Trend Liquidity - Bootcamp Ep.7

Welcome to episode 7 of my technical

boot camp. Today we're going to be

talking about trend liquidity. So trend

liquidity is another type of liquidity

expanding upon the theory and the equal

highs and equal lows that we discussed

in the last class. Today I'm going to

take you through what trend liquidity is

and why it forms in the markets. How to

correctly identify trend liquidity and

then the two main ways that you can

trade trend liquidity to get good

results and have deeper clarity around

the market. So with that said, let's

dive right in and break this down. So in

the previous episode of the boot camp,

we talked about equal high and equal low

liquidity and how in predictable areas

in the market such as around support and

resistance levels, we get collections of

buying and selling orders that act as

fuel for larger market participants and

create strong reactions, reversals,

things that take place, the

uninterrupted movements from areas that

the majority of traders wouldn't expect

them to come from. So when we see a

level of equal highs in a market or a

resistance rather than getting a direct

drive down from that level as many

traders expect what we more frequently

see is a rally above to sweep out the

high and then we get the proper

reaction. This creates a situation where

the majority of traders are taken out at

the worst possible point and directly

from their stop loss the market then

makes its move. Now, as we know, if you

watched the last class, this happens

because when we push into this level, we

naturally drift into here. We have a

massive amount of buying orders in the

form of stop- losses from sellers and

buy stops from breakout traders being

injected into the market at the same

point. This huge injection of buy orders

is then countered, allowing basically

large participants who want to open

exceptionally big trades to absorb all

those orders and take the opposite side

of the position which creates the

uninterrupted downward move. Everyone

from here is out. The buying liquidity

is used up and we get that big drive to

the downside. Now, this liquidity

concept is used in more places than just

equal high and equal low liquidity. The

one we're going to talk through today is

trend liquidity. So as we know liquidity

runs around basic retail concepts and

concepts that many many traders are

using to determine the direction of a

market. Of course support and resistance

and that equal high equal low theory is

one of those but another is the theory

and the concept of trend lines. Now a

lot of people use trend lines but when

you finish this class you're going to

see why they really don't give us much

good information at all about market

directions. So to sum up what a trend

line is, just like a support and

resistance, it's basically an imaginary

line. It's an area in the market that

price has reacted to more than one time,

but aside from that, it really doesn't

have, you know, any grounding in

reality. So this would be an ascending

trend line where basically the market's

moving higher. It's creating higher

highs, which is good news. But we come

down tap a level and then after the

second tap the expectation is every

further tap that we get on this trend

line should create a new buying

opportunity. So a lot of traders look at

this to buy like that. Okay. Now while

an ascending trend line is intact the

theory is that the market should keep

moving up. People use this to determine

their structural bias saying okay

providing we stay above this level then

every retest of the level should create

a new buying opportunity. Now we also

then have as well as the retest way to

trade it the second way to trade it

which is breakout trades. The idea here

is if we break beneath an ascending

trend line we will then pull back to the

ascending trend line retest it from the

other side and then sell off from there.

So it's kind of like a dynamic diagonal

support and resistance level. Okay. It

acts as support while price is above it

and the idea should be buying. But if it

breaks, it acts as resistance while

price is beneath it and we should be

looking to sell retests. This is how the

majority of people trade trend lines.

Now you may see where I'm going with

this. This creates a lot of liquidity.

So we'll break down where this liquidity

comes in first of all and then we'll

talk about how we actually utilize this

to take some good trades. Right? So, if

we know one of the ways to trade this is

going to be a retest trade looking to

buy when the market taps that level

again, what are we going to have beneath

this level? Well, we're going to have

buy orders around here, which means

we're going to have stop-loss orders

down here. Okay? So, a trade from the

initial trader may look like this. That

creates inside of this area beneath the

trend line liquidity. So, we have stop-

losses in here. If we also are going to

have traders who want to sell the

breakout. So traders who are

anticipating this move and then they

want to sell into that. We will also

have sell stops. Okay. So now we've got

stop losses and sell stops. All of these

are selling orders waiting beneath this

level. And as well as these we will have

manual execution sells once the market

has broken through this low because

there will be traders looking to sell

the retest around there. So we have stop

losses, we have sell stops and we have

market execution selling orders as well.

So essentially in this area all we have

is a massive amount of forced sell

orders that if the market drives into

this point basically loads of sell

orders will be forced into the market.

Okay, so that creates sell liquidity.

