Understanding Liquidity, FVGs, and Smart Money Zones
To understand market moves, you need to see where money flows — where it hides, and where it gets hunted.
📍 What is liquidity
Liquidity is what fuels market movement.
Price doesn’t move randomly — it seeks out clusters of stop orders where large players can fill positions.
📈Buy-side liquidity sits above resistance or recent highs — stop losses from shorts.
📉Sell-side liquidity lies below support or recent lows — stop losses from longs.
These are the areas smart money targets to enter or exit positions with minimal slippage.
📍 Fair Value Gaps (FVGs)
Before grabbing liquidity, price often rebalances.
That’s where Fair Value Gaps come in.
🟡 A 3-candle pattern showing price imbalance.
🟡 It occurs when there’s no overlap between the first and third candles.
🟡 This creates a “gap” where one side (buy or sell) is inefficient.
📍 Internal vs External liquidity
Price usually moves in two phases:
🟡 Internal Liquidity (IRL) — rebalancing inside the range (e.g. FVGs)
🟡 External Liquidity (ERL) — taking out old highs or lows
This structure helps explain why price doesn’t go in a straight line — it clears inefficiencies first, then targets stops.
📍 Premium and Discount zones
Use the Fibonacci tool to map fair value:
🟡 Above equilibrium (0.5 level) is premium — an area to look for shorts.
🟡 Below equilibrium is discount — a zone for potential longs.
Smart entries often happen around the 0.618–0.705 zone — called Optimal Trade Entry (OTE).
Liquidity is the invisible hand behind price action.
Learn to follow the footprints — not the noise.
