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Liquidity Grabs Explained

Liquidity Grabs definition and example

Liquidity Grabs are a trading concept used by price action traders (also known as SMC or ICT traders). They mark areas where buyside or sellside liquidity has been swept or grabbed, which could indicate a market reversal. When a liquidity level is swept, lots of open trade positions are rapidly closed due to traders placing their stop losses at those levels. To fully understand liquidity grabs, you must have a good understanding of liquidity. You can read this article if you’re not sure what liquidity is and how to spot it in the markets. In this article we will cover what liquidity grabs are, how to locate them, how to trade them, and the theory behind them.

What are Liquidity Grabs?

Liquidity Grabs are areas in the market where a large number of buy or sell orders were triggered. These typically occur at key levels such as the highs and lows of the previous day, week, and month. A bullish liquidity grab indicates a large amount of buy orders were triggered and the market is likely to trend upwards. A bearish liquidity grab indicates a large amount of sell orders were triggered and the market is likely to trend downwards.

How to Spot a Liquidity Grab

Bullish Liquidity Grab example and Bearish Liquidity Grab example

The most common way to identify a liquidity grab is by looking for the following pattern. Price approaches a key level, such as the previous day’s low. Then, a candle will go below the key level and quickly shoot back up. This type of candle will have a large wick and a small body, similar to the ‘Dragonfly Doji’ candle. This large wick indicates that there was a lot of selling pressure in the market, but buyers stepped in quickly. After the candle close, we have our liquidity grab.

How To Find a Bullish Liquidity Grab

Bullish Liquidity Grab Example

To find a bullish liquidity grab, you want to watch Sellside Liquidity (SSL) levels. If you’re not sure how to identify these levels, read our guide on Liquidity. Once price comes down to a SSL level, look for a candle to go beneath this level and shoot back up. This type of candle will have a long bottom wick and a thin candle body, similar to the Dragonfly Doji candle. The long wick indicates a lot of buyers stepped into the market. After this candle closes, you will have a bullish liquidity grab. You should now look for long trades in the market since SSL was swept or ‘grabbed’, meaning buyers have stepped into the market.

How To Find a Bearish Liquidity Grab

Bearish Liquidity Grab Example

To find a bearish liquidity grab, you want to watch Buyside Liquidity (BSL) levels. If you’re not sure how to identify these levels, read our guide on Liquidity. Once price comes down to a BSL level, look for a candle to go above the level and shoot back down. This type of candle will have a long top wick and a thin candle body, similar to the Gravestone Doji candle. The long wick indicates a lot of sellers stepped into the market. After this candle closes, you will have a bearish liquidity grab. You should now look for short trades in the market since BSL was swept or ‘grabbed’, meaning sellers have stepped into the market.

How to Trade Liquidity Grabs

Liquidity grabs are a good indication of a market reversal. They signify a large amount of buyers or sellers stepping into the market at key levels of BSL and SSL. We can use the liquidity grabs to form a bias in the market, either bullish or bearish. If we have a bullish liquidity grab, we want to look for long trades. If we have a bearish liquidity grab, we want to look for short trades.

You can combine liquidity grabs with Fair Value Gaps (FVG) to create a simple, but effective trading strategy.

Long Trade Example

Long trade example with bullish liquidity grab and fair value gap (fvg)

In this trade, a bullish liquidity grab is detected (green circle). Thus, we will only look for long trades. Price quickly shoots up after, forming a bullish FVG. Once price retests this FVG, you can take a long entry, setting your stop loss below the FVG and taking a 1:2 risk-to-reward trade.

Indicators used in this example:

Liquidity Grabs | Flux Charts

Fair Value Gaps (Volumetric) | Flux Charts

Short Trade Example

Short trade example with bearish liquidity grab and fair value gap (fvg)

In this trade, a bearish liquidity grab is detected (red circle). Thus, we will only look for short trades. After, price shoots down, forming a bearish FVG. Once price retests this FVG, you can take a short entry, setting your stop loss above the FVG and taking a 1:2 risk-to-reward trade.

Indicators used in this example:

Liquidity Grabs | Flux Charts

Fair Value Gaps (Volumetric) | Flux Charts

What is the difference between a Liquidity Grab and a Liquidity Sweep?

Liquidity Grabs occur from one candle stick having a quick reaction at a key liquidity level. Liquidity Sweeps occur when price falls below a liquidity level and comes back up. However, they liquidity sweeps can occur over several candles instead of just one like a liquidity grab.

What do Liquidity Grabs indicate?

Liquidity Grabs indicate a shift in the market trend. When liquidity grabs occur, a large number of buyers or sellers stepped into the market at that point in time, hence the large candle wick. This can be a strong indication of a market reversal.

What is the best timeframe to trade Liquidity Grabs?

Liquidity Grabs are typically used on higher timeframes, so traders can identify a bias for their trades on a lower timeframe. However, liquidity grabs can also be used on smaller timeframes such as the 5 or 15 minute for a scalping.