Now if we think about this from a

structural perspective, which is the

next important point to talk about, what

we've got is actually an uptrend of

higher highs and higher lows. And this

is pretty much the format for almost

every trend line you see. You will see

that there is some trending structure

behind it. However, the mistake that

trend line traders make is to liken the

trend line to actual structure. So they

will see this structure and instead of

looking at it from the perspective of

higher highs and higher lows. So instead

of considering these points and instead

of considering the fact that each low is

higher than the previous, they will

simply base everything off of the trend

line bounces. Now, because of this, this

is where it really goes wrong. They will

see this break here as a break in the

trend. So, if the trend line fails and

the market price closes beneath it,

they'll see that as a valid point to

reverse. And this is really where we get

to profit by taking the other side of

their trades. Now, if you were to see

this as a structural break, you probably

know if you've watched every episode of

the boot camp that this is actually

going incredibly wrong. Why is that?

Well, that is because in order to change

the structure of a market, we have to

break through a previously formed higher

low to create a lower low, which

actually then creates the structural

reversal. And this is obviously more

objective because we're looking at real

price rather than a line that we've

drawn on the chart like a trend line.

So, with the current trend that's going

on here with these two higher highs and

these higher lows, our valid higher low

is this point here. Now, as you can see

with the trend line break, we absolutely

haven't broken through the higher low.

Therefore, this is still completely

bullish structure and the most probable

outcome for the next move is just simply

going to be an extension of even further

upside. So, that is what we're likely to

see happen next. Right now, because of

this, and because trend line traders

don't see this, we get an opportunity

with trend liquidity to take advantage

of the massive amount of sell orders

being injected into the market. Because

what we often times see here is I mean

sometimes we have discount price zones,

demand zones around here and other times

just running off of the liquidity alone

we will see those large market

participants absorb the sell orders

place on a massive amount of buying

orders and then we'll see a rally back

into the initial direction that of

course from our perspective of using

real raw price formarket structure makes

complete sense and is just the market

continuing its uptrend. But for trend

line traders this is a shock. So they

think as soon as this level breaks they

need to sell. So we get huge numbers of

selling orders that's absorbed by

institutional buying and then a huge

rally takes place to break us again into

a new high and continue the upward

trend. So everyone who trades the trend

line in these cases gets liquidated. But

what we can do is set up our trading in

a way that we can take advantage of the

break here and actually execute inside

of this range somewhere providing the

market stays maintained in an uptrend

and profit from the upward move that

follows. So that's the basics of how

trend liquidity works. Now let me

quickly show you what the descending

example looks like. This works in

exactly the same way. Traders are

looking to sell retests of the trend

line and if the trend line breaks they

are looking to place buy orders in the

form of stop- losses. So closing out

their sell trades and also um in the

form of buy stops and manual buys buying

the retest of this level. So again

exactly the same format. We break

through this high. There is loads of buy

liquidity pushed into the market. We

realize as price action traders that

structure has not broken and this

completely remains bearish. Nothing has

changed about the market whatsoever. So

we can take advantage of the buy

liquidity here and try to piggyback the

large orders of institutional traders

who are likely to drive the market down

in force back into new lows, creating a

new breaker structure, profiting and

setting you up with new opportunities.

All right, so that is the format of

trend liquidity. That's how it works and

how it looks on the buy side and the

sell side and the theory behind how it

happens. So, we're going to head over to

the charts now and look at an example or

two of how this looks in real time.

Sorry to interrupt, but I've got a quick

note for you. So, what you're learning

here in the technical boot camp is a

necessary part of trading, but technical

analysis alone is not sufficient to get

you to where you want to go. Most

traders don't actually get stuck because

of what they see on the charts.

Obviously, it helps a lot, but they get

stuck because of habits, risk behavior,

decision-m under pressure, and

self-sabotage patterns that simply don't

show up when you're looking at technical

analysis on the charts themselves.

They're things behind the scenes. So,

I've created a 15minute class, a simple

class which is going to show you the

reasons that you don't see that are

holding you back from success. And if

you've been trading for a few months or

a few years, you feel like you know

everything, but you still can't put it

together, that's exactly who this is

designed for. So check that out using

the link in the description after this

class. Don't jump ship on the class yet.

Watch it all, but then head over there

and check that out. With that said,

let's get straight back to the boot

camp. Okay, so now we're here on a real

chart and we're going to look at this

descending trend line. First, let's look

at how standard trend line traders would

look to trade this. So we've got the

taps on this level and therefore the

anticipation is if the market taps this

level again. The first way to trade this

would be a short position looking to

continue the downward trend that is

imposed by the trend line. The second

way to trade this then of course is

going to be if the market breaks above

traders will look to buy that breakout

because they see a break of this trend

line as a structural shift. Okay. So

what we get is a pool of liquidity up

here in the form of buy stops, manual

buy executions and stop losses for sell

trades which again are just buy orders.

