LIQUIDITY IN THE

FOREX MARKET “Once you start, there is

no going back”

A COMPREHENSIVE GUIDE INTO UNDERSTANDING THE MOVEMENT BEHIND

PRICES

Written by: RIOFX99

SHAABAN M.
Copyright © 2022 by Mohamed Shaban AKA Rio99

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form
or by any means, including photocopying, recording, or other electronic or mechanical methods, without
the prior written permission of the publisher, except in the case of brief quotations embodied in critical
reviews and certain other noncommercial uses permitted by copyright law.

This book is intended solely for educational purposes and does not constitute professional advice or
services. The author has made every effort to ensure the accuracy and completeness of the information
contained in this book, but assume no responsibility for errors, inaccuracies, or omissions.

For information about permission to reproduce selections from this book, please contact

EMAIL: Mohamedrio90@gmail.com

Phone number: +254111242322

Whatsapp: +254111242322

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Table of Contents
How does Liquidity come into exist in the market? .............................................................................. 5
BUYSIDE LIQUIDITY ................................................................................................................... 6
SELL SIDE LIQUIDITY ................................................................................................................. 7
WHERE IS LIQUIDITY ................................................................................................................. 8
LIQUIDITY POOLS ..................................................................................................................... 11
EXTERNAL RANGE LIQUIDITY AND INTERNAL RANGE LIQUIDITY ............................... 16

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 PREFACE.
I would like to begin this book by expressing my deepest gratitude to those who
have guided me on my journey through the Forex industry. Firstly, I would like to
thank Kennedy Ngeno for his invaluable mentorship and support. His knowledge
and expertise in this field have been instrumental in my success, and I am truly
grateful for his guidance.

I would also like to extend my heartfelt thanks to Michael J. Huddleston, known as

'The ghost in the Machine,' for teaching me how to navigate through price. His
teachings have enabled me to develop a better understanding of the Forex market,
and I am truly indebted to him.

To my parents, my Father and late Mother (may her soul rest in eternal peace) who
have always been my pillars of strength and support, I owe a debt of gratitude. The
unwavering love and encouragement from my Father have been a constant source
of inspiration to me.

Finally, I want to express my gratitude to God for the countless blessings He has
bestowed upon me. His grace and mercy have sustained me through all the ups and
downs of life, and I am forever grateful for His love.

This book would not have been possible without the support of these amazing
individuals, and for that, I will always be thankful. I hope that this book will be of
great value to anyone who is looking to navigate the Forex industry, and I pray that
it will be a source of inspiration to all who read it.

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 UNDERSTANDING LIQUIDITY

What is Liquidity?

Liquidity refers to the amount of money an individual or corporation has on

hand and the ability to quickly convert assets into cash.

In the Forex Market, Liquidity means:

 A high volume of activity at specific established levels in the Market

 Cash (Yes, that’s right, Liquidity is money!) you didn’t expect that 

So why should you bother to understand liquidity?

- In Foreign Exchange Market, liquidity acts as the fuel that drives price, just like
how cars need fuel or electricity (Talk of Tesla hmm…)

-Understanding Liquidity will allow you to see the next most probable
destination price will be heading for or drawing to.

In a nutshell:

From a technical standpoint, the movement of price in the financial market is

always based on two factors

==Thedraw on Liquidity
==Rebalancing aspect of price [Not discussed in this book, will be discussed in
future writings] ;)

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HOW IS LIQUIDITY BROUGHT INTO EXISTANCE
IN THE MARKET?

-Liquidity is as a result of retail activity at key specific levels of price. This ‘retail
activity’ is normally in form of buy stops and sell stops which is present at peak or
extreme formations of price.
(Wait, what!?) Yep that’s right!! ;)

-Peak or Extreme formations of price refers to the old lows and old highs of past
price action. These are, The Monthly highs and lows, Weekly highs and lows,
Daily highs and lows, Session highs and lows Old swing highs and Old swing
lows.

