ICT FOR DUMMIES | LIQUIDITY PT. 1 EP. 4 transcript

What is going on guys? Welcome to ICT for dummies episode four. Today we're going to be going over liquidity, which is essentially the foundation of ICT concepts. So we hinted a little bit at this with the previous video on market structure. We showed you how the bodies and the wicks tell two very different stories and we're going to elaborate on this today with liquidity. So the market moves in two ways. It moves to seek liquidity and it also moves to rebalance the range.

And we'll talk about rebalancing the range in the next video, but for this video we're going to be talking about liquidity. So liquidity is essentially fuel for the next move. So the market makers, the big money, when they need to fill their orders, they need to grab this cash that is resting in the market to then move price in the way that they want to. And where is this cash that is lying, you may ask? Well, it's going to be resting in swing highs and swing lows.

This candle formation is a three candle pattern. So a swing high is a lower high, a high, and then another lower high. And then a swing low is a higher low, a low, and then a higher low. I also see a lot of beginner traders getting messed up thinking that the actual color of the candle matters when we are creating a swing high and we are creating a swing low. For example here, we have two green candles and then one red candle, these colors don't matter, right?

This can be a red candle, this can be a red candle, like bearish, bearish, bullish. These candles here, these can be two green candles, this can be a red candle. The colors do not matter. What you should be focusing on is the lows and the highs that are created to make the swing lows and to make the swing highs. Okay, so what does buy side liquidity and sell side liquidity actually mean? We have to understand first the psychology of traders.

Let's say you want to take a short position, right? You're betting that the market is going to move down in this scenario. Where are 90% of traders putting their stop losses? Well, you're most likely going to put it at that recent swing high, right? So this is referred to as buy-side liquidity. If you are in a short position, you put your stop loss at this high. So, you have sold contracts here, and then you need to buy them back to actually get out of that position.

So, there is a lot of cash that is resting here. So, what is big money going to do to enter into the market? Well, they're going to take all that cash, and then they're going to move towards the direction they want it to go. Versus here, when you have swing lows resting here, if you are in a long position, where are 90% putting their stop losses? Well, they're going to be putting it at that low, at that swing low. So, what's resting here is sell stops, right?

You have sell-side liquidity here, because if you're in a buy position, you then need to sell those orders to get out. And this is just a huge pool of liquidity and a huge pool of cash for the market makers and for big money to then step in and take this to then move higher. So, these newly initiated swing highs and lows are going to serve as stop losses for retail traders, which is going to act as a magnet for price to trade back into, grab that liquidity before the real move is actually initiated.

And the reason liquidity and this lesson in general is so important is because it's going to help you understand how to avoid being liquidity, how to avoid being stopped out unnecessarily. All right, guys, think about it this way. You want to go buy some drip, but you got no money. But your homie, he's always leaving cash at his crib just laying around, $100 bills on his nightstand. So, what do you do? Obviously, you can't go buy clothes if you got no money.

So, you hit a lick on this kid, take all that cash, cash grab, liquidity sweep, and then you go buy all the drip. There's cash that's resting, and it needs to be taken if you want to get dripped up. Okay, guys, so start getting in the habit of marking out those obvious swing highs and swing lows, which is going to serve as sell-side liquidity and buy-side liquidity. If you look at the charts, you can clearly see that here we have sell-side liquidity, and then at this swing high, we have buy-side liquidity.

So, as you can see here, we make our new swing low, this is going to serve as our sell-side liquidity, and then we deliver higher, we take out this buy-side liquidity, and we create our new buy-side liquidity, right? This is our new swing high. Then, what happens? We deliver lower, and we create a swing low. Here, we generate a new level of sell-side liquidity. This is going to be our new swing low, and then price delivers higher and starts delivering lower.

This becomes our new buy-side level. This is going to be our buy-side liquidity. Price delivers lower and creates this new swing low. This is our new sell-side liquidity, and then we create another swing high, which is going to be our new buy-side liquidity once again. So, as you can see now, right? There's a sequence of buy-side and sell-side being generated. We had the sell-side, we had this buy-side, we create a new swing low, sell-side, new swing high, buy-side, new swing low, sell-side, new swing high, buy-side, new swing low, sell-side, new swing high, buy-side, and then this move runs through all of this liquidity, comes down all the way back to this first level, and uh this becomes our new sell-side liquidity.

