Hello to all. I have recently been introduced to the concept of liquidity, and more so internal and external liquidity. It is said that price moves in cycles between the two, but I have noticed through backtesting that price sometimes goes through two imbalances then pivots to an external liquidity. My question is how do you gauge with sufficient confidence if it’s targeting external or internal liquidity, and on which side (buyside or sellside) ? thanks
Thank you. Really appreciate the advice. I was starting to pick up on the volume indicator. However, I shall educate myself regarding Order Flow, as I am utterly unfamiliar with the concept.
1 Like
There are many Liquidity’s concept out there. By mentioning, external internal, I guess you are referring to SMC based Liquidity, which is Liquidity Inducement Theory (LIT).
LIT assumes market is fractal. Fractal means there are many pattern, the same one, inside a pattern. After you identify market structure, you can find another market structure inside it. So the first market structure will be the external, another market structure will be internal.
LIT believes liquidity is located in around a POI (Point of Interest), order block and imbalance zone. Market always eats up internal liquidity before move to external one. When market is working on internal liquidity they will create inducements, breaking internal BoS and minor ChoC. When there is no more internal liquidity left, they will move to external to break BoS or ChoC.
Again this concept will give you max 55% win rate. I had tried to run forward test its concept blindly in a live account. But the interesting part with this concept, even the win rate is bad, it can assist you to have reward ratio (RR) for 1:10. After you may loss 9 times, once you hit a win, you still make profit.
2 Likes
Thanks. Any other strategies you would recommend ?
I don’t know where you pasted this nonsense in from, but it has absolutely nothing to do with spot forex CFDs, so you’ve got the context all wrong. Spot forex is a decentralized market without volume or order flow being available, for the simple and obvious reason that there’s no way of measuring either.
The only “volume” or “order flow” a spot forex “broker” can give you is the volume or order flow of their own customers, and I hope and trust you’re not suggesting that that “information” would be relevant to your trading decisions!! 
This is the problem with asking for advice in a beginners’ forum full of bot posts and AI garbage. There may be “advice” given which is just being regurgitated from somewhere else, where it was perfectly true and valid in itself, but it has absolutely no relevance at all to what was asked here!!
3 Likes
Precisely, “volume” on the FX market is only price change counter, so you don’t know even how many “lots” has been traded.
3 Likes
In forex, order flow is a myth, volume is a rumour and charts are hear-say.
Quoted prices are statements of fact (but only according to the broker who gave them and only at that precise moment).
Nothing is evidence.
4 Likes
You can start to learn SMC and LIT. You may learn the perspective of ICT. I don’t say they are good, but it will enrich your knowledge about market.
I learn many concepts, select only things that can be used and correct base on the principle of economic and monetary system.
I don’t like some concepts provided by SMC, LIT and ICT. Market doesn’t work exactly the way they teach. If you really want to know the whole story, you need to learn macro economic and at least the theory of money supply. It will enlighten you more, but I doubt you need them in trading. But knowing them, it will be beneficial to know how the monetary system work and you can read fundamentals in relation to price movement.
In short, liquidity means condition where transactions occur. High liquidity area can be seen in candlestick, when price moves tightly in a range.
Low liquidity when the candlestick is choppy or moving fast into one direction.
1 Like
Are Crypto’s charts more reliable ?
1 Like
Exactly, the concepts are logical for sure, but on the charts, it’s definitely not close to clockwork as advertised
Are Crypto’s charts more reliable?
1 Like
hhhhh, exactly, I went into FX, because it’s less volatile than crypto as I heard, but still …
Order flow can be reversed engineered by treating it as a meta game. Retail brokers will show correlations in orders across multiple platforms. After a while you should be able to spot obvious pockets by just looking at a chart. Babypips does a great job for their sponsors in making sure retail traders enter the market in random scenarios but are taught to put stop loss orders in similar areas… usually above a recent high or below a swing low. I’m using retail order flow to enter trades in my profile’s system. In basic terms, entering where retail is exiting, and using upcoming option levels as predictive levels of support/resistance. This is the only way large traders can avoid slippage and still execute large order blocks in opposing direction… when there’s a group of stop orders.
Latent demand is external liquidity. These are traders waiting to trade outside a stated range. Internal liquidity is much less than external, but moves price very much. This is why we have price ranges; price rises and falls with less supply and demand as it travels where it’s recently been… inside a liquidity vacuum as not enough time has passed to make it external or latent. Latent liquidity will keep price contained until there is a shift in sentiment.
How is order flow a myth? It’s information is sold between market makers and acted upon by large traders. Derivative order flow alone visibility moves the spot FX market. Unless it’s all luck, its pretty consistent: EurUsd Trading Price Levels
the strategy im using is very simple, first u need to understand the overall market structure, mostly a trending market, use ur fib retracement, from swing low to high, the swing most have 2 candle, there is a trend
line in the fib, u can take buys position to target the 50% or 61% fib, that is ur tp, at the same fib level, u can take short, to target the overall trend, you can backtest it from last year till date working 95% love you all
1 Like