Most importantly it’s the obvious places where retail traders will put their stops
orders, or stop losses upon buying and or selling an asset

When you are buying or going long in the market, the stop loss
below your entry is seen as a sell stop by the Market Maker, and
when you are selling or going short in the market, the stop loss
above your entry is seen as buy stop by the Market Maker

When Market Maker wants to sell/move price lower, they seek folks that are
willing to buy at higher prices. When Market maker wants to buy/move price
higher, they seek folks that are willing sell at lower prices.

Therefore, Market maker buys below old lows and sells above old highs.
Confused? Don’t worry; check out the price action below!!

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BUYSIDE LIQUIDITY

Old equal old Notice how market trades

highs/Double tops above old highs then reverses

Have you ever entered a short

position and put your stop loss
above the resistance line then
Relative Old equal price comes back hits your stop
lows/double bottoms
loss then goes into your direction?
This is exactly what happens 

This price action shows how

the Market Maker sells above
old highs while the Retail
traders buys above old highs
because of the false idea of
price breaking a resistance
line, one buy. You were once
a breakout trader

So why does price go above an old high then reverses or reverts? To collect
liquidity in the form of buy stops/limits and sell stops, which are basically buy
stops ;)
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[liquidity is money, and each time your stop loss is hit, “they” make a profit]

Tip! Don’t forget, price will always seek liquidity/money because the Market
makers are in this business to make money out of you .They are the most difficult
people on the planet.

SELL SIDE LIQUIDITY

Let’s look at a bullish example, shall we?!

Notice the word ‘Relative Equal old

lows’. Yes, price action will not always
produce equal lows; sometimes it
prints lows that are relative!!
Price is dynamic, so should you!

Old relative equal lows

Notice price trades below

relative old equal lows then
trades higher Have you ever entered a long
position and put your stop loss
below the support line then price
comes back hits your stop loss
then goes into your direction? This
is exactly what happens 

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 This price action shows how the
Market Maker buys below old
low while Retail traders sell
below old lows because price of
the false idea of price breaking
a support line, one should sell!!

You were once a breakout

trader

In a nutshell:

Market maker Sells above old swing highs and buys below old swing
lows

How can you use this? Simple, just do what the Market Maker does, sell above
old swing highs and buy below old swing lows :) Price has an 85% chance of
reversing/reverting after drawing to an old swing high or low

WHERE IS LIQUIDITY

-A large volume of liquidity [there’s absolutely no indicator that shows you where
there is liquidity, you have to spot it] is always found on peak formations of price
on High Time frames. Monthly, Weekly, Daily, H4, H1 Therefore, the more a

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support or resistance has been holding price, the more liquidity or retail activity is
valid in those areas.

This doesn’t limit the liquidity found on lower time frames 45M and below. Lower
time frames normally provide what’s called Internal/external range
liquidity/Short term highs and lows which makes the overall trend on a higher
time frame

Lower timeframes print out short term highs and lows which constitutes to
liquidity pools. [Sounds fancy, doesn’t it ;) well it’s about to get fancier.]

-During a downtrend Price creates short term highs in the name of pullbacks.
These pullbacks create short term highs/internal liquidity pools.

This candle stick shows price action of

GBPUSD on H4

This price action is the GBPUSD

delineated into 5m chart; notice
the black lines showing the short
term lows and highs

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 Let’s look at a bullish scenario.

This candle stick shows price action

of GBPJPY on a Daily chart

This price action is the GBPJPY

delineated into 15m chart; notice
the black lines showing the short
term lows

-During an uptrend Price creates short term lows in the name of pullbacks. These
pullbacks or short term lows print internal liquidity pools.

-Internal Range liquidity is more common, clearly and easy to spot on lower time frames
[not limited to lower time frames alone, as large price expansion/swings on higher time

frames create internal range liquidity as well based on the market structure] and these
are the short term lows and highs depending with the kind of Market structure,
Downtrend or Uptrend. This is the basis of liquidity pools.

What are Liquidity pools? (Told ya it’s gonna get fancier)

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LIQUIDITY POOLS

Liquidity pools are established levels in the Market where stops and orders would
be resting.

