ICT Liquidity Trading Strategy

In the context of financial markets and trading strategies, ICT (Inner Circle Trader) emphasizes the importance of understanding liquidity as a core element. ICT’s approach to trading often involves analyzing and leveraging liquidity in the Foreign Exchange (FX) market. Let’s break down the concept of liquidity from an ICT perspective. (Sell Side Liquidity And Buy Side Liquidity)

What is Liquidity?

Liquidity is present on the chart as sell side or buy side liquidity.

Sell stops liquidity

Sell stops liquidity

Sell side liquidity is present when buyers place their stop losses and hope the price will not drop from these certain points.

The chart above shows sell-stop areas where retail traders think that the price will not drop below these points due to buying pressure, as the past price action tells. So they buy and place their sell stops below these points. However, the algorithm that delivers the price is so clever and trained to find these spots where sell stops are present and hunt liquidity before the price moves up.

Buy Stops

Buy Stops

Buy-stop orders are usually placed just above or at the same levels as previous highs, where sellers have placed their stop-losses. Retail traders often view these old or equal highs as resistance levels, believing that they hold a significant amount of selling pressure. As a result of this selling pressure, they anticipate that the market price will not rise beyond these levels.

In other words, retail traders believe that the market price will not rise above previous highs because sellers will place their stop-losses just above these levels.

What is Stop Hunts

The algorithms governing market prices are well aware of this behavior. They frequently push the price beyond these levels intentionally to trigger the stop-loss orders, generating additional liquidity in the process. This practice is often referred to as a “stop-loss hunt.”

What is Stop Hunts

These market-controlling algorithms strategically target both buy and sell-side liquidity. They can effectively create liquidity zones resembling the previously recorded high or low points, manipulating market dynamics to their advantage.

Help in Daily Bias

On the basis of the liquidity hunt daily bias is easily developed.

If (Algorithm_hunt==sellside_liquidity){ price_moves_up } else if(Algorithm_hunt== buyside_liquidity)P price_move_down(); }

Align the liquidity hunt with the following ICT Concepts to make your trading model.