NexusFi: Find Your Edge


Home Menu

 





Studying the Reasons for Price Reversal around Liquidity Pools


Discussion in Traders Hideout

Updated
      Top Posters
    1. looks_one ab456 with 10 posts (4 thanks)
    2. looks_two Big Mike with 3 posts (3 thanks)
    3. looks_3 Fadi with 3 posts (9 thanks)
    4. looks_4 josh with 2 posts (11 thanks)
      Best Posters
    1. looks_one josh with 5.5 thanks per post
    2. looks_two Fadi with 3 thanks per post
    3. looks_3 Big Mike with 1 thanks per post
    4. looks_4 ab456 with 0.4 thanks per post
    1. trending_up 12,041 views
    2. thumb_up 29 thanks given
    3. group 6 followers
    1. forum 20 posts
    2. attach_file 2 attachments




 
Search this Thread

Studying the Reasons for Price Reversal around Liquidity Pools

  #1 (permalink)
 ab456 
New Delhi, India
 
Experience: Intermediate
Platform: SierraChart NinjaTrader,
Trading: ES,Stocks, Futures
Posts: 170 since Sep 2011
Thanks Given: 734
Thanks Received: 111

An Indian trader who has a very nice blog has raised this question on his blog. Since I find this very interesting, so I thought about sharing it here "with his permission" .


Quoting 


Look at the above picture. You might have seen this pattern many times.

Market is in a bull trend. It pull backs and makes a low at point A. Afterwards it goes up and later returns to the same price level and print a beautiful pin bar.

As a trader what will be your action in this area?

Some possibilities are
1.You will keep a stop loss order just below point A if you are holding long position
2.You will sell just below point A expecting a breakout to the down side
3.You will go long above the pin bar with a stop loss below the candle

Will you buy at the circled area? Who bought there? Who absorbed both stop loss selling and breakout selling? Why?

I have read tons of materials on trading. So far I have not seen any authors, bloggers or traders recommending to buy at the circled area.Then who bought here ?

Please share your opinion .


His second post on this -


Quoting 
Usual answer is that "Smart money is buying " But Why ?
So far I have not seen any system or traders recommending to buy at the marked area. But somebody is buying . Who ? What is their game plan ?

Of course you can draw many MA, EMA, Fibs, Trend lines. Gann lines, some wave counts etc and put the blame on them. But that is only an excuse.

Liquidity Pools -

Quoting 
Now think about the above situation. Everybody knows a lot of sell orders exists below the previous support. There exists a "Liquidity Pool" .Where else can Big Money hide their buy orders ? Most of the retailers will end up providing liquidity to Big Money.

Market is a living organism. First priority of the Market is to ensure its own survival. Once the orders dry up it will move towards a "Liquidity Pool" where a lot of orders exist.Market will shake out many traders and will create order flow on its own.

Always pay attention to "Liquidity Pools". You will get a lot of trading opportunities around these areas.

PS :
Edit: I have changed the title of the thread as suggested by Mike. And have added the point about Liquidity Pools.

Started this thread Reply With Quote
Thanked by:

Can you help answer these questions
from other members on NexusFi?
Futures True Range Report
The Elite Circle
Exit Strategy
NinjaTrader
New Micros: Ultra 10-Year & Ultra T-Bond -- Live Now
Treasury Notes and Bonds
ZombieSqueeze
Platforms and Indicators
NexusFi Journal Challenge - April 2024
Feedback and Announcements
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
61 thanks
Funded Trader platforms
39 thanks
NexusFi site changelog and issues/problem reporting
26 thanks
GFIs1 1 DAX trade per day journal
18 thanks
The Program
18 thanks
  #3 (permalink)
 
vvhg's Avatar
 vvhg 
Northern Germany
 
Experience: Intermediate
Platform: NT
Trading: FDAX, CL
Posts: 1,583 since Mar 2011
Thanks Given: 1,016
Thanks Received: 2,824


Have a look at Wyckoff. Looks like a spring...
Also it could be classified simply as a failed breakout, you see it quite often in ranges.

vvhg

Hic Rhodos, hic salta.
Reply With Quote
Thanked by:
  #4 (permalink)
 
Fadi's Avatar
 Fadi 
Luxembourg
 
Experience: Advanced
Platform: NinjaTrader
Broker: IB / Kinetick
Trading: ES, CL
Posts: 485 since Apr 2012
Thanks Given: 667
Thanks Received: 648

I always buy at the tail, this is one of the core techniques I use day and night...
for me, this qualifies as a double bottom, plus bottoming tail on heavy volume.
More aggressively, I buy on the candle following the bottoming tail, after a retrace to at least 50% of the tail size.
If my strategy fails, and it does 20% to 30% of the times, then my stop is a mental stop, if the following bar closes below the tail's bottom.

