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Breakout of the level with the capture of liquidity – Forex for beginners from scratch

Spring April greetings to everyone! It got warmer in the street, the mood improved, but the work in the markets continues. Today we will consider breakout of the level with the capture of liquidityas a phenomenon. This phenomenon occurs quite often in any world markets. We will try to understand in detail the reasons for this phenomenon. How can you determine the possibility of such a breakdown of the level? Is it possible to predict with sufficient accuracy the possibility of such a phenomenon occurring on a specific market or on a specific instrument? For successful work, a trader does not have unnecessary knowledge. A clear understanding of all the processes taking place in the market will allow you to generate stable profits. And working with levels is quite effective in terms of profitable trading.

Established levels

On the historical part of the chart, it is quite easy to determine the established levels. These are the places to which the price often returned and for a long time “revolved” near them. The levels can be seen without special knowledge, with little trading experience. The more often the price returns to the same price mark, the stronger this level is considered. It so happens that the price, having broken through a strong level, goes far from it. It may be that for years she has not come close to him. But as soon as the price gets closer to this level again, it becomes relevant. Many analysts create forecasts based on established levels. After all, the price, in any case, will react with them.

Work from levels

Working from levels is not difficult and efficient. Indeed, for the most part, the price is in a flat, and not in an impulsive movement. Sideways price movement (flat) always has its range boundaries. The borders of the flat, as a rule, coincide with the established levels. The principle of working with levels is banally simple. In most cases, the price, having approached a significant level, bounces off it. Speculators sell from resistance levels and buy from support levels. And if the level is broken, then all market participants try to work towards the breakdown. At the same time, opposite positions are closed and new ones are opened. New orders are opened in the direction of the impulse that has broken through the level.

False breakout

A liquidity-grabbing breakout is commonly referred to by traders as a false breakout. The price breaks through the level and travels some distance. Traders usually hide stop orders behind a level. Also, stop pending orders are placed behind the level. They are exposed in case of breakdown and work in that direction. The price breaks the level and activates the stops of those who worked on a rebound from the level. Also, stop pending orders of those who intended to work towards the breakout are activated. Then the price returns to the previous range again and moves as before. But at the moment of the breakout, liquidity of both sellers and buyers was seized. Average traders have suffered losses. Only the big players won.

How to see the possibility of a false breakout on the chart

Let’s consider the situation on the chart. At the beginning of December, the price of the EUR / USD currency pair began to rise. At the same time, the graph shows increased volumes. Further, at the slightest price decrease, the volumes immediately increase sharply. Consequently, a large player immediately buys out all offers from sellers. He is interested in the price increase. Offers are being bought out more and more aggressively. And now, after the price breaks out a significant level, growth begins, which turns into a decline. The decrease takes place at increased volumes. A candlestick is then formed that breaks through support and grabs liquidity. A large volume is clearly visible. Then the price moves back towards the breakout on December 16. It is not realistic to predict such a phenomenon. Everything is visible and understandable in history. In real trading, everything is more complicated. You need to focus on the traded volumes.


Vitaly Pryadko.

April 2, 2021

Moris Akline
About author

Speculative operations in the foreign exchange and stock market. Work with futures and indices on CME. Work on FORTS and RTS. Development of portfolios and investment strategies for clients. Knowledge of technical (price charts of various types, indicators and oscillators, trends, channels, support / resistance levels) and fundamental analysis, take note of news. I work according to my trading strategy in compliance with the rules of capital management and risk management. Development of trust management strategies. Technique of order execution, placing and changing protective stop-losses, hedging.
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