SCALPING STRATEGY | Liquidity grab. Trap for newcomers

Many traders has suffered from the situation when they notice a great setup after conducting deep analysis, however their position is often closed by stop loss with further price movement towards supposed and forecasted direction. It's not fair, is it?

It seems like a conspiracy when the price is hunting for your stop losses in order to grab your money. Such situations are quite common and are truly a source of frustration for many traders. Let's figure out why it is happening and how to avoid such a trap.
Attention! This article is for informational purposes only and does not contain recommendations or calls to action.

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The situation when the price makes unexpected movement around strong levels inside consolidation is explained by the intention of funds, banks, or traders with huge deposits to buy or sell enormous amount of assets. Such amount potentially could influence the price due to significant change in demand and supply of the asset, with further drastic price increase/decrease. However, it takes much time for huge funds to buy or sell certain amount of assets despite small players and ordinary traders.

It's much easier to execute small amounts of orders. For example, there is always enough liquidity to buy or sell 1 contract on any instrument. However, just imagine that a fund is intended to purchase 800 bitcoins. Probably, it will be impossible to satisfy such a demand at a certain price level due to lack of supply (liquidity). For that reason, huge funds (whales) have to load their positions inside ranges (where liquidity needed for orders execution is spread not at one point of price, but inside the whole diapason).

Those traders who open positions at the both sides of such ranges (consolidations, where loading of huge participants is proceeded) bear the risk to be closed by stop losses by unexpected price movements pushed by huge players to grab missing liquidity.
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How to avoid such traps and stay profitable?

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Our goal is not just to avoid such situation where our positions could be closed by stop loss, but enter the market in such a point to join the core movement after liquidity grab.

  • First. Do not rush to enter the market from the lower or upper side of the consolidation. Be aware that liquidity grab is already over.
  • Second. Be aware that your position coincides with the core trend direction.
  • Third. Calculate your risk management in a way that the liquidity grab can repeat again if the whales are still loading their positions and lack liquidity. Do not exceed your standard trading amount.
  • Fourth. Liquidity grab always happens at the opposite side of the further movement. If the grab has happened at the lower side of the consolidation, whales are buying and the best prices for loading are at the lower side.
Scalping strategy, liquidity, scalping, trading, crypto scalping, crypto trading, slippage, scalping for beginners
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Great! You have known a little more about the mechanics of the market and how whales grab the liquidity to make their orders executed. Our task is to notice areas or consolidations where whales are loading their positions and enter the market along further movement. As far as liquidity grab implies loading of huge positions, it usually pushes price significantly, giving traders a chance to get huge profit.

Risks

Be aware that a liquidity grab could repeat several times inside the consolidation while a whale is loading positions. While entering the market after you notice liquidity grab and price reaching the opposite side of the consolidation, set a stop loss no bigger than 1% from the point of entrance. If the liquidity grab repeats, you will have another chance to reenter the market by applying the same strategy.

Conclusion

Inexperienced traders provide liquidity to the whales with their stop losses. Now you know how not to get into such situations, and by following the above rules you will be able not only to avoid losses, but make significant profits with proper use of liquidity grab setups. Be careful and always follow the risk management!

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