ICT Liquidity Explained in 22 Minutes

Learn how institutional traders hunt liquidity: buy stops, sell stops, limits and where smart money positions around old highs and lows.

Key Takeaways

Price action reveals liquidity more clearly than lagging indicators.
Stops and limits cluster at obvious highs and lows, which institutions target.
Aligning trades with higher timeframe bias and waiting for liquidity sweeps and rejection improves entries.
Take-profit orders are liquidity too and can be used as exit points near clean levels.

What the video covers

Liquidity is defined as how easily a market can be bought or sold without significantly moving price, illustrated with busy vs. quiet market analogies.
Different participants (retail traders, hedge funds, banks, institutions) all add liquidity to a market.
Market orders execute at the best available price and can suffer slippage, but they still add liquidity once placed.
Orders above market price are buy stops or sell limits; orders below market are sell stops or buy limits, which cannot be placed on the wrong side.
A trading range's highs and lows hold resting orders, and price moving through them triggers stops and limits that feed liquidity.
Every buy requires a sell counterparty, so a smart money buy limit is typically paired with retail sell stops being triggered.
Entries and exits are explained as paired orders: a take-profit is a sell limit that gets matched with a buy stop when price breaks higher.
Clean levels such as double and triple tops or bottoms often act as liquidity pools and exit points.
Smart money may engineer sweeps of old highs (buy stops) before selling into them, producing displacement lower.
The speaker stresses aligning positions with higher timeframe bias and waiting for rejection of liquidity levels rather than relying on lagging indicators.

Chapters

What does liquidity mean in this video?

Liquidity is described as how easily you can buy or sell something without causing a big price change. Busy markets with many participants have high liquidity, while thin markets can be moved by a single order.

Why do retail traders often get caught on the wrong side?

The video explains that retail traders commonly place stops at obvious highs and lows, and those resting orders become the liquidity that institutions trigger and trade against before the real move.

How should traders use liquidity concepts when entering trades?

The speaker recommends identifying where liquidity sits, aligning with higher timeframe bias, and positioning above old highs for shorts or waiting for rejection of liquidity levels rather than entering blindly.

Full Transcript — Download SRT & Markdown

Speaker A

I spent years over complicating trading jumping from indicator to indicator until I discovered what actually moved the markets liquidity once I understood this concept I made over a million dollar in Just 2 years today I'll break down exactly how institutional Traders

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hunt liquidity and why most retail Traders get caught on the wrong side of these moves but first if you're new to the channel my name is Kyle and I've been trading the markets for the past 14 years it took me nearly a decade to

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become profitable and that's why on this channel I'm sharing every valuable lesson that learned so you don't have to go through the same struggle that I did but enough of the small talk let's get right into the video all right so first

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things first what is liquidity so it's basically how easily you can buy or sell something without causing a big price change so think of this like a busy Street Market versus a quiet one in a busy Market you can

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quickly buy and sell uh since there's a lot of Traders but in a quiet Market one big order can move prices so we have individual Traders we have retail Traders hedge funds Banks and different institutions that all create liquidity

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so when we're looking at the trading floor or what used to be the trading floor these are all individuals and some of these people represented you know different Brokers some people were in here just trading their own Capital uh

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some people were trading investor funds things like that so each one of these people added liquidity to a Marketplace and this might just be one trading pit you know this this might just be the NASDAQ or uh lean Hogs so one of these

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pits right there's tons of different participants uh that will add liquidity to to a market now let's say if there was only two people in the pit and this Market was very thinly traded well essentially you know one person could

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cause that market to jump in price just because there's no other Traders uh that are available in the in the pit let's talk about the different types of liquidity first and foremost so as an example we have this infographic just so

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I can get you guys to visualize um how I think about liquidity and how you should also think about liquidity so when we look at a chart right we have old highs and old lows and we have current market

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price and now just let's assume for a second that Gordon gecko is a buyer and Jordan Belfor is a seller so in all these examples we're going to go through we're going to have different orders and maybe different interest from both of

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these parties and for the purposes of this video we're only going to be including two examples just so you guys don't get confused so if we execute an order at the current market price right that order is going to get filled at

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2,915 as you guys can see on the right here it's either going to get filled at 20915 or the best the next best price so let's just assume that Gordon gecko comes into the pit and he says I want to