Finally, you can see that price runs through all this liquidity and takes out all these buy-side levels, and this is our new swing low, and this is our new swing high right here. So, from this range, guys, just mark out the most obvious swing highs and swing lows that you see. The most obvious in the scenario is going to be this high here, and then this low here. This is sell-side liquidity here. This is buy-side liquidity here.

These liquidity levels should be sticking out like a sore thumb, guys, right? They should be easy to spot, and the more you practice spotting these liquidity pools, the easier it's going to get. Also, when you're starting out, like Blake said, focus on these major liquidity pools, right? You don't want to just mark out every single high and low you see, and then cram up your charts with unnecessary information. This is going to end up putting you into a gnosis paralysis, and you're going to get more confused than you have to be.

Keep your charts clean, guys. All right, so we're now going to be talking about liquidity sweeps and what that actually means. I'm sure you guys have heard this term used a lot by a lot of smart money concepts traders and ICT traders. What this refers to is when big money and the market makers are grabbing sell stops or grabbing these buy stops that we have marked out to then move the market in their direction. So, we have to think about it in this way. 90% of retail traders fail in the market.

What do 90% of retail traders trade? So, they either trade support and resistance, so they trade very objectively in the sense that, okay, they see this move getting made, right? We have a really big uptrend here. So, they think, well, if we come down and retest this low, we should do the same exact move since, you know, we just had that move. So, this is called support. So, they'll see this as a big support level. And so, they'll see this big support level and they'll go long here thinking that this same move is going to happen and will push up higher.

And where will they put their stop losses? Well, at that low. So, they think about trading in a really objective way and you end up seeing that these stop losses end up getting ran before price actually wants to make its move. Now, there's also another way that retail traders often trade and this is using breakouts. So, what this breakout looks like is they'll think, okay, if we break below this low, then we should continue trading lower.

And they'll put a short position here and where are their buy stops going to be rested? Well, at that swing high that we had, right? This is our buy side liquidity level. And then, they will get stopped out of their position and smart money and the market makers end up winning in the end. So, to really simplify that whole analysis, just understand that when one person is getting out of the market, another person is getting put into the market.

Because not only are people looking to get long here off that support level and then getting stopped out, but what this liquidity sweep is essentially doing is also putting people in orders. So, they're also filling orders and getting people into short positions and generating even more liquidity at these buy side levels. And this is why I love ICT concepts so much because there's always this narrative behind every single trade that I'm taking, right?

I'm not just marking out random support levels and random resistance levels. Like there's a reasoning for every single trade that I'm taking. And this is, I think, absolutely necessary when you're first learning to actually understand how the market is truly moving. The thing with ICT concepts is that you'll actually understand why you're taking a win or why you're taking a loss every single time. You'll understand why price is going to the next target.

As you get better at understanding liquidity, you'll get better at determining the overall narrative of price. This is why liquidity is so essential to ICT concepts because it is how the market moves. Right, guys? The market moves in two ways, to either seek liquidity or rebalance ranges. We'll get into the whole ranges thing in the next video, but eventually you'll see after this whole series that everything ties together and plays off each other one way or another.

And that's why ICT is so effective because not only does it make sense technically, but it makes sense logically as well. And if you feel lost right now, don't worry. We're going to keep showing you some more examples to help you get the understanding of it. We'll even give you some homework at the end so you can look over on your own and just get better at analyzing this whole thing. But right, the general consensus is that swing highs are going to serve as buy-side liquidity, swing lows are going to serve as sell-side liquidity.

The reason we're teaching you how to identify this liquidity is because if you can learn to identify where that liquidity lies, then you'll also be able to identify when it is taken and when it is the right time to enter a trade. But for now, just focus on learning how to identify liquidity. All right, guys. So, looking at this chart, take a few minutes here, pause the video, and mark out your significant swing highs that you see in your significant swing lows.

