Maybe you heard about BOS, CHOCH & Liquidity before but did not understand how they work actually? Okay, do not worry, in today’s article we will try to learn about Liquidity, BOS and CHOCH concepts. Here are topics name that we will discuss one by one:-
Liquidity
How to use Liquidity to increase success ratio?
What is Break Of Structure (BOS)?
How to implement BOS in Trading?
What is Change of character (CHOCH)?
How to implement CHOCH in trading?
Quick $BTC Update
Before we start discussing our main topics here are some points that we need to note.
We are spot traders and discuss only the Buy side and how to take exit.
Don't implement anything on future trading that you read on our page.
It takes time to write ✍️ such article. So, read the full article and at the end if you feel it is informative then like it otherwise not and let me know in the comment section what should be next that we should discuss.
Maybe we select your desired topic for discussion in the next article for that just ping us about your interest.
Now let's start with our first topic: Liquidity!
1. Liquidity:-
🔸 Liquidity term is very easy but people make it complex while explaining. All buying and selling orders in the market are known as liquidity. Pending orders that shown in order book are known as liquidity as shown in figure below 👇.
🔸These buying and selling orders are known as liquidity. In simple words you can say every buying and selling order is known as liquidity. Before filling of such orders they are known as available liquidity and after filling executed liquidity. Just learn with and example of Sea 🌊 . sea will be considered as a project/ Coin / Asset and water inside this sea will be known as liquidity that is flowing here and there. More pending liquidity means a stronger market. A stronger market means you can buy and sell large amounts of orders without any bigger impact on the price of any coin.
🔸 Let's take another example we hope you will understand this concept with it if you are still confuse. There are 10 Cow's for sale and 10 person want to buy 1 cow 🐄 each for $1,000. These 10 cows and $10,000 (1,000 × 10) will be known as liquidity. If buyers decrease and the cow's amount remains the same for selling then it will show lack of Liquidity from buyer side that can cause decrease in prices to attract more buyers.
In simple words the liquidity term refers to all transactions that are executing on market price either through limit order.
🔸If you have understand this term then well and good 😊 if not then drop a comment I will try to explain with more examples.
2. How to use Liquidity to increase success?
🔸Follow Below Steps to increase success ratio!
First of all, do technical analysis..
Now check is there buying liquidity at your order block zone or zone zone where your buying interest is at peak?
To check it look in the order book or use third party technical indicators for it or most of the time just below order block or lows s.l and liquidity present.
If there is liquidity on your order block or desired zone then trade it otherwise skip it.
In this way you can use the Liquidity concept for more success ratio.
Now when you set your t.p according to technical analysis then you can also check how much Liquidity there if greater amount of liquidity as compared to volume with passage of time then take exit at your t.p otherwise sell some and trail s.l and wait for another t.p
We hope you have understood how to use this concept in trading.
3. What Is Break Of Structure (BOS)❓
🔸You have heared many times about resistance and also heared whenever it got break we see more upward move if market is in upward direction. The resistance we marked at the high of the rejection area also gives an outlook to BOS. Whenever the market is moving in an upward direction and takes a pull back then it will create a high and low. High is the point from where the market rejected and low is the point from where the market started upward move. Now when this high will break (2,3 candles close above high) we will say it is BOS as shown in the chart below.
🔸Have you noticed in chart something related to BOS ❓ If not it's ok if find well and good the thing is that we have left some high points that we did not mark as BOS when they got break. The reason is simple that BOS happen only when the market breaks high after taking a pull back and pull back is of at least 5-7 candle. If the number of candles are less then 5-7 then it will not be treated as pull back and when no pull back and obviously no BOS will be considered.
🔸A pull back will also be valid if any candle close below low of the candle that created high.
🔸Also note if market break low or high and unable to close below low or above high respectively then it will be known as liquidity sweap. If it creates lower lows then this breaking of low will be known as CHOCH not liquidity sweap. The main thing to note is that when markets sweap liquidity of higher low and again break last higher high instead of continuing bearish trend markets show much bigger moves as compared to first.
i4. Use Of BOS In Trading:-
🔸 Basically BOS is used to find out continuation of upward move or downward move. (As we already said we do spot trades only so we will focus on upward moves). So, you have to execute your setup according to your analysis but when creation of BOS stops before hitting t.p then try to trail s.l behind low that created recently. In this way you can maximize your profits.
5. Change Of Character (CHOCH):-
🔸When trend get shifts from bullish to bearish then to point out it we say Change Of Character is created means trend has reversed. When market stop creating higher high and create a lower lows means break recent low ( 1st low) and then creat lower high ( move downward before reaching recent high) and then create a lower low ( lower then last low (2nd low)) then first low will be known as CHANGE OF CHARACTER as shown in figure.
Change Of Character (CHOCH)
There are two types of CHOCH :
Internal CHOCH
External CHOCH
Internal CHOCH
The above chart represents internal CHOCH. It happens between a swing high and swing low.
External CHOCH
That CHOCH is the main choch that happens when a major structure breaks.
🔸Now look on chart when first low will get break and 2nd low created then it will be known as CHOCH .
6. How To Use CHOCH In Spot Trading?
🔸 Basically BOS and CHOCH are used combinely in spot trading. When you see a CHOCH is created then shift your s.l at second low. It will help sometime (70%+) to avoid bigger losses and sometimes you will get trapped.
I hope you understand both the CHOCH and BOS concept. If you still have a question then ask in the comment we will reply ASAP.
7. BTC Quick Update:-
🔸 Currently #BTC ☀ is trading at $114.6K. A trendline marked that BTC yesterday broke and closed above. All we need, BTC should hold that trend line and should close 1D above that trendline. If that happens all is good if not happen we will set s.l for our BTC trade that has avg. buying price $116.7K
