ICT Liquidity Trading Concept
101: A Simple Guide for Beginners
December 2, 2024May 3, 2025ICT Concepts
When it comes to trading, the single objective of smart money (big players) in
the market is to make a profit by hunting liquidity. This is one of the most
important concepts to understand in trading. As a retail trader with limited
capital, it’s crucial to grasp how liquidity works and how you can use it to your
advantage.
In this blog post, I will explain how to make profitable trades using liquidity, the
key differences between sell-side and buy-side liquidity, and much more.
What is ICT Liquidity In Trading?
When it comes to Inner Circle Trading (ICT) methodology, liquidity is where
stop losses are present. Liquidity can be defined in two ways:
Sell Side Liquidity
Buy Side Liquidity
What are Stop losses?
A stop-loss is a technique traders use to limit their losses. It’s an order you
give your broker to automatically buy or sell a security when it reaches a
certain price. For example, if you buy a stock at $50 and set a stop-loss at
$45, the stock will be sold automatically if its price drops to $45, preventing
further loss.
What is ICT liquidity sweep?
Retail traders often place stop-loss orders at predictable levels, like just below
previous lows or above previous highs. For example, if many traders set stop-
losses just below a stock’s recent low, these levels become targets for big
players.
Institutional traders (smart money) know where these stop-losses are likely
set. They might push the price to these levels to trigger the stop-losses. When
the stops are hit, a flurry of buy or sell orders gets triggered, causing a rapid
price movement.
Example:
Imagine a stock is trading at $100, and many retail traders have stop-loss
orders set at $95. If a large institution wants to buy this stock cheaply, they
might push the price down to $95. When the price hits $95, all the stop-loss
orders are triggered, causing a surge in sell orders. This creates a temporary
drop in price, allowing the institution to buy the stock at a lower price. After
buying, they might push the price back up, making a profit from the initial drop.
Smart money hunts liquidity by targeting areas where retail traders have set
their stop-losses. By pushing the price to these levels, they create quick price
movements that allow them to buy or sell at advantageous prices.
Understanding where these liquidity points are can help you anticipate market
moves and make more informed trading decisions.
What is Buy side Liquidity?
Buy Stop-Loss Order: Placed above the current market price. It becomes
active only when the price rises to the specified level, protecting against short
positions.
Buy stop loss are called ict buy side liquidity or some time refer as BSL.
When smart money sweep this liquidity its next target is to sweep sell side
liquidity.
Where to Find BSL?
Retail traders often place their buy stops at key levels, making these points
hotspots for the IPDA (Inter Price Bank Delivery Algorithm) to sweep liquidity.
These key levels include:
Previous Day High
Previous Week High
Previous Session High
The IPDA algorithm targets these levels to execute large institutional orders.
By sweeping liquidity at these points, the algorithm can fill large buy orders
without significantly impacting the market price.
What is Sell Side Liquidity?
Sell Stop-Loss Order: Placed below the current market price. It becomes
active only when the price drops to the specified level, protecting against long
positions.
Where to Find Sell Side Liquidity?
Most of the time retail trader place their sell stop below these level and are the
sweet spot for smart money hunt liquidity.
1. Previous day’s low
2. Previous week’s low
3. Previous month’s low
4. Previous session low
5. Old Lows and Equal Lows
Old Lows and Equal Lows:
Areas where the price has previously bounced, indicating potential support.
Levels where multiple lows align (equal lows).
ICT Liquidity Sweep Forex Trading
Strategy
Step 1: Analyze Higher Time Frames
Start by analyzing your desired trading instrument or currency pair on the
weekly and daily time frames. This helps in establishing your daily bias.
Always trade in the direction of your bias and avoid taking trades against it.
In the chart above for EUR/USD, we can see that the price recently swept the
buy-side liquidity at 1.09404 on the weekly time frame. This means that the
market has triggered stop-loss orders from traders who were long on the
currency pair.
With this liquidity target achieved, the next likely move for the price could be to
hunt for sell-side liquidity.
By identifying the sweep of stop-losses at higher time frames, we can
establish our bias for the upcoming trading week. Based on this analysis, we
are now focusing exclusively on short opportunities.
Step 2: Wait for the Sweep of Liquidity
Bullish Bias: If your bias for the current trading week is bullish, wait for
a sweep of liquidity on the sell side. This often occurs when the price dips
below previous lows, triggering stop losses and creating liquidity.
Bearish Bias: If your bias is bearish, wait for a sweep of liquidity on the buy
side. This typically happens when the price spikes above previous highs,
triggering stop losses and creating liquidity.
Step 3: Market Structure Shift (MSS)
After a liquidity sweep, wait for a market structure shift with displacement. This
involves a significant and rapid price movement, confirming that smart money
is entering the trade.
Step 4: Identify Fair Value Gaps (FVG)
On lower time frames (3 to 1 minute), identify fair value gaps (FVG). These
gaps represent imbalances where the price has moved rapidly, leaving
unfilled orders. When the price returns to these gaps to rebalance, it provides
an opportunity to execute your trades.