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buy this Market at 20915 but the next closest seller is at 21,000 uh even right that person is going to get slipped on that order because Gordon geeko wants to execute at the market so whatever the closest uh

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whatever the closest offer is his order is going to get filled so there might be some slippage and that's the the downside of a market order okay so this is not adding to liquidity but as soon as he places that order it adds

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liquidity into the marketplace all right now let's assume for a second that anything above the market is in the form of a buy stop or sell limit so we have a market order and then any resting order that's above current

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market price is going to be a buy stop or sell limit you cannot put a uh sell stop above the market and you can't put a buy limit above the market that's just not how the markets operate if you try

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and do that and your on your broker it's going to give you an error okay so any order that is resting a above the market is going to be a buy stop or a sell limit so as Price Right trades higher

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it's going to continue triggering new buy stops or new sell limits or it's going to trigger people that want to execute at the market all right and then vice versa below the market we have sell stops or buy limits okay you cannot have

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a buy stop or a sell limit below the market all right so those are just the types of orders now you guys might need to pause this video and and double check this and Rewind it as I go through the examples

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but this is the pending liquidity in the marketplace all right so as the market trades lower it's going to trigger sell stops or buy limits right and we will get into you know how these participants in the market as liquidity interact as the

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market goes up or down so knowing this type of liquidity in the market right allows us to visualize where there might be interest and how we can analyze a chart so let's go through some some examples and just keep this in mind as

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we're going through them so here we have a range as you guys can see we have this High here and this low so this is creating our trading range all right and as long as this high is protected

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and as long as this low is protected there's sell stops below or buy limits below the market or there's buy stops or sell limits above the market okay now let's uh fast forward in price and just observe what

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happens all right now that the sell stops have been triggered let's just assume that Gordon gecko as a smart money player that he is he wants to buy these sell stops all right so what happens is he's going to

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have his buy order paired with a sell order all right because in order for you to be a buyer there needs to be a seller you cannot buy if there's no seller all right so maybe his buy limit was there so his buy

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limit gets triggered as soon as the market goes there because it can't get triggered if the Market's trading up here right let's just say he had a pending order and he wanted to buy it at a discount it goes down there his buy

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limit now all of a sudden gets triggered and paired with a sell stop all right because somebody else is willing to sell it there now keep this in mind there are two parties okay there people can use a

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sell stop if let's say if they're sidelined they can use a sell stop to get them into the market as a short seller when the market gets triggered there or let's assume if they were already long then their sell stop would

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be a protective sell stop okay so when they when that uh price gets triggered then they'll take a loss okay so there's two different parties that we need to think about there's people that are on the sidelines that maybe have sell stops

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or there's people that are already in the market that are getting stopped out at a loss it doesn't really matter Gordon gecko his buy limit is going to get paired with a sell stop okay because you can't pair a buy

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limit with a buy limit all right so now let's just assume that he bought this market and he's looking to exit the trade so now that he's long okay so he is now in the market right he bought it

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as he's a buyer now so he bought it here and and his what his sell stop is here okay cuz when you're when you buy something the only way that you can get out of that trade is a sell okay so he's

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got a sell stop here and then his sell limit is up here his sell limit is his profit Target so when you place a TP right a TP when you place that TP it will be in the form of a sell

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limit all right so let's roll price forward and then see what happens so now that this price has expanded higher his sell limit that was already placed in the market what gets paired with a buy stop okay so now that his sell limit has

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been triggered with a buy stop he's able to exit the trade because he was able to sell it to a willing buyer right now again I'm going to run through the scenario the Willing buyer could be two different parties it could be somebody

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that's Sil LED willing to buy this Market on a breakout so his buy stop will trigger and he'll enter a long position or it's somebody who was short in here right so when they go short how do they get out of the position they have

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to buy it back okay so when you enter short position your buy limit will be your take profit and your buy stop will be your stop loss all right and we'll run through another example in just a second

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so Gordon gecko is now out of his trade he profited whatever he profited on the trade maybe it was a couple hundred maybe it was a couple thousand now Jordan bord is interested in selling this Market okay so he's also a smart

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money participant right maybe he already had a sell limit that he wanted to uh get short the market as soon as it ran out this high so if he had a pending cell limit it would have triggered him

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in there if you know and so this sell limit he would have had to place it while the market was trading down here because why you you cannot place a sell stop above the market right that's only if the

