Liquidity Concepts Explained
Equal highs, stop hunts, inducement, and premium/discount arrays — how to trade with the liquidity, not against it.
Liquidity, in trading terms, is the pool of resting orders sitting at predictable price levels — usually behind obvious swing highs and lows. Large participants need liquidity to fill size; retail stops provide it. Understanding where liquidity sits is understanding where price wants to go.
Equal highs and equal lows are the most reliable liquidity pools. Two or three swing points at the same price create a magnet. Sweep the level, fill the orders, reverse. This is the canonical stop hunt pattern.
Inducement is the cousin of liquidity — a minor swing that exists specifically to bait early entries. Recognizing inducement keeps you from getting picked off before the real move begins.
Premium and discount arrays divide the recent range into thirds. Bias toward selling in premium, buying in discount. Combined with structure, this gives you a simple filter for entries that consistently align with institutional flow.