Understanding whether the market is reversing or continuing in its trend holds the key to success, more so when trading using ICT strategies. In this guide, you will learn how to identify whether a market is sweeping liquidity and reversing, or if it’s going to create a Fair Value Gap and continue its trend. By the end of this, at the very latest, you’ll be able to make consistent and confident trading decisions.
Difference Between Liquidity Sweeps Vs Liquidity Runs
| spect | Liquidity Sweep | Liquidity Run |
|---|---|---|
| Definition | A movement of price that is designed to capture liquidity before reversing in direction. | A continuous price movement in the direction of the major trend after capturing liquidity. |
| Market Behavior | Occurs when the market briefly breaches a low or high but fails to close above/below it, indicating a reversal. | Occurs when the market moves towards a previous high or low, capturing liquidity and continuing the trend. |
| Example | Price dipping only very slightly below a previous low and then surging upward to make a clear bullish reversal. | Breaking above a previous high with good momentum is taken as an augury for the continuation of the bullish trend. |
| Timeframe Focus | Often observed on lower timeframes, which is indicative of manipulation by larger players. | Usually observed on higher timeframes, showing the overall trend of the market. |
| Trading Implication | Caution; the trader should look for confirmation before entering a trade. | Higher probability of continuation; at better prices, look for opportunities to enter in the direction of the trend. |
The Common Thought Process
Traders are usually in a dilemma, and uncertainty riddles the mind concerning whether the market is going to reverse or continue. This uncertainty arises from one of the most primary concepts within ICT trading: liquidity.
As a result of this, many traders spend much time in front of their computer screens waiting for the market to unfold in its direction. Such stress is heightened by the fact that the daily bias is very important within ICT trading. Knowing how to identify liquidity sweeps or continuations with accuracy will help alleviate this type of stress and get the trading routine running smoothly.
Understanding Market Behavior: Reversal vs. Continuation
Reversal: Liquidity Sweep
- Sweep: When the market barely makes a low or high and immediately reverses back, usually, this is an indication of a liquidity sweep. In most cases, this means big players in the marketplace are getting in at these points.
- Example: If it barely goes below a previous low and surges upward, this could be a bullish indication of the reversal.
Continuation: Fair Value Gap
- Displacement: A large push through a point of structure, creating a Fair Value Gap, is one of the bigger indications of continuation. That’s created when there’s a big body in the candle with non-overlapping wicks.
- Example: If the market breaks through a high with a big candle, leaving a gap between the wicks, this is an indication that it will continue to go higher.
The Importance of Routine and Strategy
A systematic trading approach will boost your win rate significantly and cut off many needless losses. The real secret is knowing when a market is likely to reverse versus when it will continue in its trend. That knowledge will let one bypass bad trades and lock in profitable opportunities.
Daily Routine:
- Begin by looking at a higher timeframe to determine the overall market direction.
- On this timeframe, look for reversals as signs of manipulation or continuations as signs of displacement.
Implementing the Strategy:
- Higher Timeframe Analysis: Know if the market is displacing or manipulating on a higher timeframe.
- Lower Timeframe Confirmation: Look to see manipulation followed by displacement on a lower timeframe to confirm your trade.
Practical Example
Let us build a practical example using a 15-minute chart in NASDAQ:
Higher Timeframe Displacement:
- A high displaces the market up, creating a Fair Value Gap.
- This would still indicate a bullish trend, expecting the market to keep moving upward.
Smaller Timeframe Confirmation:
- Wait for the market to dip into the Fair Value Gap on a lower timeframe.
- Look for a manipulation (for example, market dipping below a low) followed by an event of displacement, like a strong push upward.
- Enter the trade only when the displacement confirms the reversal or continuation.
Handling Your Losses and Maximizing Wins
No strategy is infallible—there will be losses. However, by using a systematic approach, such defeats will be less in number and the ratio of your wins maximized. Here’s how:
Accepting Losses:
- Understand that not every trade is profitable. Losses should be considered as part of the trading process.
- Focus on the overall profitability of your strategy, not on individual trades.
Maximizing Wins:
- Make sure your higher timeframe is in agreement with your lower timeframe for trades of higher probability.
- Be very patient and enter trades only upon clear signals.
Conclusion
Master the concepts of manipulation and displacement to better your trading routine, which will allow you to be more confident in your decision-making. Knowing whether the market is due for a reverse or continuation is of great importance to help one avoid unnecessary losers and capture profitable opportunities.
Integrate this systemic approach within your trading, and you’re better prepared to handle the infernalities of the market by using the ICT strategy. Keep in mind that the market is always either manipulating or displacing, so gaining an understanding of those patterns will simplify a lot in trading and make one much more profitable over time.