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market is going down so anything let's say current price is here any order that you place above the market to sell is going to be a sell limit any any order that you place that's going to be a sell

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is going to be a sell limit okay so his sell limit is now what going to get paired with a willing buyer all right cuz in order for you to sell it you need to borrow it and now that you're short

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where what is this here your stop- loss is now a new buy stop right because you're already in the market you're already in the market and in order for you to exit the trade you need to buy it

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back so your buy stop is going to go here so that is your stop loss right this is why it's a stop loss right so when you're short it's a buy stop this might be going over your guys

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heads but again again pause the video take some time to really comprehend this that way you can understand the examples that I'm going to go through so now that he's short in the market let's roll price forward again so Not only was he short here but

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what they ended up doing was they ended up running out another short-term high so Jordan Belfor is not the only participant in this market okay and depending on where his his buy stop was he may have gotten stopped down his

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trade but because it was up here he didn't now as it's running this High out maybe there's more people adding to liquidity inside of this level so as it's running out this High they're triggering more and more sell uh sell limits or buy stops right

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but if the market is predominantly ready to go lower the smart money or short sellers are going to have their sell limits paired with what retail buy stops so any body that has a buy stop here is either getting stopped out at a loss

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right because they were short here they might have been short here they are getting stopped out at a loss or they're buying it on a breakout so if they bought it buy stop on a breakout now all of a sudden they're on the losing end of

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that trade okay so this example really is just to give you guys you know an understanding of how participants are moving in the market and why liquidity is so important because it's giving you a narrative all right so once Jordan

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Belford's short position runs down here his buy limit is then what right because you have to buy it back his buy limit is then paired with a sell stop right a willing seller you have to be able to buy it back so you

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have to be able to buy back your position to cover your short position all right so why use liquidity first of of all understanding liquidity is so important because it just provides actual context behind why the markets move the way they do and

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respect certain levels so those two previous examples that I had shown you have to understand why those levels if I go back for a second you have to understand why these levels are being rated the way they are and you know why is it reacting

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where they are okay so smart money is going to position themselves right their long positions below this level because they know that there's willing sellers there all so they're buying it up in a discount and then selling it at a

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premium it provides context it gives you narrative that way you're not just lost in the markets not knowing why price is moving the way it is traditional indicators are lagging and this is where I got caught up for a very long time was

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I thought that the indicators were going to give give me a better Narrative of price action but really it kind of just got in the way when you're looking at Raw price that price feed that you're getting is at accurate you know it's up

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to dat they can't fake it maybe on FX Brokers they can but um with a with a you know a market like Futures where it's highly regulated that price feed that you you're seeing is going to be the same on

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every single platform and it's not lagging so when you see an old low being penetrated and there's lack of a displacement below it and you see it close back in the range but we have to start assuming that maybe people are

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accumulating long positions below that low and vice versa for short positions if we're taking out short-term highs and then we're failing to run higher and we close back below that old high that it just took out well it's failing to run

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higher and we have to start putting ourselves in the position of well maybe people are actually shorting into those highs so while traditional indicators are lagging price action does not lag and you can see with your own eyes at

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those major levels if liquidity is being swept up because they will react pretty quickly you don't want to see a an old high or old low be penetrated and kind of just Meander around that's usually an indication that it's going to continue

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higher or lower usually if there's a very strong pull of liquidity it's going to take that level out and reject pretty strongly all right so not only that but studying price action in this lens provides an additional psychological

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Edge so when we're looking at the charts we have to think that there are other people on the other side of sides of these trades and there there are emotions being being displayed on the charts and this is something that we

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lost when the floor went away you cann't you couldn't see people's reactions at specific levels right we have to do a good job of anticipating and trying our best to put ourselves in the shoes of somebody that might be trading uh

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against retail okay so when we uh are trying to build a psychological Edge you have to understand that there are certain emotions in the charts and what I try and do is try and understand you know who's tra in a trade where are

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people trying to Target to exit their trades right so when we see very clean levels like double tops and triple tops or bottoms those levels often times provide a really great exit Point okay so you can pair your exit whether that's

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a you know it's usually a limit order so you can either pair your sell limit or buy limit with a specific level and you know that has a high likelihood of it reaching that level because you know there's more stops resting below those

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specific levels how do I trade with liquidity and how can you trade with liquidity so I'm going to go over just a couple different things and these are all things that you need to practice on a regular basis and get used to so when