Successful people will do what unsuccessful people won't or can't do!
Follow me on Twitter Reply With Quote
Thanked by:
  #5 (permalink)
 ab456 
New Delhi, India
 
Experience: Intermediate
Platform: SierraChart NinjaTrader,
Trading: ES,Stocks, Futures
Posts: 170 since Sep 2011
Thanks Given: 734
Thanks Received: 111

Thanks for your replies

Posting here the original 1 min chart of this occurrence -


Started this thread Reply With Quote
  #6 (permalink)
 
josh's Avatar
 josh 
Georgia, US
Legendary Market Wizard
 
Experience: None
Platform: SC
Broker: Denali+Rithmic
Trading: ES, NQ, YM
Posts: 6,216 since Jan 2011
Thanks Given: 6,752
Thanks Received: 18,136

The event allows traders to buy at a discounted price. They buy from the risk transfer of weak hands closing their long positions. The irony of course is that they initiate or add to the selling to create the unwinding, which they are then buying from. They manipulate the market in order to profit. It is not illegal, but it is the reality. They also are buying from new initiating shorts who are selling a break below prior support. This is a game that is played every day, and it is done because it works. It is a game that can only be (relatively) guaranteed to be won by those playing with very large sums of money, because they have actual market impact. However, once their activity is seen, then piggybackers can more safely join in and benefit. This is how the market works, and it is the classical transfer of funds from one group to another. If you think in terms of traditional chart patterns, it is what happens on the last leg down of a 'bull flat' just before it breaks up. Failed break down, trap some, then cause them to drive it up with their stops. Wash, rinse, repeat. This is not theory or speculation, it is what happens.

Reply With Quote
  #7 (permalink)
 ab456 
New Delhi, India
 
Experience: Intermediate
Platform: SierraChart NinjaTrader,
Trading: ES,Stocks, Futures
Posts: 170 since Sep 2011
Thanks Given: 734
Thanks Received: 111


josh View Post
The event allows traders to buy at a discounted price. They buy from the risk transfer of weak hands closing their long positions. The irony of course is that they initiate or add to the selling to create the unwinding, which they are then buying from. They manipulate the market in order to profit. It is not illegal, but it is the reality. They also are buying from new initiating shorts who are selling a break below prior support. This is a game that is played every day, and it is done because it works. It is a game that can only be (relatively) guaranteed to be won by those playing with very large sums of money, because they have actual market impact. However, once their activity is seen, then piggybackers can more safely join in and benefit. This is how the market works, and it is the classical transfer of funds from one group to another. If you think in terms of traditional chart patterns, it is what happens on the last leg down of a 'bull flat' just before it breaks up. Failed break down, trap some, then cause them to drive it up with their stops. Wash, rinse, repeat. This is not theory or speculation, it is what happens.

Thanks to you all, for sharing your opinions .

josh, if we look deeper into these 2-3 bars which are below that blue horizontal line , with higher volume -
What kind of action do you think, will be visible in Cumulative Delta or other delta type indicators / analysis ?
Can we get some clues from there, to gauge about the probabilities of price turning up from there, so that we can then take a benefit from this anticipation. " I am in no way saying that there would be an ABSOLUTE GUARANTEE that the price will definitely turn up from there, I am simply talking in the terms of measuring the probabilities somehow.

Let us assume that this "classical transfer of funds from one group to another" happened in 3 red bars which are just below that blue horizontal line. While most others were selling, "This Smart Group" was on the buying side. Now how would this thing reflect in the Delta or any other tools. Is there some way to properly quantify it, so that we can then create some Alerts etc. which will hint us about a similar opportunity being created in real time.

Any ideas are most welcome.

Thanks

Started this thread Reply With Quote
  #8 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,396 since Jun 2009
Thanks Given: 33,172
Thanks Received: 101,536

"Food for thought" - no one will ever find this thread again because of the way it is labeled has nothing to do with accurately describing the thread contents.

Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
Thanked by:
  #9 (permalink)
 ab456 
New Delhi, India
 
Experience: Intermediate
Platform: SierraChart NinjaTrader,
Trading: ES,Stocks, Futures
Posts: 170 since Sep 2011
Thanks Given: 734
Thanks Received: 111


Fadi View Post
I always buy at the tail, this is one of the core techniques I use day and night...
for me, this qualifies as a double bottom, plus bottoming tail on heavy volume.
More aggressively, I buy on the candle following the bottoming tail, after a retrace to at least 50% of the tail size.
If my strategy fails, and it does 20% to 30% of the times, then my stop is a mental stop, if the following bar closes below the tail's bottom.

Thanks Fadi, looks like a nice setup, the way you have explained it.
Do you take such trades just based on the Candle Formations alone or you pay attention to some other conditions / indicator values, as well.

And any comment regarding the frequency of such setups on your favorite instruments GC, CL, 6E, ZB.
Have you noticed this kind of phenomenon happening more often in one particular instrument, compared with others, or does it look like to be a common pattern in most of them ?

Thanks for your input.

Started this thread Reply With Quote
  #10 (permalink)
 ab456 
New Delhi, India
 
Experience: Intermediate
Platform: SierraChart NinjaTrader,
Trading: ES,Stocks, Futures
Posts: 170 since Sep 2011
Thanks Given: 734
Thanks Received: 111



Big Mike View Post
"Food for thought" - no one will ever find this thread again because of the way it is labeled has nothing to do with accurately describing the thread contents.

Mike

I am sorry Mike, and I agree with your statement. I just took the title as it is from the original post which was made by another trader "as I explained it in the first post." He labeled it originally as "Food for thought" in his blog post, and then later on added more details on this topic by the name of "Liquidity Pools".

I am posting the original links to both those posts now -

Nifty Nirvana: Food For Thought
Nifty Nirvana: Liquidity Pools -- my comments about this futures.io (formerly BMT) Thread are given at the very bottom of this blog page in the comments section. I told him that futures.io (formerly BMT) is the best place to post such discussions, as the other forums where he posted, failed to generate any good discussion on this topic.

Please feel free to RENAME it with an appropriate name, as the OP has asked me to post it with proper editing, so the title could be easily renamed.

I am sorry for any confusion created with that title.

Started this thread Reply With Quote




Last Updated on August 28, 2013


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts