Price Action Indicator [SignalCave]
Liquidity in the financial markets is a critical concept for traders to understand. In simple terms, liquidity refers to the ability to buy or sell a financial asset quickly and at a fair price. However, there are different types of liquidity, and each plays a unique role in the markets.
Buy and Sell Side Liquidity
Two types of liquidity are buy-side and sell-side. Buy-side liquidity represents a level on the chart where short sellers will have their stops positioned, while sell-side liquidity represents a level on the chart where long-biased traders will place their stops. In both cases, these levels are often found at or near extremes, such as the tops and bottoms of ranges, where traders are ‘proven wrong,’ and therefore will want to get out of their trades.
Understanding buy and sell-side liquidity is critical because these levels often become the targets for ‘smart money’ players in the markets. These players understand the nature of this concept and commonly will accumulate or distribute positions near levels where many stops reside. It is the sheer amount of stops at key levels that allow a larger player to fully realize their position. Once the level at which many stops are placed has been traded through, it’s often that the price will reverse course and head in the opposite direction, seeking liquidity at the opposite extreme.
In other words, buy and sell-side liquidity levels can act as key turning points in the markets, and traders who can identify these levels may be able to profit from the resulting price movements. By analyzing price charts and other market data, traders can attempt to identify key buy and sell-side liquidity levels and use this information to make informed trading decisions.
What is “Premium and Discount” ?
Premium and discount are terms used in trading to refer to buying a product or asset either at a price higher (premium) or lower (discount) than its fair value. These concepts can be applied to anything that is sold in a free market, including securities like stocks, forex and crypto.
Although premium and discount can be useful tools in trading, traders should not rely solely on them. They are most effective in mid-high timeframe ranges that have developed on a chart in the form of consolidation. In addition, traders should not use premium and discount in isolation, but rather as a confluence with other factors like supply and demand zones and market liquidity.
When using premium and discount to pick entry levels, traders should look for zones that are further in premium in a bearish market or further in discount in a bullish market. These zones should also have a larger overall profit potential, reduce the chances of being swept out as liquidity, and keep traders from trading the middle of a range or consolidation. By using premium and discount as a soft confluence with other factors, traders can effectively make informed trading decisions.
Price Action [SignalCave] Indicator is now Available on TradingView
It offers some Price Action concepts like in the below list.
- Buy Side and Sell Side Liquidity Levels
- Premium, Discount, Equilibrium Zones and Extra Support and Resistance Levels
- Momentum based Bar Coloring
- Volume Profile
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