LIQUIDITY GRAB IN

TRADING
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What is a Liquidity Grab in Trading?

Liquidity Grab Vs. Break of Structure

How to Use the Liquidity Grab Indicator?

A Step-by-Step Tutorial for the Liquidity Grab Trading

Strategy

Final Thoughts

Frequently Asked Questions

What is a Liquidity Grab in Trading?
Liquidity grab in trading refers to an unusual and extreme price movement in the
markets, typically due to a high trading activity. It is a fundamental concept that affects
everything from individual trades to the overall stability of financial markets. High
liquidity means that there are ample buyers and sellers, which typically results in tighter
spreads between the bid and ask prices. Conversely, low liquidity can lead to a more
volatile market where prices may fluctuate wildly in response to large trades.

As you can see, a “liquidity grab” occurs when traders capitalize on or create scenarios
where liquidity is taken from the market, often resulting in a temporary distortion of
prices. This concept, particularly emphasized in Smart Money Concepts (SMC), involves
the strategic placement of trades where liquidity is likely to accumulate. These areas are
typically where stop-loss orders are clustered or where a significant number of traders
have set their orders to enter or exit the market.

When a market reaches these points of accumulated liquidity, there is often a sharp and
sudden price movement as these orders are triggered. This creates an opportunity for
informed traders to anticipate and exploit these moves for potential profit. The grab itself
is the event where this pent-up liquidity is ‘grabbed’ by triggering these orders, hence
the term “liquidity grab.”

According to SMC, liquidity grabs usually take place in several key areas:

Around Psychological Price Levels: These are price points that traders perceive as
significant due to round numbers or historical price levels. Many traders place orders
at these key levels, believing them to be strong points of support or resistance.
Beyond Swing Highs and Lows: Swing points in price charts are where the price had
previously reversed direction. Traders often place stop-loss orders just beyond these
points to protect against losses in case the price moves against their initial trade
direction.
At Consolidation Breakouts or Breakdowns: During periods of consolidation, the price
moves within a narrow range, building up orders on both sides of the market. A breakout
or breakdown from this range can trigger these orders, resulting in a liquidity grab when
traders can utilize the breakout trading strategy.

Check out our daily market analysis page for insights about leading FX pairs,
global indices, and commodities.

Liquidity Grab Vs. Break of Structure

These two terms often create confusion for new SMC traders: Liquidity Grab and Break of
Structure (BOS). While both relate to market movements and trader actions, they are
fundamentally different in their occurrence and implications. So, let’s start with some
basic definitions of both terms:

A Break of Structure is an event that signifies a shift in market momentum and is

characterized by a change in price behavior. It occurs when the price forms a new
‘higher high’ on an uptrend or a new ‘lower low’ on a downtrend, without the price having
to first revert to the previous low or high, respectively. In essence, it indicates the
continuation of a trend​​.

On the other hand, a liquidity grab is a situation where there is a swift and strategic
exploitation of accumulated stop orders, usually by large traders or institutions. This
results in a sudden and often sharp movement in the price as these orders are executed.
Unlike the gradual shift denoted by a BOS, liquidity grabs happen rapidly and are
typically triggered by actions such as a large market order that reaches many stop-loss
orders at once​​.

So, what’s the difference between these two concepts?

While BOS is indicative of a trend continuation or reversal, a liquidity grab is more about
the tactical use of knowledge about order placements in the market. Traders execute
liquidity grabs, knowing that the triggering of stop-loss orders will create a temporary
but exploitable movement in the market. It’s similar to a feint or a bluff: the move might
give the appearance of a trend but is actually a trap for unwary traders​​.

Here is a summary table to illustrate their differences clearly:

Feature Liquidity Grab Break of Structure

A price movement that signals a

Exploitation of clustered stop
Definition shift in market momentum by
orders for price movement.
setting new price extremes.

Often initiated by a significant Triggered by price action

Trigger trade reaching many stop- forming new highs or lows in a
loss orders. trend.

Occurs suddenly and with May happen more gradually as

Speed
great speed. the trend develops.

Typical All market participants

Large traders or institutions.
Participants contribute to the trend.

Market Potential long-term change in

Temporary price distortion.
Impact the market trend.

Visibility in Specific candle patterns on A clear shift in price trend on the

Charts shorter time frames. chart.

