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  1. #1
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    Price action basic. Part 7

    Liquidity – what trader needs to know?

    Hi everybody! Let’s continue our study in price action and market logic.

    How do you think, what is the main goal of the marketplace? Some would say – market brings together supply and demand, and that would be right answer, but it would be too abstract.

    The goal of the marketplace is not just to gather buyers and sellers and give them opportunity to trade, but to facilitate trading. What does it mean – to facilitate? It means that big market participants that mostly benefit from liquidity, will be interested in active trading from all types of traders. The more traders are involved, the better execution large speculator or commercial trader will have.

    Exchanges, for example, hire special companies, that are called «market makers» and pay them salary for keeping two-sided quotes – therefore every investor will be sure that he will be able to get a fill for his position. But even though, two-sided liquidity providers are unable to keep market in a balanced state when there is some aggressiveness in the market and liquidity is not very high.

    Trends often occur when there are not enough traders involved and market has to advertise more and more to attract liquidity. So, big market participants are often not interested in trends, they would rather prefer balanced state of market to have opportunity to slowly accumulate their positions. It’s tough job – to accumulate position on the rising market.

    But we as traders are interested in trends, aren’t we? Of course, idea of a trend is different for daytrader and for position trader. Let’s now talk about short-term perspective.

    See the picture below – how do you think, where liquidity can come to the market, in point A, B or C?

    Attachment 3557

    Obviously, points A and B are extremes of the bracket, and there are always traders that will try to fade extremes, as well as traders that will try to play breakouts.
    In point «C» there are not too many traders involved – they don’t know how to calculate the risk and where to place their stops, that’s why I can call this area «no mans’ land» and areas at the extremes «hot spots of liquidity»

    If market is trading without significant support from other timeframes, it will tend to go from one extreme to another, yet it’s tough to calculate risk at the extremes, because you don’t know who will win in short-term time perspective – buyers and sellers, buyers can create a breakout, collect stops of sellers, then market will go lower, or sellers can drive the market down and buyers will liquidate. So, when the crowd is there, don’t expect that price action will be predictable and smooth.

    In my own trading, if I see that market conditions are balanced, I rather try to work near «no man’s lands» in the direction to «hot spots» where I cover my positions. Key here is aggressiveness – if market is aggressive and volatile and liquidity is not enough, it will tend to reach extremes – market needs liquidity, after all it is an auction which goal is to facilitate trading. Liquidity is located near hot spots – I exit there, I don’t know who will win and I even don’t want to predict it.

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    Trader layigold's Avatar
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    It is through this thread I got to know that there is an area or zone that is called no man land and that is the area where there are not many too traders because they find it very difficult to manage their risk properly because that is what happens when you cannot find appropriate stop loss value for your order. I thought hat the trend is created when there are many traders in the market but how wrong I was but now I know fairly better that market creates trend to attract traders into the market. If I am right, I think it is better for a trader to wait for trend as it develops.

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  3. #12
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    Quote Originally Posted by layigold View Post
    It is through this thread I got to know that there is an area or zone that is called no man land and that is the area where there are not many too traders because they find it very difficult to manage their risk properly because that is what happens when you cannot find appropriate stop loss value for your order. I thought hat the trend is created when there are many traders in the market but how wrong I was but now I know fairly better that market creates trend to attract traders into the market. If I am right, I think it is better for a trader to wait for trend as it develops.
    Yes, it's more efficient to trade in phases of "early majority" participation. If too many traders are involved, it would be risky to trade, because they will easily create overbought conditions and liquidate very quickly - price action will become very unstable and range bound by its nature.

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  4. #13
    Trader rinaji's Avatar
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    Quote Originally Posted by Value trader View Post
    In my own trading, if I see that market conditions are balanced, I rather try to work near «no man’s lands» in the direction to «hot spots» where I cover my positions. Key here is aggressiveness – if market is aggressive and volatile and liquidity is not enough, it will tend to reach extremes – market needs liquidity, after all it is an auction which goal is to facilitate trading. Liquidity is located near hot spots – I exit there, I don’t know who will win and I even don’t want to predict it.
    well thank you for sharing, be honest I have done a big mistake by waiting for entry in «hot spots» and exit at «no man's lands». And yes, actually it does not work well.
    I see from the picture that you attach, if A and B are «hot spots», and C is «no mans' land» (CMIIW)
    And I found a different condition in which there are two zones (ABC) of two different time frames.
    See the picture below
    robo_posts.png
    In this condition, Is B in lower time frame = C in higher time frame?? As I see that B in lower time frame is located in a horizontal line which is parallel to C in higher time frames.
    Or maybe C at higher time frame becomes invalid?
    Thanks sir, .Hope you do not stop in the sharing of knowledge ...

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  5. #14
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    I saw aggressiveness when trade on lower time frame and sometime found some formation like pinbar or without pinbar in the area like A or B and I just enter my trade there and after some profit I just close If want to trade i just enter the counter position, but in the C area i don't know the right buy or sell because i don't know what will happened.

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  6. #15
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    Yes sir we must not place any orders in No man's land because we are not sure of the direction and moreover what we think and predict seldom occurs so we must wait till a clear direction is being presented by the market because we should not trade based on what we think but we shall trade with what we see on the chart and what it suggests.

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    But it could be accumulation phase and Market might be buying at lower levels and So we have two areas of demand area and two area of supply and market players might be looking buy at low levelsthe problem for me is how to indicate the breakout position when it got the saturation ? then we can put the position at the top of range or we do not need to wait for it because so hard to get them? because if we pay attention for point A as the top, it is very good to know it
    thank you very much

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  8. #17
    Trader rinaji's Avatar
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    Quote Originally Posted by nidhi View Post
    Yes sir we must not place any orders in No man's land because we are not sure of the direction and moreover what we think and predict seldom occurs so we must wait till a clear direction is being presented by the market because we should not trade based on what we think but we shall trade with what we see on the chart and what it suggests.
    Let's look at a quote from valuetrader, "In my own trading, if I see that market conditions are balanced, I rather try to work near «no man’s lands» in the direction to «hot spots» where I cover my positions." So I catch that he opened position near «no man's lands». Am I wrong in understanding quote from valuetrader?

    Basically so far I do the same with you. But I think I get something new from this topic.

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  9. #18
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    Such a thread is what I would call the modern day way to analyse the market, its difficult to determine the levels of liquidity accumulation, but if you study the price chart properly you would notice some spikes that happenwwithin minutes, this shows that a large order has been placed and the market might either move I'm that direction or we might see a pullback or reversal.

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  10. #19
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    One can make use of support as well as amount of resistance place because a different thought nevertheless it really is selling price activity technique and so it is not only making use of support as well as amount of resistance. You'll be able to go through the item because mind as well as make routine or perhaps increase base increase top routine because evidence for trending or perhaps letting go movements...

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  11. #20
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    if i take a look at the picture, maybe is this still about support stage of stage of stage of level of resistance ? and then we can make it as accessibility way and also stop aspect ? well now, the problem for me is how to indicate the huge position when it got the vividness ? then we can put the position at the top of comprehensive wide range or we do not need to wait for it because so complex to get them? because if we pay attention for aspect A as the top, it is very outstanding to know it
    thank you very much

    - - - Updated - - -

    if i take a look at the image, maybe is this still about assistance level of resistance ? and then we can create it as access way and also quit factor ? well now, the issue for me is how to indicate the large place when it got the vividness ? then we can put the place at the top of variety or we do not need to delay for it because so difficult to get them? because if we pay interest for factor A as the top, it is very excellent to know it
    thank you very much

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