity grab) or a close below the support followed by a return above.
- Enter the trade after confirmation (e.g., a candle closing above the previous one).
- Set stop losses below the long wick candlestick.
Targeting Levels:
- Aim for the next level of market structure for profit targets.
- Consider closing half of the position at a 1:2 risk-to-reward ratio and adjust the stop loss to break even.
Higher Time Frame Analysis:
- Always check higher time frames to assess the overall market structure and potential room for price movement before entering trades.

Key Points:

The strategy applies to various time frames and markets, including Forex, crypto, and stocks.
Backtesting is recommended to find the most effective pairs and time frames for this strategy.

Presenters/Sources:

The video features presenters from the Smart Risk channel, who provide insights into liquidity trading concepts and strategies.

Notable Quotes

— 03:06 — « Liquidity acts as fuel for the movements we want to see in the market. »

— 04:00 — « Grabbing the liquidity before reaching an order block makes it a perfect trading opportunity. »

— 08:12 — « This is also what we call a failed breakout. »