so what is liquidity in simple terms liquidity is an area or a level where business was conducted previously institutions purchased a price at a specific level and some retail Traders end up taking advantage of the institutional sponsorship and take the trade and our main objective here is to find out where these retail Traders stop losses rest at so in this example you can see price being purchased at this demand level and we're not focused on the entry or why price was purchased there we're looking at if some retail Traders took advantage of this trade where
would their stop losses rest at their stop losses would rest in the near swings and this is where the liquidity will be rested so let's get into this so the first type of liquidity we're going to cover is your support and resistance liquidity which is your equal highs and equal lows as you can see price found resistance at this specific level what does that mean that means institutions sold at this level and Retail Traders might have taken advantage of this so now this level is incentivized to attract price and it will act as a magnet
for price to later do what run over this level so as you can see here price is finding resistance and this level be used as a magnet for price to run through it so next we're going to cover the trendline liquidity if you look here you don't see equal lows You Don't See you can pinpoint where the resistance is coming from now we could be coming from internal liquidity but a lot of times retail Traders use what you call a trend line and now liquidity is resting underneath the treadline so now that trend line becomes
a magnet to attract price so here we have an example of trendline liquidity price rejected from the trend line and attracted price so next up you have your FTB your failed to break liquidity you can see here you have a supply level formed and price approaches this level and rejects so now you have evidence that that level was valid and Retail Traders might be a part of that move so anybody that purchased price at that level their stop losses would go on the swing above and Above That Swing would be resting the stop losses which
would be your liquidity and price would be incentivized to attack that level one more time so here's an example of your failed to break liquidity price formed the supply level an aggressive reaction from the supply level forming the liquidity to later be absorbed so let's take a look at this example you always want to look to the left and you want to look to what happened previously what happened here we know that there was a supply level here price came to the supply level and reacted and broke structure what can we understand from this motion
we can understand is that there were cell orders injected here that push price down but there were so many soldiers that overpowered the buy orders here the push price down so now we know if price comes back to this level if price comes back to this level there's not enough sell orders anymore why because this whole order has been used here so that means there's not enough sell orders to reject price one more time and price will more than likely continue above so this would be your FTB your failed to break liquidity so now you
mark up your liquidity so now this area would act as a magnet and it would attract price and the liquidity has been absorbed next we have FTC failed to close liquidity and the main characteristic of this liquidity model is that the candle never closes below the range it just Wicks through the candle wicks through and that level becomes a magnet for price to attract so what is the primary function of liquidity so we know that liquidity will attract price in due time this level will be absorbed but what happens next price can always continue above
and completely continue with the trend or price can reverse and come back and set a range and what does that reverse indicate that indicates a trap a stop point and what is the function of the stop line the stop point is a trap in this situation everybody that thought this was a Breakout that price is going to continue higher got trapped and at the same time the stop losses of food sold and the previous resistance Point their liquidity got absorbed so let's take a look at this example so here you have your demand Zone here
you have your order block price reacts from this order block price reacted from this order block and shot up and broke structure so what do we know now we know that there was the buy orders that were injected here were graded in the cell orders that could have been resting here so now we know when price does come back to this level it's more likely going to break through this level instead of rejecting again why because there might not be enough buy orders in this demand order block so price is breaking through this level and
price broke to this level but what happened price came back into the range forming the Trap the stoplight so the stop button has been formed everybody that tried to sell in this area so everybody that tried to sell in this area thinking this is a breakout and price is going to continue lower got trapped right here and everybody that purchase price right here their stop losses got taken and price will continue the opposite way that's the effects of a star plan let's talk about inducement what is inducement here you have your point of Interest price
approaches your level but doesn't get all the way to your point of Interest and forms a reaction what is price trying to do is trying to entice you into taking good position tries to force you into abandoning your point of Interest as if price is not going to reach that level price comes back reacts from that same level and rejects forming liquidity engineering liquidity they're trying to entice you into taking a short before price actually takes the liquidity goes to your point of interest and reacts so your point of interest is formed and now you're
waiting for price to revisit that level price attempts to induce You by reacting from a level close to your point of interest to later on actually visit your point of interest and then react from it so how would you trade liquidity and inducement of course you can trade liquidity in a continuation form but let's focus on the inducement part so first of all you want to locate the liquidity in this case here's your liquidity kind of liquidity is this this is this is FTC failed to close why is it your failed to close because of
this wig so now you know liquidity is resting under this level so now you look for your point of Interest in this case I'm looking at this discounted order block so now what you're waiting for is for price to run on liquidity go to your point of interest and then react so let's talk about the inducement secrets and what makes a valid inducement so here you have your range this would be your range so now we pull out our FIP that's broken into four so basically the four parts are the four parts are 0 25
50 75 100 and this would be your discounted level and this would be your premium level and this would be your fair price so what you would want essentially is you would want your inducement to happen in the 50 percent if you want your inducement to be here you wouldn't want your inducement to be here and then for price to reach your level or even close by to the premium why because think of it as this think of it as you have orders here in the premium Zone which which your point of interest is located
in you don't want price to come here and come back up why because if it hits this level and then comes back up and then comes again more than likely now you have a FDB situation now you have a FTB situation which means the liquidity is rested right here and price will more likely go against you so again you would want your liquidity in the 50 and the reaction of course is in your point of interest that always has to be located in your extremes if you're buying you want to buy a discount if you
want to sell you want to sell in premium so let's see okay here you have your inducement price went to fifty percent and came back up so now if price goes straight to your discounted level you would expect to get into a buy here and this is what makes a successful inducement and here you have it this was your liquidity and this was your stop hunt that went straight to your point of Interest
