Discussing the article: "From Novice to Expert: Creating a Liquidity Zone Indicator"
I suggest to study how orders are matched, then you will realize all these "liquidity zones", "liquidity grabs", "liquidity building" are pure imagination.
Liquidity is provided by limit orders. Market orders consume this liquidity.
I suggest you study how order matching is done, and then you will realise that all these"liquidity zones"," liquidity capture", " liquiditycreation" are pure fantasy.
Liquidity is provided by limit orders. Market orders consume this liquidity.
It follows from this that the concept of "liquidity zone" is quite real and not a fantasy at all. Accordingly, when a large market participant has a task to buy or sell a lot and not to move the price much, he will make his deals not anywhere, but in these very zones - that's liquidity capture for you.
Creating liquidity is not a fantasy either. For this purpose, an unambiguous picture (signal) is drawn on the chart, which provokes certain expectations of the mass of market participants. This burst of interest in the form of transactions is the creation of liquidity, because in the absence of such a signal there will be no such mass reaction elsewhere. Whether this happens naturally or as a result of someone's manipulations can be debated, it is a separate issue. But it is a real, absolutely usual and frequent phenomenon.
It follows from this that the concept of "liquidity zone" is quite real and not a fantasy at all. Accordingly, when a large market participant has a task to buy or sell a lot and not to move the price much, he will make his deals not anywhere, but in these very zones - that's liquidity capture for you.
Incorrect. If they have a big order, they just have to put a limit order, and wait till the order is filled, as a result there is no movement of price against the large order.
Again, study the types of orders, their function for the market, and how orders are matched.
Wrong. If they have a large order, all they have to do is place a limit order and wait for it to execute, resulting in no price movement against the large order.
Again, study order types, their function to the market and how orders are matched.
Is there a difference - to buy conditional 1000 contracts in the range of 5 points or with a huge slippage in the range of 50 points? Of course there is, in the second case you buy more expensive and less profitable. Any fool will buy this way, it is not professional. That is why a large market participant has to think in which place there are the right conditions for opening a large deal, and in which place there are not.
Types of orders and their reconciliation is the basics, thank you, but everything is a bit more complicated.
If price doesn't come in on that limit order, then the trade won't happen, right? But if a trade is necessary, you will have to open with a market order to make sure it happens. You can do it anywhere, but the result will be very different depending on the place.
Is there a difference - to buy conditional 1000 contracts in the range of 5 points or with a huge slippage in the range of 50 points? Of course there is, in the second case you buy more expensive and less profitable. Any fool will buy this way, it is not professional. That is why a large market participant has to think in which place there are the right conditions for opening a large deal, and in which place there are not.
Types of orders and their reconciliation is the basics, thank you, but everything is a bit more complicated.
The flaw is that you constructed a false dilemma. You asume the market order scenario as if it's an unavoidable reality for large participants, and the slippage consequences of that market order to justify the concept of liquidity zones. This is circular, you only arrived at needing a "good place" to execute because you first assumed you're using a market order.
The answer to your own hypothetical question is simply: Don't use a market order. If the trade is "necessary," you still post a limit at your required price and wait. If it doesn't fill, either you adjust your price or the trade doesn't happen. There is no scenario where a professional institution says "we must trade right now at any price" and then solves that by looking for a chart zone with clustered stops. Large participants do not trade on (high) leverage, they are never in a hurry.
You essentially created a problem — market order (consumes liquidity) slippage — that the limit order (provides liquidity) already solves, and use that invented problem to validate liquidity zone theory.
Considering the use of a limit order, ie providing liquidity to the market, there is no reason to "hunt" or "grab" liquidity, they in fact provide it themselves, waiting for those in a hurry to fill ther order. It is that simple, no need to over complicate anything.
The flaw is that you have created a false dilemma. You are assuming a market order scenario as if it were an inevitable reality for large participants, and the consequences of slippage of that market order to justify the concept of liquidity zones. This is circularity, you have arrived at the need for a "good place" to execute just because you first assumed you were using a market order.
The answer to your own hypothetical question is simple:Don't use a market order. If the trade is "necessary", you still place a limit at the price you want and wait. If it doesn't execute, you either adjust your price or the trade doesn't happen. There is no scenario where a professional organisation says, "We have to trade right now at any price" and then solves the problem by looking for an area on the chart with clustered stops. Large participants don't trade with (high) leverage, they never rush.
In effect, you have created a problem - slippage of a market order (which consumes liquidity) - which is already solved by a limit order (which provides liquidity), and you are using this invented problem to validate the liquidity zone theory.Suppose you don't use market orders at all, but trade only limit orders. One day you will find yourself in a situation where you have to pull up your limit order to follow the escaping price and buy higher and higher. The result is the same: you bought in the range of 50 points at an unfavourable average price.