So up here we have lots of buy

liquidity. So now if we take a look at

how we would view this market based on a

raw price action structural kind of way

of viewing things. We see this market is

trading to the downside creating lower

lows and lower highs. And we just

recently created a new lower low from

this level. So we're breaking to the

downside. the trend is intact and we're

pretty much in a position where if we

stay underneath this lower high, we want

to remain selling. Okay, so this is the

true structure point and if we stay

under this true structure point, the

market remains bearish and what we want

to do under that level is continue to

sell. So now let's take a look at where

this coincides. Well, we have our

collection of liquidity which sits just

above the trend line and just below the

true structure point that would indicate

an actual reversal. So this is like the

perfect trap, the perfect storm for

trend line traders. They're going to be

drawn into trades on the sell side and

the buy side around this level. And this

sits just underneath the true structure

point. So it makes complete sense that

the market would liquidate that level

and then trade into a new low. Now I'm

going to add another thing into the

picture here which you've probably

already seen if you've watched the

entire boot camp and that is of course

the premium price level or supply zone

that sits here. Okay. So taking a look

there, we have this last candle before

the impulse. that's going to act as a

supply zone and that coincides again

with number one it's under the true

structure point and number two it's in

the perfect pocket for a liquidation of

the trend line. So for us this becomes a

very clean and simple setup where you'd

be looking to sell here. You could have

your stop over the true structure point

and your stop your target down into the

low for a continuation of the trend.

Right? Everything here makes complete

sense for the way that we'd want to

approach this. Compare this with the

retail approach. Obviously, we're retail

traders too, okay? Um, but the basic

retail concepts approach essentially

would be selling there and then it would

be buying here, right? If the market

breaks above. So, we've got the basic

retail concept traders looking at these

ideas and then our raw price action

focus is the central idea looking at

selling the supply zone uh because of

course we're at that point of liquidity.

So, obviously in this example you've

seen that we've actually used all the

other concepts to identify and formulate

this trade. We've used imbalance, we've

used structure, we've used supply and

demand. But it was the trend line that

initially formed this idea for us and

actually actually allowed us to see the

opportunity forming. So this is really

what we use trend line liquidity for in

most cases is simply identifying where

opportunities can form and then from the

identification of a trend line, we can

reverse engineer it into positions and

see if anything like this stacks up.

Okay. So if we now run the market

forward, we see we get a push above the

high. In this case, we get the perfect

trap for trend line traders because the

market closed above with strength. So,

that's going to draw in those trend line

buyers after stopping out trend line

sellers. We'll see a lot of people

stepping into the market on the buy side

here. And then we get that counter

liquidity absorption. Uh people

basically selling into the massive

amount of new buy orders that have

stepped into the market. And then we get

that fast uninterrupted selling move

that we discussed that comes from points

of liquidity. The reason this movement

is so strong is because all of the

liquidity is absorbed. Huge orders are

placed up here. That creates a lot of

selling pressure. There's not much

demand left at this price point

considering we're on a premium. And then

we see supply take over the market and

we run lower. So anyone short selling

from the point we've just discussed,

that point of liquidation obviously is

in a very good position. And that's the

position that we can put ourselves in.

So you can see there how trend line

traders would get snapped up on the sell

side and the buy side. that huge bucket

of buy side liquidity is created and

then countered absorbed by sellers who

drive the market down in force. Okay, so

that is an example a very nice example

of how we would trade using trend

liquidity. Now, as well as what we've

discussed already on using trend lines

to basically reverse engineer trades out

of it by trading in line with structure,

they can also be used in one other way

and that is again like equal highs and

equal lows. They act as a magnet for

price. So if the market is trading say

at this level underneath what we have as

a clear piece of trend liquidity and

then even stronger if we have other

factors that will lead us to want to buy

a market such as the imbalance and the

supply zone above. Well, if we have the

idea that price may be drawn towards

this supply for a sell, we can use this

trend liquidity that we have here, this

trend line to basically back that idea

with more confidence. Okay? Knowing that

these trend liquidity points act as a

magnet for price. Now why does liquidity

act as a magnet? Well, as we said

before, picture price as a hungry animal

and liquidity as food. It's going to

travel towards where that food, that

fuel is for the next move. Okay. So, in

this example, if we saw these internal

bullish structural breaks like this one

here, this very strong impulse up, we

could look at using the demand zone at

the low, which is going to be this point

just here. And we could wait for the

market to return into there. and we

could buy towards the target knowing

that at the minimum really we have high

probability of coming into the trend

liquidity there. So we have pretty much

a very simple 3R trade 3.5% trade locked

in and then of course we can extend it

through towards our target. But this

kind of the trend liquidity we see here,

the fact that this is here and prevalent

in the market gives us an indication

that we're in a pretty good position to

target towards this trend line at least.

