Liquidity: The Heartbeat of Trading
Price moves for only two reasons: To reach an imbalance (FVG) or to sweep liquidity. Institutions cannot enter the market without enough "opposite" orders to fill their size. Liquidity is simply a collection of Stop Loss orders from retail traders.
1. Buy-Side Liquidity (BSL)
This is where buy-stop orders are sitting. BSL is found above old highs, equal highs (double tops), and trendline resistance. When price sweeps these levels, institutions are "selling" into the buy-stops of the retail shorts to fill their massive sell positions.
2. Sell-Side Liquidity (SSL)
This is where sell-stop orders are sitting. SSL is found below old lows, equal lows (double bottoms), and trendline support. When price sweeps these levels, institutions are "buying" into the sell-stops of the retail longs.
The Inducement (IDM) Trap
Inducement is a "fake" Point of Interest (POI) or a small internal high/low that looks like a valid setup but is actually engineered by institutions to trick traders into entering too early. Price will sweep this Inducement to 'engineer' fuel before tapping the real Order Block sitting behind it.
Inducement Logic
Always ask yourself: "Is my Order Block the liquidity, or is there liquidity in front of it?". The highest probability OBs always have a Liquidity Sweep (Inducement) right before they are tapped.
The Sweep
Price drops below the previous low (SSL), triggers all sell-stops (fuel), and then reverses violently into the major expansion phase.
Engineering Liquidity
Often, institutions will intentionally create "Equal Highs" or "Equal Lows" to build up a large pool of stop-loss orders. They are "Engineering" the fuel they need for their future move.
