WHAT EXACTLY ARE THESE LIQUIDITY LEVELS??
AND WHERE DO THEY COME FROM??
These levels are often called ‘support and resistance’ or ‘supply and demand’. But these are very superficial
(and over simplified) definitions of what institutional liquidity actually means. As finding genuine areas
of institutional liquidity is much more complex than simply drawing some lines across your charts.
Not only must you confirm the levels against the higher time frames, but you must also analyze (and confirm)
a number of additional factors. As it is this confluence of factors that provide the highest degree of accuracy.
Here are 10 factors that need to be analyzed for determining our liquidity levels. And we must conduct this analysis across several time frames (daily, weekly and monthly).
- Bank order levels
- OTC options data (barrier levels)
- Institutional positioning and order flow
- Volume profile analysis (through futures data)
- TPO profiles (“Time Price Opportunity”, known as “Market profiles”)
- Volatility analysis (using session and composite profiles)
- POC and VPOC (“Point of Control” and “Volume Point of Control”)
- Opening prices, closing prices and “Naked”/”Virgin” prices
- High volume and Low volume areas/nodes
- Traditional (and peripheral) trend lines and channels
KNOWING WHERE THESE LIQUIDITY LEVELS ARE LOCATED
WILL GIVE YOU AN ENORMOUS ADVANTAGE:
These liquidity levels are absolutely critical because these are the areas where prices will gravitate toward.
And prices must gravitate toward these areas, simply because the institutions need this liquidity.
Remember, retail traders can easily get in and out of the market wherever they want.
But these giant institutions need to find deep pockets of liquidity to fill their orders.
Otherwise, prices can quickly run away from them as they process their trades.
Generating tremendous (unnecessary) costs in both alpha and trading fees.
In addition to this, these liquidity levels are (by far) the best areas for the most profitable
management of your trades (entries, exits, stops, profit targets etc.). Allowing you
to squeeze the most possible pips, from as many trades as possible.