Basically just giving us more confidence

and clarity behind the trade that we're

taking. All right. So by seeing the

trend liquidity, we are seeing a magnet

in the market that price will be drawn

towards. And as you see, we get a trade

here which runs us into that level. Now

we do see that sharp reaction after

taking the trend liquidity in this

example due to the additional context of

imbalance and supply. We do end up

making it up towards the target before

the selloff. But even if you were just

to target the trend liquidity knowing

that that is there with the one two taps

gives us good indication that this

should at least be taken out now that

the smaller structure is shifting this

way. Okay. So that creates some very

simple setups for you which of course

can be used to extend trade ideas out.

Again, just a confidence and clarity

booster in this instance as opposed to

kind of reverse engineering full trades

out of it. But by just simply spotting

this in the market, you could start to

break down the context surrounding it

and find opportunities like this one. So

to recap trend liquidity, then there's

quite a simple and short class in the

boot camp, but explains a lot in terms

of this concept. If we have a descending

trend line, for example, we don't see

this as an opportunity for direct

trades, but we do see this as an area

where significant liquidity will be

situated. So this area here, pretty much

everywhere around this point, there's

going to be people looking to sell this

trend line with stops above the high and

there will be breakout traders looking

to buy the market once the trend line

breaks. So it creates a big pool of

liquidity in a descending trend line

example like this. It creates buy

liquidity. Buys in the form of stop-

losses and buy stops and manual

execution buys. This area of liquidity

then will obviously be countered and

absorbed a lot of times by large

institutional traders who are looking to

sell the market short. So if we see a

trend line like this, we can number one

use this as an opportunity to target it

if we have smaller internal structural

shifts like the one noted. So, because

we know this is going to act as a magnet

or a draw for price, buying from down

here to target up here is absolutely not

a bad idea at all. As long as we get

that structural shift to confirm that

opportunity, then exiting the trade and

seeing how the market reacts into this

high can provide great opportunities for

basically traps allowing us to trade the

market lower. Now, another point which I

haven't really mentioned in this is of

course if you've been trading trend

lines and getting stopped out by what

people call fake outs like this. Now you

know why, right? Uh we went into this

class judging that you didn't trade

trend lines, giving you opportunities of

how to trade the liquidity. But if

you've traded the trend lines in the

past and you've lost trades due to this,

well, now you can see why that is

happening and should be able to

eliminate that from your trading and

trade these trend lines in a different

light. All right. So, the main way to

trade them is once we've identified them

and they've been swept, we look for

reversal trades against the sweep

direction of the market. And of course,

if we factor in the way that we trade

with market structure, the raw price

action approach. If we're looking at a

market that is creating a continual

downtrend of lower lows and lower highs,

providing that the trend sweep, the

trend line sweep remains under a

previous true structural high like the

one we've just marked, then we can

continue selling because we know the

market structure is still down. Okay, on

this net position, overall the market's

bearish. So regardless of whether a

trend line's broken, the opportunity is

still to the downside. Okay, so this is

how you trade them. And of course, you

compare this with other concepts. You

compare it with supply zones. You

compare it with imbalance to create very

high probable opportunities like the one

we looked at at the start where the

market may reach into here before

getting its full reversal. But

regardless of kind of which way you look

to trade this, this is the format that

we like to follow. Number one,

magnetized for smaller trades into trend

liquidity and number two, the core

opportunity, selling from those points

of interest once the liquidity has been

swept. and works the same way for buy

opportunities. We are just looking

instead at higher high and higher low

structure to create an uptrend and then

looking for liquidity sweeps of trend

lines that do not break the significant

overall structure. And in these cases,

you can sell towards trend liquidity and

when it's swept, look for the

opportunities to take the market back in

the bullish direction of the overall

trend. So that is trend liquidity.

That's how it works. Put this to use in

the markets. Go practice it. Remember

simulations, demo accounts. Don't risk

real money while you are learning. Go

watch the trading diagnosis class in the

link in the description.