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we're identifying liquidity right where are most stops and limits going to be resting old highs and old lows so we have previous month week day you know every single candle that gets printed is going to have some level of liquidity at

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the highs and the lows and this is why intraday is a little bit trickier because on an intraday level there's not as much liquidity above a 5 minute or 15 minute or 1 hour High compared to like a

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daily or or a 4H hour high right it just doesn't have enough time to build that liquidity in so not only do we have old highs and old lows but we have the Asian range okay now the Asian range I use a

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lot in my trading because we have to think about it right we have all these Traders during the agan session that might be placing their positions and as that liquidity gets built up during the actual trading session it might run one

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side of that liquidity and then go the other way same thing with the London session range we might run one side of that liquidity and then go the other way so these are all important liquidity ranges that we need to pay attention to

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okay so this is all time based liquidity then we have the lunch hour so the lunch hour very similar we might have that uh 12:00 p.m. to 1: p.m. candle uh we might raid one side of that and then go the

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other direction all right key times when liquidity gets taken so we have high impact news events and we have individual trading sessions sometimes with high impact news events liquidity might be taken beforehand and then we'll get an expansion in the direction that

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it's trying to go to and then other times when liquidity hasn't been taken then it's more of a crapshoot we don't really know which direction is going to go um usually the the trades that I take where I'm positioned pre high impact

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news is typically when we've already seen a major level of liquidity taken out and it's not an an event that I really should be worried about okay then we have individual trading sessions so each during each session we might see a

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rate on liquidity all right so entry and exit refer back to the examples that I went over identify where you can position yourself in line with high time frame bias so if short position yourself above old highs or wait for rejection of

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old highs right and if you're long biased position yourself below old lows or wait for rejection of old lows and then we're just targeting the opposing range liquidity so this is exactly how I trade with liquidity now let's dive into a

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live trade example okay let's talk about this trade that I'm looking at right now so we have equal lows down here right and that's really kind of my target I I'm pretty sure uh this Market traded much lower and I'm not going to bring up

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the actual symbol name or the market that I'm trading because it's irrelevant all markets move like this so what I was looking for was this equal low level to be ran out and all I needed was to get

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on side with that idea and what we're looking at is Monday right and Friday so we have this timebase liquidity a previous daily high right that's our buy side liquidity after we've taken out that buy side liquidity right what we

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get a strong rejection so we get very strong displacement away from that Old High okay so after we get this displacement from here and just think about the example that I went through right if there was smart money

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liquidity right they're using buy stops to sell into so they're selling into these buy stops that are getting triggered and it's causing this Cascade of price lower right we get this nice displacement lower failed to displace above this old high and we get a nice

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run lower all right this is my indication that they're possibly going to Target the equal lows that are back here in the form of sell side liquidity as their target okay so what they're going to end up doing is they recognize that there are

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sell stops down here and what they're doing is possibly setting their target a buy limit right their buy limit when they entered here their buy limit is their takeprofit and that's the way that I need to think I need to think like

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somebody that's smart money all right so what I ended up doing was I'm just trying to catch a little bit of the move uh running down into this level so I ended up shorting it here this is a 1H

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hour breaker and then we have a fair value Gap but really the whole idea of this trade is the failure at this buy side liquidity okay so the whole premise of this trade regardless of whatever you see in here right because you can

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blindly short this level without any confirmation and having a level down here right just visualizing that liquidity and understanding that the market will trade to that level uh is extremely important okay so you guys can see that it's really drawing price price

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lower right we had another fair value Gap that popped up and as we approached the daily the daily low I just exited okay because this was the last day of the year you guys can see that this is the 31st I

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don't need the full amount uh I believe I only got like a one R out of this but the idea is that the context is there all right this Market did eventually trade to those old lows but because it

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was the last day of the year it was 9:00 a.m. uh I pretty much exited on that hourly close and to be honest that was enough for me all right you guys can see here that it was roughly

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3K okay about $8,000 okay just using liquidity as context so if you want to learn how you could trade these setups live with me then book a call using the link in the description if you're a struggling Trader I guarant guarantee

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I'll get you funded with six figures in capital in under 6 months and if not I'll sit with you every single day until you do also don't forget to like comment and subscribe and I'll see you guys in

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the next video

Topics:ICTliquiditysmart moneybuy stopssell stopsliquidity sweepinstitutional tradingprice actiontrading educationorder flow

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