So, this is going to be your major buy-side levels and your major sell-side levels that you're seeing right now on this chart. And we're going to give you guys some background music while you're doing this. Swing high, swing low, liquidity, take it then we go. Swing high, swing low, liquidity, we take it then we go. Got buy-side and sell-side. Got buy-side and sell-side. Okay, so here we have your major buy-side liquidity and then your major sell-side liquidity.

So, look at what has been taken and then also we have sell-side liquidity resting here in the form of swing low, sell-side liquidity here, sell-side liquidity resting here, and also sell-side liquidity resting here. We also then have buy-side liquidity resting here, resting here, and then this buy-side liquidity to the left of us has been taken. So, this buy-side level here, here, and here. And if you're wondering why it has been {quote} taken, it's because price already traded above these levels, meaning therefore that liquidity has been taken and these three buy-side levels that haven't been taken is going to be the liquidity that is still valid and where stop losses are going to be placed.

So, once again, here you have your two major liquidity levels, your buy-side up here and your sell-side right here, and then you have the sell-side liquidity right here and this buy-side liquidity right here. This has already been taken. So, watch as I play out price now and it targets this buy-side liquidity up here, which is going to be holding a bunch of buy stops right for anyone who's in a short, anyone who's in a short is stopped out right here cuz this this is where all the stop losses are resting for shorts.

And then we go ahead and trade towards that sell-side liquidity. Bang. And after all of these sell stops are ran and these retail traders are taken out of the market, and once the market makers have grabbed all of that cash and grabbed all of that liquidity, they then move price towards the direction that they want it to and they target this buy-side liquidity here and also these swing highs that are put into the market here.

So guys, as we wrap up this video on liquidity, I decided to show you a four-part illustration which summarizes exactly what we had taught you. So, if you look all the way on the left here, the first thing that happens is a swing high is created. That swing high becomes a buy-side liquidity, right? If people are going to be shorting the market, where are the buy stops going to be sitting? At the swing high, at this buy-side liquidity.

Remember, those are interchangeable words. Buy-side liquidity, swing high. Then, what happens? This buy-side liquidity is traded away from. People are shorting and their buy stops are resting right here. Why is it called buy stops? Because they're shorting the market and so if they get stopped out, in the case where you're trading futures, your contracts are being bought back. Then, third step. In the process of buy-side liquidity being traded away from, sell-side liquidity is created.

And after the sell-side liquidity is created, price goes ahead and takes out the buy-side liquidity. So, now we are stopping out all the people who were shorting the market, where buy stops are resting at this swing high. And finally, price trades now to the next liquidity, which is going to be, you know, that sell-side liquidity we had created or any other liquidity that is resting further down in the market. So, break it down into four parts, guys.

First, identify where these swing highs and swing lows are created. Once you find that, notice how price will typically trade away from this level, which ends up resulting in a manipulation move for 90% of retail traders. Then, that level is traded back into. Those retail traders are stopped out and then the real move is initiated. The whole reason that ICT concepts is so important and that liquidity is so important is because it one serves as a foundation, but two is going to help you avoid being liquidity, right?

You need to understand liquidity to avoid ending up as liquidity. That being said, this practically concludes our ICT for dummies episode four. Liquidity. We teach you how to make money. Identify the swing low. Identify the swing high. Then, liquidity gets taken. And now for your homework after that lovely song on liquidity, we're going to give you two assignments. First being identify simply buy side and sell side liquidity levels on the chart, and then also identify liquidity sweeps.

So first find out where the swing highs and swing lows are being created, and then when price goes ahead and takes them, and try to start noticing how price reacts off of these liquidity levels. We're going to get way more into liquidity with more videos. It's actually going to be three parts of liquidity. So this is liquidity part one. You're going to have liquidity part two and liquidity part three cuz there is a lot to talk about, but for now let's keep it simple.

This is your homework, fellas. That being said, that's it. L I Q U I D I T Y, don't know if I spelled that right, but it's time for you to learn ICT with me, Blakey. Thanks, guys.