And in life anything happens, and urgent need for any reason is among the factors that force you to act right now, rather than wait for the weather. A more nimble competitor will snatch the necessary liquidity from under your nose, and the market will go on without you - you can't afford it if you are sure that the price will rise.
In fact, everyone is facing the same choice: to buy a little less favourable today, or to wait for a better price, but then there is a risk that tomorrow you will have to buy more expensive.
That is why it is important to know in which place there will be a surge of liquidity in order to make a deal in the necessary large volume, and not to act at random and blindly. The price space is not homogeneous, it is a rough terrain with different density of the "surface under your feet" in different places.
That is why it is important to know in which place there will be a surge of liquidity in order to make a deal in the necessary large volume, and not to act at random and blindly. The price space is not homogeneous, it is a rough terrain with different density of the "surface under your feet" in different places.
How do you know? What is the actual mechanism by which a large participant identifies where the next liquidity surge will occur?
Chart patterns are a derivative, lagging representation of what already happened in the order book. The actual information about where resting liquidity sits right now exists in Level 2 data, the actual order book, time and sales, not in candle formations.
Institutions dealing in large sizes have direct access to that real microstructure data. They have prime broker relationships, they see actual flow, they use algorithmic execution systems built on real order book analysis. The chart is a cartoon version of that information, and a delayed one at that.
So we are back at square one. Imagionary levels on some chart the real money does not pay attention to at all.
How do you know? What is the actual mechanism by which a major participant determines where the next liquidity surge will occur?
Charts are a derivative, lagged representation of what has already happened in the order book. The actual information about where the liquidity is now is contained in Level 2 data - the actual order book, time and sales - not in candlestick formations.
High volume institutions have direct access to this real microstructure data. They have relationships with prime brokers, see real flows, and use algorithmic execution systems built on analyses of the actual order book. The chart is a cartoon version of that information, and with a delay.
Thus, we are back to square one. Imaginary levels on some chart that real money doesn't pay attention to at all.
The chart is a story, yes, but:
1) there are still positions there that will react as price moves to or from them
2) the chart itself serves as a signal for further action, and it does this not in the past, but right now market participants are looking at the price chart and making decisions
Further, you yourself now say that liquidity is somewhere. So it's still an area because there's not enough liquidity elsewhere, right? And this is valuable information that ordinary people who sit at home with laptops and retail trading terminals don't have access to. The more knowledgeable market participants are after the money of the less knowledgeable. This is exactly hunting, because the market does not create money, but only distributes it from one to another.
Now we are really back to square one, when you yourself assert the thesis you were originally arguing.
Want to learn more about creating liquidity? Read about Livermore, who 100 years ago was hyping up stocks to then sell them on the resulting hype. That's what liquidity creation is all about: provoking masses of participants to buy where they should sell and vice versa. Nothing has changed since then. To sell something, you need someone to buy it from you, and to get him to do it at the price you want, you need to convince him that he is making a good deal.
Unless your name is G.P. Morgan and you have access to the non-public information you described, all you have to do is analyse the chart and make a logical assumption about what lies behind it.
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Check out the new article: From Novice to Expert: Creating a Liquidity Zone Indicator.
The extent of liquidity zones and the magnitude of the breakout range are key variables that substantially affect the probability of a retest occurring. In this discussion, we outline the complete process for developing an indicator that incorporates these ratios.
Liquidity zones represent periods of market consolidation—distinct ranges where price oscillates between two well-defined levels over time. For clarity, let’s use Price A and Price B as conceptual reference points for the boundaries of the base rather than fixed or absolute price levels. In a typical bullish setup, Price A represents the low of the base while Price B marks the high of the base; price fluctuates between these two levels during the consolidation phase. In bearish scenarios, this structure is simply mirrored (with Price A as the high and Price Bas the low of the base). Although the market appears balanced during these pauses, institutional participants are actively accumulating or distributing positions, with liquidity deliberately building around the range extremes.
Eventually, price exits this equilibrium through an impulsive breakout. In bullish conditions, this breakout occurs above Price B(the high of the base), while in bearish conditions it occurs below Price A (the low of the base). The breakout establishes a new reference level, which we denote as Price C—the high formed by the impulsive rally in bullish cases, or the low formed by the impulsive sell-off in bearish cases. These moves are rarely accidental; they are typically driven by the absorption of resting liquidity, including stop-loss orders positioned beyond the range, breakout orders from retail participants, and trapped positions on the wrong side of consolidation.
In high-probability environments—whether continuation scenarios following a liquidity sweep or reversal scenarios after deeper manipulation—price does not simply extend indefinitely from the breakout. Instead, it frequently revisits the original liquidity zone defined by the A–B range. This behavior reflects core market mechanics: the impulsive move creates displacement and inefficiency, liquidity is harvested on one side of the range, and price retraces to rebalance the market, mitigate inefficiencies, or attract additional liquidity for the next directional phase. In the illustration below (Fig. 1), the concept is presented graphically.
Author: Clemence Benjamin