The Liquidity Grab
I'm going to do my best here at explaining the basics around a liquidity grab (some times called a stop hunt), why it happens and how it works (ignore the chart I'm using, I'm not saying this is a manipulated move just showing you an example of how it works)
I often refer to this in my playbook as an STL "Sweep The Legs" coupled with a picture of Johnny Lawrence from the karate kid lol
First you need to understand that Big money plays a different game to retail.
When you want to place a buy order at a specific price point, lets say your buying a thousands dollars worth of BTC @ $30,000, you can put an order in and boom it gets hit your filled and your ready to go to the moon.
Now imagine some bigger traders who play with a lot more money than you, lets say there order is more like a billion dollars.
Well in order for them to fill there position, there needs to be a large amount of selling at that level other wise they may only get a small piece filled...... theeeeeen of course the price moves away and your priced out of the market (imagine putting your $1000 order in, only getting $10 of it filled and then having the price moon....yeah it would suck)
They do not want to chase candles or buy up the order book, thats just not good business, and if you have to do that in order to get your orders filled thats a good indication that there is already liquidity issues within this market and you may have a similar problem trying to cover of your position later on.
So these players some times need to hunt down and find or even artificially create liquidity pools for them to take a big bite at like pigs at the trough.
One of the easiest ways to do that is to look for the most obvious levels of support with in a trend of sideways channel and look at the buying thats happening on that level.
If we dont get an instant recovery or bounce at that level it can normally indicate price being trapped or held down in order to encourage more retail to "buy the dip" or buy on support as these are some of the most basic tools and strategies taught to retail traders.
Now one thing to remember when all of these traders/investors are in there positions from this level, there will be a large number of these traders protecting capital with stop losses, normally under the level they where buying at.
This now created a liquidity pool...... You see every stop loss on a BUY order, becomes a SELL order, and with so many BUY orders created and entered at a specific level that means the stop loss orders are stacking more and more on top.
Think about it like this, if we hit 30k and someone buys
1M worth, that means there is possibly a SELL order (via a stop loss) of roughly 1m under that level.... now we hit that 30k level again, and someone buys some more, maybe another 1M worth... well now there is roughly 2m worth of SELL orders in that stop loss zone. Hit that 30k super sweet safe support level 5 or 6 times and all the sudden you could have 8-10m worth of SELL orders at a single price point below support.
Now if I wanted to enter this market long and I had 10m order to fill, it would make sense for me to run the price down to clip these stop losses creating a large amount of selling straight into my pig of a buy order.
Once my orders filled I can stop holding the price down and let the price begin to organically rise again, this often creates fomo for all the retailers who just got knocked out of there trades from "tight stop losses" to chase the market back in only adding to the momentum and mark up of my position.
The same thing can happen in vice versa when they are covering or exiting a position as well, and its often followed by a square up to reduce or remove the risk taken on to manipulate the price during there accumulation or distribution of there order, more specially into a short position as they take on more exposure to the underlying asset to manipulate the price, in a long there exposure is fiat and there isnt any need to cover. (ill explain square up in detail next time)
This is often what is referred to as a liquidity grab and its how big players enter the market, they do not chuck a limit order in on Binance and hope for the best...
I hope that made sense and added some value, but if you have any questions please chuck them below
I often refer to this in my playbook as an STL "Sweep The Legs" coupled with a picture of Johnny Lawrence from the karate kid lol
First you need to understand that Big money plays a different game to retail.
When you want to place a buy order at a specific price point, lets say your buying a thousands dollars worth of BTC @ $30,000, you can put an order in and boom it gets hit your filled and your ready to go to the moon.
Now imagine some bigger traders who play with a lot more money than you, lets say there order is more like a billion dollars.
Well in order for them to fill there position, there needs to be a large amount of selling at that level other wise they may only get a small piece filled...... theeeeeen of course the price moves away and your priced out of the market (imagine putting your $1000 order in, only getting $10 of it filled and then having the price moon....yeah it would suck)
They do not want to chase candles or buy up the order book, thats just not good business, and if you have to do that in order to get your orders filled thats a good indication that there is already liquidity issues within this market and you may have a similar problem trying to cover of your position later on.
So these players some times need to hunt down and find or even artificially create liquidity pools for them to take a big bite at like pigs at the trough.
One of the easiest ways to do that is to look for the most obvious levels of support with in a trend of sideways channel and look at the buying thats happening on that level.
If we dont get an instant recovery or bounce at that level it can normally indicate price being trapped or held down in order to encourage more retail to "buy the dip" or buy on support as these are some of the most basic tools and strategies taught to retail traders.
Now one thing to remember when all of these traders/investors are in there positions from this level, there will be a large number of these traders protecting capital with stop losses, normally under the level they where buying at.
This now created a liquidity pool...... You see every stop loss on a BUY order, becomes a SELL order, and with so many BUY orders created and entered at a specific level that means the stop loss orders are stacking more and more on top.
Think about it like this, if we hit 30k and someone buys
1M worth, that means there is possibly a SELL order (via a stop loss) of roughly 1m under that level.... now we hit that 30k level again, and someone buys some more, maybe another 1M worth... well now there is roughly 2m worth of SELL orders in that stop loss zone. Hit that 30k super sweet safe support level 5 or 6 times and all the sudden you could have 8-10m worth of SELL orders at a single price point below support.Now if I wanted to enter this market long and I had 10m order to fill, it would make sense for me to run the price down to clip these stop losses creating a large amount of selling straight into my pig of a buy order.
Once my orders filled I can stop holding the price down and let the price begin to organically rise again, this often creates fomo for all the retailers who just got knocked out of there trades from "tight stop losses" to chase the market back in only adding to the momentum and mark up of my position.
The same thing can happen in vice versa when they are covering or exiting a position as well, and its often followed by a square up to reduce or remove the risk taken on to manipulate the price during there accumulation or distribution of there order, more specially into a short position as they take on more exposure to the underlying asset to manipulate the price, in a long there exposure is fiat and there isnt any need to cover. (ill explain square up in detail next time)
This is often what is referred to as a liquidity grab and its how big players enter the market, they do not chuck a limit order in on Binance and hope for the best...
I hope that made sense and added some value, but if you have any questions please chuck them below
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