How and why does the market move?

            The market is always trying to capture the liquidity created by accumulated orders placed by retail traders. Failing to understand this concept is one of the main reasons that traders are unable to perform at a profitable rate. It does not matter how much technical knowledge a trader may have, they will repeatedly become ‘victims’ of the market if they are always thinking in terms of support and resistance. You can witness numerous people from the trading community describing how they lost a great trade because their support or resistance levels were not respected systematically.You might have heard of trends, price inefficiency, order blocks and many other concepts vaguely covered publicly. Nevertheless, you will face the same situation recurrently if you fail to acknowledge the relevance of liquidity in the market , because liquidity pools are and will consistently be the main driving force of significant market swings.

 A liquidity pool is created when a significant amount of orders is placed right below or above obvious levels of support and resistance. The market continuously pierces through such areas,  seeking to ‘take out’ these orders. Here we can see an example of what a resistance level is to a retail trader who relies on S&R for his technical analysis. When the order is placed, the intention of S&R traders is to short this asset in anticipation of a reversal at the resistance level. These traders typically place their stop losses right above what they consider to be a ceiling to price. An illustration of this can be found on the figure below.  In this example, the space above the resistance can be viewed as a ‘target’ for the market, seeking to absorb the liquidity . The MarketNerd usually capitalizes on opportunities that present themselves after liquidity is captured on the market.