ICT Liquidity Concepts

What is Liquidity in ICT?

In ICT methodology, liquidity refers to resting orders in the market — primarily stop losses and pending orders that sit above swing highs and below swing lows. The market-making algorithm's PRIMARY objective is to deliver price to these liquidity pools.

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Types of Liquidity

Buy-Side Liquidity (BSL)

Resting orders above swing highs:

• Stop losses from short sellers
• Buy stop orders from breakout traders
• Forms above equal highs, relative highs, and old highs
• When swept, provides sell-side counterparty for institutions entering shorts

Sell-Side Liquidity (SSL)

Resting orders below swing lows:

• Stop losses from long traders
• Sell stop orders from breakdown traders
• Forms below equal lows, relative lows, and old lows
• When swept, provides buy-side counterparty for institutions entering longs

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Liquidity Pools

Types of Liquidity Pools

1. Relative Equal Highs/Lows

• Multiple swing points at similar price levels
• Creates obvious "support/resistance" that retail traders use for stops
• Most targeted by the algorithm

2. Session Highs/Lows

• Asian session high/low
• London session high/low
• Previous day high/low (PDH/PDL)
• Previous week high/low (PWH/PWL)

3. Old Highs/Lows

• Swing highs/lows from days or weeks ago
• Larger liquidity pools = bigger institutional interest
• Weekly/Monthly highs and lows are major targets

4. Trendline Liquidity

• Stop losses placed along trendlines
• When trendline "breaks," it's sweeping this liquidity
• Classic retail trap setup

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How Institutions Use Liquidity

The Liquidity Cycle

1. Identify — Algorithm locates the nearest liquidity pool
2. Engineer — Price consolidates to build more resting orders
3. Sweep — Quick move to trigger stops and pending orders
4. Absorb — Institution fills their position against these triggered orders
5. Displace — True directional move begins

Real Example: EUR/USD

• Price forms 3 equal lows at 1.0850 (SSL builds up)
• Retail traders place buy stops above and sell stops below
• Price dips to 1.0845 — sweeps SSL
• Institutions absorb sell orders to build long positions
• Price displaces upward to 1.0950 targeting BSL

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Liquidity Sweep vs. Liquidity Grab

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Engineered Liquidity

Sometimes the market creates liquidity before sweeping it:

How It's Engineered

1. Price creates a tight range (consolidation)
2. Retail traders place stops above and below the range
3. Equal highs/lows form, attracting more orders
4. The algorithm waits until sufficient liquidity builds
5. Then sweeps one side → reverses to sweep the other side

The "Judas Swing" Connection

• London open often sweeps Asian range liquidity first (Judas Swing)
• This is engineered manipulation to collect liquidity
• After sweeping, the TRUE direction of the day begins

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Trading with Liquidity

Step-by-Step Process

1. Mark PDH/PDL, PWH/PWL on your chart
2. Identify equal highs/lows — these are the targets
3. Determine daily bias — which liquidity pool will be targeted?
4. Wait for sweep — price takes out the liquidity
5. Confirm reversal — MSS on LTF after the sweep
6. Enter — At OB/FVG after the sweep with stop beyond the extreme

Example: Gold Liquidity Sweep Trade

• PDH: 2,050 (BSL resting above)
• Daily Bias: Bearish (price in premium)
• Action: Price sweeps 2,052 (takes BSL)
• Confirmation: 5M MSS bearish after sweep
• Entry: Sell at 2,048 (bearish OB)
• Stop: 2,053 (above sweep)
• Target: SSL at 2,020
• R:R: 1:5.6
• BD Time: 7:45 PM (NY AM Kill Zone)

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Liquidity on Multiple Timeframes

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Common Mistakes

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Summary

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Related Topics

• Liquidity Sweep — Execution after sweeps
• AMD / Power of 3 — Accumulation-Manipulation-Distribution
• Judas Swing — The manipulation move
• ICT Kill Zones — When sweeps are most likely
• Daily Bias — Predicting which liquidity gets targeted