Crypto Academy Season 03 - Week 06 | Advanced Course - Trading Liquidity Levels The Right Way

Liquidity levels in a market refer to areas where price forms a sharp reaction. These are levels where traders have set their pending orders taking into cognisance the historical price patterns that have played out at such levels. One easy way to spot these levels is the formation of equal highs and lows at a particular point in a market.

Liquidity levels are also referred to as institutional levels. Why? Because these levels are areas where institutional manipulation takes place in a bid to trigger retail traders stop losses. This act is popularly referred to as "stop-loss hunt". These levels are created as a result of market imbalance which results in the formation of swings (highs and lows). These levels are often used as a historical reference by traders when taking positions and setting exit criteria.

Some examples of asset with liquidity levels marked are given below

_{liquidity levels of ADA/USDT pair
chart image taken from tradingview}

_{Liquidity level of BTC/USDT pair, daily timeframe
chart image taken from tradingview}

2 - Explain the reasons why traders got trapped in Fakeouts. Provide at least 2 charts showing clear fakeout.

One of the main reasons why traders often get trapped on fakeouts is as a result of the interplay of big institutions or whales in the market manipulating price in order to force retail traders stop losses to get triggered and profit from the movement.

With the advent of technical analysis, its very occasional for traders to identify demand and supply zones and spot key liquidity levels, and utilize these key levels when taking a trade

Here are some chart examples of fakeouts

_{chart image taken from tradingview}
^{note: the fakeout is better captured on the hourly timeframe but for the purpose of clarity I'm using the daily timeframe to illustrate}

_{chart image taken from tradingview}

As the market came to the liquidity area of the BTC pair marked 40595, the resistance area smart money knew that retail traders would be selling when it came to that zone so what they did is they bought the market, took all that money because the liquidity is sitting below equal highs. Market manipulation can be easily spotted here as they buy the market, and then sell it up immediately after.

The DOT pair also shows a clearer example of a fakeout that would have whiplashed novice traders, especially those who don't use good trade exit strategies.

It's a two-way move against novice retail traders as after taking a trade and getting stopped out in the other direction (for those who hold in hope of a favorable market turnaround), they tend to believe the fakeout is actually a breakout and take trades based on that belief. We see what these fakeouts would have had on such traders.

We can what the market movement in the above chart would have done to such traders

3 - How you can trade the Liquidity Levels the right way? Write the trade criteria for Liquidity Levels Trading (Clear Charts Needed)

We can trade liquidity levels the right way making use of some strategies such as the

• Break Retest Break strategy

• In the DOT pair below, we observe the trade criteria for the BRB strategy.
  
  _{chart image taken from tradingview}
  

Trade entry criteria for BRB strategy

Buy entry

• Market approached a resistance level which has been marked
• Price broke through the resistance level and made a swing high
• There was a resistance level retest before upward continuation
• Order placed just above the break of swing high.

_{chart image taken from tradingview}

Trade exit criteria

• A stop loss would be set just below the resistance level area price broke
• If price triggers this stop it means trade has been invalidated and would be exited
• Take profit would be set in a ration 1:1 to stop loss
• profits would be booked and trade exited upon successful trade

*

Market Structure Break strategy

In the ETH pair below, we observe the trade criteria for the MSB strategy below

_{chart image taken from tradingview}

Trade entry criteria for MSB strategy

Sell entry

• Market was in an uptrend, I'm making use of the 4 hour chart pair
• Price made a lower high after a serie of higher highs
• Neckline of the market structure was marked
• Neckline got broken by a long bearish candle and closed above it.
• Sell trade would be taken just below the market break.

_{chart image taken from tradingview}

Trade exit criteria

A stop-loss would be set above the lower high point

• if price triggers the stop loss then trade setup is invalidated and would be exited
• Take profit would be set in a 1:1 risk-reward ratio
• If trade is profitable, profits would be booked and trade closed as in the case of this setup.

4 - Draw Liquidity levels trade setups on 4 Crypto Assets (Clear Charts Needed)

Below I'll be putting some liquidity level trading setups with respect to the trading strategies highlighted by the crypto professor @cryptokraze.

Trade setups using MSB strategy

_{Liquidity level trade setup of ADA/USDT pair, 4 hour timeframe
chart image taken from tradingview}

_{Liquidity level trade setup of ETH/USDT pair , 4 hour timeframe
chart image taken from tradingview}

Trade setups using BRB strategy

_{Liquidity level trade setup of BNB/USDT pair, 4 hour timeframe
chart image taken from tradingview}

_{Liquidity level trade setup of ZIL/USDT pair, 4 hour timeframe
chart image taken from tradingview}

Conclusion

Concerning the questions assigned by crypto professor @cryptokraze and in accordance with the respective rules highlighted. I've done my research and tried to tackle the advanced course. I was able to learn new things through the course of this task. I'd leave the assessment to the professors.
Thanks to the steemit team for this wonderful learning opportunity once again. It's been nice so far, I'm forever grateful.
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