ICT Liquidity Sweep and Liquidity Run Strategy-TFlab

In ICT Liquidity Sweep , a liquidity sweep is a core concept in forex education, referring to a temporary price movement designed to attract stop orders or pending liquidity near key market levels before a reversal takes place.

1. Price often targets sell-side liquidity by dipping below previous lows in a bullish market.
2. It may also target buy-side liquidity by breaking above previous highs in a bearish market.
3. These movements are not sustained and typically result in quick reversals back into the prevailing market structure.

Key Characteristics of a Liquidity Sweep:

1. False breakouts near equal highs/lows.
2. Short-term volatility spikes before the actual trend resumes or reverses.
3. Liquidity collection zones often lead to institutional order placements.

How to Identify Liquidity Sweeps
To predict and effectively trade liquidity sweeps, consider the following indicators:

1. Key Market Levels: Watch for areas of equal highs and equal lows where stop orders accumulate.
2. Stop Order Clustering: Markets tend to reach toward zones filled with buy/sell stop orders.
3. Deceptive Price Action: Rapid rejections from key levels signal potential sweep setups.
4. Volume Surges: Spikes in volume near support/resistance may suggest liquidity is being absorbed.
5. Candlestick Reversals: Patterns like pin bars or engulfing candles reinforce reversal probability.
6. Failed Breakouts: Price may break significant levels but fail to close beyond them, indicating a sweep.
7. Market Session Timing: Liquidity sweeps often occur during London and New York opens when volume is highest.

Trading Buy Setups in Liquidity Sweeps
When in a bullish trend:

1. Formation of equal lows creates a liquidity pool below.
2. A false break below these lows followed by a sharp reversal can signal a long opportunity.
3. These setups reflect accumulation zones used by smart money for entering long positions.

Trading Sell Setups in Liquidity Sweeps
In a bearish structure:

1. Equal highs attract liquidity above.
2. A liquidity sweep above this zone followed by a quick drop confirms a short position setup.
3. This reflects distribution by institutional players before continuing the downtrend.

What Is a Liquidity Run?
A liquidity run occurs when the market moves in the direction of the existing trend, targets liquidity, and continues past the previous high or low. Unlike sweeps, liquidity runs do not reverse but instead confirm the trend by breaking structure.
Features of a Liquidity Run:

1. Continuation of bullish or bearish structure.
2. Movement through previous highs or lows, followed by trend acceleration.
3. Often marks Break of Structure (BOS) confirming institutional interest in continuing the trend.

Trading Buy Setups in Liquidity Runs
In a bullish market:

1. Equal highs act as a liquidity target.
2. The price reaches and breaks these highs.
3. After absorbing liquidity, it continues upward, forming a new high.
4. Ideal for trend continuation long trades.

Trading Sell Setups in Liquidity Runs
In a bearish trend:

1. Equal lows below act as stop order zones.
2. Price breaks below, absorbs liquidity, and continues lower.
3. Sets up short trade opportunities with confirmation of trend momentum.

Differences Between Liquidity Sweep and Liquidity Run
While both strategies involve liquidity targeting, their behavior and trading application differ:
Liquidity Sweep

1. Designed to trap liquidity and reverse.
2. Common around key reversal zones.
3. Signals a potential change in short-term market direction.
4. Best suited for counter-trend setups.

Liquidity Run

1. Occurs in trend continuation scenarios.
2. Market breaks previous key levels and keeps moving in the same direction.
3. Confirms institutional momentum.
4. Ideal for trend-following strategies.

Conclusion
Understanding and applying the ICT Liquidity Sweep and Liquidity Run strategies are essential for mastering smart money concepts in forex and other financial markets. These patterns reveal the true intentions of institutional traders and allow retail traders to:

1. Identify precise entry and exit points.
2. Distinguish between false breakouts and valid break-of-structure moves.
3. Trade with the flow of liquidity rather than against it.

By incorporating both strategies into your trading plan, you enhance your ability to read market behavior, anticipate movements, and improve overall trade execution.