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Understanding liquidity and its impact on trade execution and price movement.
Liquidity refers to how easily an asset can be bought or sold without significantly moving its price. High liquidity means tight spreads and large orders can be filled easily. Low liquidity means wider spreads and even modest orders can cause price slippage.
Key insight: Liquidity is not evenly distributed. It clusters around key levels — round numbers, previous highs/lows, and moving averages — where traders place their orders. Understanding where liquidity sits helps you anticipate where price will gravitate toward and where it will be rejected.
In crypto, liquidity varies dramatically between assets and exchanges. Bitcoin on major exchanges is highly liquid. Small-cap altcoins can be so illiquid that entering or exiting a meaningful position moves the price significantly against you.
Stop losses clustered below obvious lows are liquidity pools. Price often sweeps these levels before reversing. Instead of placing your stop at the obvious level, go slightly wider — or better yet, wait for the sweep before entering.
The Academy teaches this concept through structured lessons with real chart examples.
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