-Liquidity pools therefore are swing highs and lows [not limited to internal
ranges], Session Highs and lows, Equal highs and lows/relative highs and lows

We have buy side liquidity pools and sell side liquidity pools in the Market.

Buy side liquidity pools are areas where buy stops and buy orders are resting,
above old highs, swing highs, session high, Equal highs/relative equal highs

The Price fractal above shows Dollar Index on a 4H Time Frame. Notice
how price trades above the old highs, grabs liquidity then trades away on
the downside

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 Tip:

Only sell when price grabs buy side liquidity as price has a high probability of going the
opposite direction.

This price fractal above is the Dollar index on a 15min timeframe.

Notice how the buy side liquidity pool of London session high is
ravaged then price trades below to take out buy stop orders then rallies

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Tip:

Only sell when price grabs buy side liquidity as price has a high
probability of going the opposite direction
If you are a buyer, the most recent swing high from the current price should be your target!

Sell side liquidity pools are areas where sell stops and sell orders are resting,
below old highs, swing lows, session lows and Equal lows/relative equal lows.

The Fractal above shows XAGUSD [silver] on the 1D time frame. Notice how
price trade below the old relative lows then trades away to the upside after a
liquidity grab on the sell side

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Tip:

Only buy when price grabs sell side liquidity as price has a high
probability of going the opposite direction

The Fractal above shows BTCUSD on a 15min chart, notice how price
trades below the New York session low, grabs liquidity then rallies on the
upside

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Tip:

Only buy when price grabs sell side liquidity as price has a high probability of going the
opposite direction.

If you are a seller, the most recent swing low from your current price should be your target!

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EXTERNAL RANGE LIQUIDITY AND INTERNAL RANGE LIQUIDITY

Look at the price fractal below.

On the hypothetical price trend notice the higher highs and higher lows, higher
lows and the lower lows. Normally price is expected to trade to a higher
timeframe key level. Whether a resistance/ support level, fill an imbalance or grab
buy side/ sell side liquidity then reverts/reverses.

This means when one side of liquidity has been drawn to, market will seek
opposing liquidity.

Once price draws to buy side liquidity, it goes for the opposing liquidity which is
sell side liquidity.

Price trades to a higher time frame key level

Price trades to a higher time frame key level

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 See the Price swing below.

Do you Notice something repeating itself in the above typical price swing?
Notice how internal range liquidity becomes external range liquidity and vice versa?
Do you see it yet? No? Not sure? Check out the Price Fractal below!

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Notice how both external and internal range liquidity/ liquidity pools previously
created are cleared out when market shifts from being bullish to bearish and vice
versa.

Notice how after price draws to buy side liquidity, it seeks to draw to sell side
liquidity! This will never stop!

If we are bullish in the Market, swing lows [internal range liquidity] are respected
while swing highs [external range liquidity] are violated.

In a bullish Market, we use internal range liquidity or swing lows to find possible
long positions and we use external range liquidity pools as our targets, because
they are swing highs and what rests above old swing highs?

If We are Bearish in the Market, swing lows [internal range liquidity] are violated
while swing highs [external range liquidity] are violated.

In a bearish Market, we use external range liquidity or swing highs to find possible
short positions and we use internal range liquidity pools as our targets, because
they are swing lows, and what rests below old swing lows?

As a trader, you need to realize that after a bullish market, price shifts to a bearish
momentum so as to rebalance, and grab liquidity.

After a bullish Market, price shifts to a bearish momentum so as to rebalance and

grab liquidity.

The price fractal below will make a lot of sense.

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You’ve reached the end!

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A Note from the Author.

Thank you for the time you spent reading my work, I really hope you learnt
something new and or brought more clarity to your understanding of price and
liquidity. xD
----------------------------------------------------------------------------------------------------

In case of any corrections and or addition or comments you would like to make,
reach me out!

Email: Mohamedrio90@gmail.com

WhatsApp and Home: +254111242322

Good luck and good trading!

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