How/do you identify correct areas of liquidity in a market?
Hi, sometimes i believe i target incorrect areas of liquidity. I wanted to hear your reasoning of where you may target your specific areas. I like to sometimes well a lot of the time to use liquidity zones as my TP, I do this because institutions will often drive market price to that zone to either create a selling point, or to sweep that zone.
heres an example of market USD/JPY 4HR and my liquidity zones.
as we can see the black eclipses are my liqudity zones. I wonder if theres a difference in types of liqudity zones such as if ones more impactful/greater than other which may be considered minior.
Liquidity as shown on a historic price chart will be areas in which price has spent the most time. Liquidity allows traders to execute without significant changes in price. One of the most common tools to view this is the Volume Profile indicator.
@tomo22 Since the Forex market is decentralized compared to the Stock and Future markets, it might be better to check the Tick value instead of analyzing the volume (not real) in the Forex Market.
I mainly focus on the key support or resistance levels and previous highs or lows. I also try to spot sharp volume spikes or moves to identify high liquidity zones.
A good way to gauge the value a theory of TA is to use it to not just identify key levels or zones, but also to identify what are definitely not key levels or zones, applying the same rules in reverse. This can help limit confirmation bias - it’s tempting and dangerous to identify key levels and zones when looking back historically - it’s the real-time decision that is valuable, at what is sometimes called the “hard right edge”.
There’s just one little problem, there: the tick value isn’t real, either.
The only volume figures to which any CFD/spot forex “broker” has access (and can therefore display to customers) are the volumes of their own other customers, which aren’t going to be very helpful to anyone, are they? But the key point, in this context, is that this applies to ticks as well: the only tick figures to which any CFD/spot forex “broker” has access (and can therefore display to customers) are also the ticks of their own other customers, and they’re also not much use to anyone.
The reality (though people “trading” CFDs with a spot forex “broker” never like admitting it, even sometimes, apparently, to themselves) is that people trading spot forex who are using tick-counts are actually using them - usually unknowingly - as a substitute for volume. And obviously enough as a substitute which won’t and couldn’t actually work, for exactly the reason you yourself explained above: the spot forex market is decentralized.
Yup - if you ask 100 people who have actually worked in the industry whether they “differ” from that opinion, not just 99 of them but all 100 of them are going to say “yes”. It’s honestly that clearcut.
hi @Sufshiken i saw your post not sure why you deleted it, I agree with EL with swing lows and highs, However, i dont entirely agree and think internal liquidity is defined by FVG’s
Higher liquidity is defined as areas where orders are executed without causing price to move. The higher areas are where price has spent more time.
In the XauUsd chart above, since Nov 25th, the most liquid price levels have been 2639-2650. The POC (Point of Control), which is the point of the most trading/liquidity for that period, is 2646. We can decipher that this is where more traders have executed orders/positions from.
hi @tommor, i agree mostly with your statement. However, i dont really agree with how " it’s tempting and dangerous to identify key levels and zones when looking back historically".
How are you supposed to find correct liquidity/snr and other levels if you may not be using historical price as a reference/guidance.
i understand using real time is much more accurate but real time also has the disadvantage of being undeveloped compared to history where its been developed, if you really think about it lets say we are trading in real time and we are bullish however, the market then starts to retrace and then eventually a reversal happens to identify this reversal/retrace we still have to use the previous candles which are still considered history since they are in the past regardless of time. Hope this makes sense i dont think it will haha
cant really say anything on the BOC part never really heard of that, but just because price may respect a fvg i wouldnt really consider it liquidity. also to use an FVG internally would be weird for me i always found there use to be better externally rather than internally, because price would never respect them internally only externally. (IFVG)
yeah, i traded XAU/USD last night taking a buy order, Instead of marking one liquidity level, i found that marking out mutiple allows for more confirmation of where the market will go.
Market generally, will sweep certian levels untill it is statsified and sticks to one. Like i said about my trade last night i marked out my levels of previous liquidity and i orginally had been aiming for a much higher liquidity level, However, market was satisfied with a level below my TP which i adjusted too when i market out the current level and adjusted my TP.
I hope this makes sense but, i do a similar thing to you
I’m going to have to say what you might have inferred from my post - I don’t understand how one area on the chart is a liquidity zone and other areas are not.
