Liquidity

This is going to explain the origins of liquidity (i.e. where does the liquidity come from)

To make the price move, money is injected. To make the price go up, people bought. To make the price go down, people sold.

To be more specific, money is injected into accumulations (i.e. consolidations). Consolidations happen when the price is being rejected at both extremes (i.e. Premium & Discount zones) of the range (it basically stays inside the range). They’re called accumulations because orders are being accumulated (orders are piling up). If there are more buy orders than there are sell orders, the price breaks up out of the accumulation. If there are more sell orders than there are buy orders, the price will break down.

Consolidations/accumulations are called bases. A lot of times, price revisits bases.

Why?

We know that there was money injected into that base. let’s say that there were 4 $ signs in that base (just for an example). It costs institutions 1 $ sign to push the price up.

When the price revisited the base, it gave a push-up. Remember, there are still 3 $ signs in that base. So, the price pushed up because there was still money left in that base (3 $ signs) to push the price up. Let’s say that it costs 2 $ signs for that push-up. Now, we only have 1 $ sign.

Now, when the price comes back to the base again, the price gives a small push-up because there’s just 1 $ sign left in that base. Now all the money in that base has been used up. So, later when the price comes back again, it won’t bounce off. It will go down because there’s no money left in that base to push it up.

This is liquidity. Liquidity forms equal lows & highs. Whenever you see equal lows/highs, look to the left to see where they originated from.

The liquidity originated from the base because when the price revisited the base, it rejected it (as there was money left in the base). So, to know if the price will give 1 more move up when it revisits the base or just break through it, we must know how much money is left in the base. In this case, there is no money left in the base. So, when the price revisits the base, it will go through it. 2 things happen because of this: huge institutions move the market down and retail traders who had bought get taken out.

Here’s how you can trade reversals and switch from a buyer to a seller or a seller to a buyer. First, find a base that the price has revisited and bounced off of. This shows that there were still orders left in the base to move prices out of the base. The moves must be big (this shows that a lot of orders were put into the moves which means that there might not be enough orders left in the base). After those moves, look for a ChoCh. That means that institutions are buying. You can buy now (in this case)