How to Use the Liquidity Grab Indicator?

Using a liquidity grab indicator can be a game-changer in trading, providing traders
with insights into where ‘stop hunting’ may occur and where large trades are likely to
influence market prices significantly. The indicator helps in identifying market conditions
where there is a high concentration of stop-loss orders, which, when triggered, can lead
to high volatility and potential trading opportunities​​.
While the specifics of using such an indicator can vary depending on the trading
platform or the particular indicator design, the general principle remains the same.
Traders look for signs that the price is reaching a point where other traders’ stop-loss
orders are set. When these are ‘hunted’ or triggered, it results in a liquidity grab, which
smart concepts traders can use to enter or exit positions advantageously.

To implement liquidity grab trading strategies, traders need to:

1. Identify potential liquidity pools where stop-loss orders may be clustered.

2. Monitor the price movement towards these areas with the help of the liquidity grab
indicator.
3. Watch for sudden spikes in volume or sharp price movements, which may indicate
that a liquidity grab is in progress.
4. Use this information to make informed decisions about trade entries and exits, taking
care not to get caught in the volatility themselves.

In sum, the Liquidity Grab indicator acts as a powerful tool for traders who want to
understand and anticipate market movements better by highlighting areas of potential
price manipulation or where a flurry of activity is expected due to stop orders being
executed.

SMC traders have a saying that goes like this: “If you can’t spot the liquidity,
you’re the liquidity.” In other words, your ability to spot and take advantage
of liquidity grabs in trading can make or break your trading career.

Liquidity Grab Trading Strategy

As we’ve seen earlier in this article, understanding how liquidity grabs work can easily
help us avoid entering trades where the masses would have entered – and lose their
money. But identifying it can be quite tricky.

Essentially, you must spot an area where the price distortionary gets out of a predefined
order block area. That’s your signal to enter a trade since this liquidity grab provides a
signal of triggered stop loss orders.

So, let’s see an example of how the liquidity grab trading strategy works inreal timee. For
this demonstration, we use the GBP/USD currency pair.
So, the first step is to determine the trend. When there’s a series of higher highs and
higher lows, we are in an uptrend, and vice versa.
From the chart above we can see that the trend is bearish. So, we can expect the price to
mitigate the bearish order block and look for a short-sell position from there.

Now, something unusual happens. The price reverses to the resistance order block area;
however, instead of stopping around these levels, it breaks above, and a liquidity grab
occurs.

In this case, to avoid a losing trade, we simply have to wait for the price to “hit the stops”
of those who entered the trade earlier before we enter our trade. Then, when the price
falls below the order block bottom line, we can safely enter a trade.

After entering the trade, we can confidently set our stop loss just above the liquidity grab
and set our profit target at the next Swing low, as seen in the chart above.

Final Thoughts
SMC traders have a saying that goes like this: “If you can’t spot the liquidity, you’re the
liquidity.” In other words, your ability to spot and take advantage of liquidity grabs in
trading can make or break your trading career. It’s all about knowing where institutional
traders place their limit order.

Frequently Asked Questions About Liquidity

Grab
Here are some frequently asked questions on liquidity grab trading strategy.

What is the meaning of the liquidity grab in smart money

concepts?
In Smart Money Concepts, a liquidity grab refers to a scenario where large market
players induce a movement in price to trigger a cluster of stop-loss orders, aiming to
benefit from the resulting price fluctuation.

What is the difference between a liquidity grab and a break

of structure?
A liquidity grab is a targeted exploitation of stop-loss orders to create rapid price
movements. In contrast, a break of structure refers to a significant price movement that
shifts market momentum, indicating a new trend or continuation without prior reversal.

Is there a liquidity grab indicator on TradingView or

MetaTrader 4/5?
Yes, there is a “Liquidity Levels MT5” technical indicator available for MetaTrader 5. This
indicator assists traders in identifying potential liquidity levels by analyzing price levels,
momentum, and volume​. Yet, if you would like to use the liquidity grab indicator, you
must learn how to download and install custom indicators on MT4/5.

What is a liquidity grab in forex trading?

A liquidity grab in the forex market is the same as in any other market. In simple terms, a
liquidity grab in forex trading occurs when there is an unanticipated increase in demand
for one currency versus the other. The reasons for that include economic data, news,
geopolitical events, and large investments by financial institutions and governments.