Liquidity-based bias is a trading concept that correlates multiple trading time frames, starting from higher time frames to lower time frames to enable traders to find high probability trading setups using monthly time frames to weekly time frame bias.
The Market is Fractal meaning what you see on a bigger time frame is also happening on a smaller time frame therefore using higher time frames for directional bias and lower time frames to refine your entries is ideal.
Higher time frames are clear and easy to understand whilst smaller time frames can be challenging to understand especially for new traders. As an experienced trader, I always switch to higher time frames to get a clear picture of which order block and fair value gap to trade and then switch to smaller time frames having liquidity-based bias.
Example:
Monthly Time Frame = Bearish
Weekly Time Frame = Bearish
Daily Time frame = Bearish [ might look bullish ]
This is where things can get tricky and confusing for traders when doing their technical analysis, but stay with me, I’ll clarify things for you, my friend. Based on the example the market is bearish but on daily and other intraday time frames it might appear bullish. Because Price will be retracing higher to close the liquidity void or Return to the fair value gap In an attempt to balance the buy side inefficiency.
Traders should anticipate selling short on retracement when Price Return to the fair value gap and closes the liquidity void using order blocks as an entry point. Targeting recent previous lows for Trade exit with the understanding of liquidity-based bias.
Key Takeaways :
- higher time frames are easy to understand for a trader to frame their setup
- smaller time frames are not easy to understand therefore from higher time frames to smaller time frame
- for high probability trading setup use monthly and weekly time frame bias
- refine your trade entry to a smaller time frame
- when there’s sell-side inefficiency and buy-side inefficiency anticipate a retracement
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