Liquidity: The Ultimate Core Concept of ICT

In financial transactions, Liquidity is the fuel that makes the market move. The IPDA algorithm continuously pushes prices from one liquidity zone to another. Understanding liquidity terms is key to not falling prey.

1. Classification of Liquidity by location

• Buy-side Liquidity (BSL): Located above the peaks. This is where the buy order is located (Stop Loss for Sellers or Buy Stop for Pursuing Buyers).
• Sell-side Liquidity (SSL): Located below the bottoms. This is where the sell order is located (Buyers' Stop Loss or Seller's Sell Stop).
• Equal Highs (EQH) / Equal Lows (EQL): Top/bottom are equal. Retail traders consider this a strong Support/Resistance, but IPDA considers this a very strong price magnet.
• Liquidity Pool: The area containing many pending/stop-loss orders is concentrated, usually below EQH/EQL or large peaks and troughs.

2. Liquidity manipulation behavior

• Liquidity Sweep / Grab / Stop Hunt: Liquidity sweep phenomenon. The price passes the old peak/bottom a little (just sweeps the candle's wick) to bite the entire stop-loss and then immediately reverses. This behavior helps Smart Money get enough goods.
• Turtle Soup: Trading model that takes advantage of the Liquidity Sweep phenomenon. Traders will enter a reverse order when the price just breaks an important BSL/SSL milestone (Stop Hunt).
• Induction (IDM): Intermediary liquidity trap. These are small peaks/bottoms created before reaching the main sweep point, to lure traders into entering orders early and placing stop-losses unintentionally.

3. Large voids and structures

• Liquidity Void: Liquidity gap, which occurs when the price runs too fast (large Displacement). This zone is often empty of counter orders and the price will soon return to fill it (playing a similar role to FVG but on a larger scale).
• IRL (Internal Range Liquidity) / ERL (External Range Liquidity):
  - ERL: Liquidity lies at major peaks and troughs outside the structure.
  - IRL: Liquidity within a wave (eg unfilled FVG zones).
  IPDA principle: Price always moves from ERL (scanning external liquidity) to IRL (filling internal gaps) and vice versa.