Why Liquidity Matters in Cryptocurrency Trading: Key Insights

Discover why liquidity is crucial in cryptocurrency trading, explore its impact on the market, and learn strategies to enhance liquidity in crypto investments.

What is “Liquidity”?

Liquidity is basically sum of all orders at a specific price.

Liquidity is present at every High and Low.

Liquidity is used by smart money to fill gaps on the market.

Buy-side Liquidity:

Is the Liquidity generated when SL are taken out.

Areas where Buy-side liquidity rests:

• PWH & PDH
• Equal Highs
• HTF Resistance

Buy-stop orders are usually placed just above or at the same levels as previous highs. These highs are considered as resistance levels, holding a significant amount of selling pressure.

Sell-side Liquidity:

Is the Liquidity generated when buy-stops are triggered below Support.

Areas where Sell-side Liquidity rests:

• PWL & PDL
• Equal lows
• Below HTF Support

Takes place where buyers place their stop losses and expect the price will not retrace to that certain points. This chart shows sell-stop areas. Traders place their sell stops below these points

Internal & External Liquidity

• Internal Liquidity: Is the liquidity inside the define range
• External Liquidity: Buy-side liquidity above the range high and sell-liquidity below the range low.

Market moves essentially between Internal and External Liquidity.

Internal Range Liquidity = Short term Lows and Highs

External Range Liquidity = Range High and Range Low

Liquidity Sweep

A Liquidity Sweep is when institutional players trigger SL and buying/selling pressure;

Before reversing the price movement.

Liquidity Sweep are easier to identify in HTF

Orderblock Validation

A Bullish OB is validated when the high of the lowest down candle is engulfed by a later formed candle.

And a Bearish OB is validated when the low of the highest up candle is engulfed by a later formed candle.

RFVG

A Rejection Fair Value Gap is a type of “price GAP” that signals a strong bearish momentum in the trend.

Itself is a REJECTION of the present FVG.

EFVG

Expansion Fair Value Gap is a type of “price gap”

This FVG is Bullish, so as should be his price action trend.

Trade this FVG when the BULLISH volume is increasing.

The superior part of the FVG must be your SL.

Breakaway GAPS

Breakways GAPS are a type of FVG that remain unfilled.

This GAPS indicate that a fast market shift has happened.

When this GAPS are stablished as support, this will confirm a new trend on the current price action.

Mitigation Blocks

A Mitigation Block is a reversal pattern.

Happens when the market fails to go higher in a uptrend or lower in a downtrend.

This typically occurs at key points like: OB, Breaker Blocks or Imbalances

Sources

@CryptoSoulz