Buyside/Sellside Liquidity is an indicator that identifies buy-side and sell-side liquidity in real-time. Buy-side liquidity represents a level on the chart where short sellers will have their stops positioned. Sell-side liquidity represents a level on the chart where long-buyers will place their stops. These levels are found in areas where traders are “proven wrong” and, therefore, want to get out of their trades. Smart money will accumulate or distribute positions near these levels where many stops are placed and absorb all provided liquidity.
What is Buy-side and Sell-side liquidity?
Liquidity is the ability of a market to absorb large orders without significantly affecting the asset’s price. Buy-side liquidity refers to the ability of buyers to buy large amounts of contracts without significantly affecting the price. Sell-side liquidity refers to the ability of sellers to sell large amounts of contracts without significantly affecting the price. This type of liquidity is important for large institutional investors, such as hedge funds and investment banks, who need to buy/sell large amounts of contracts without significantly affecting the price.
How to use
The price will always seek liquidity to either reverse or continue in the current move.
- Reversals are common around these levels since many traders are forced to close their positions, pushing the price in the other direction. Look for price actions that confirm a reversal around those levels.
- Liquidity is also a must for a trend to continue. If the price pushes through the liquidity levels and the current order flow structure is intact, traders should look for a continuation setup.
- Inducement is the act where smart money manipulates the price to access liquidity. Buy-side and Sell-side liquidity levels can be used to identify potential areas of inducement.
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