Liquidity
By the end, you can explain liquidity and how consuming it moves price.
Fuel in a tank. Liquidity is the supply of resting orders. A move burns through it. When the fuel at one price runs out, price jumps to the next place fuel exists.
Liquidity is the available orders waiting to trade at each price. Deep liquidity means lots of resting contracts; thin liquidity means few.
Price rises when aggressive buyers consume the sell liquidity above the market. Price falls when aggressive sellers consume the buy liquidity below it. When the resting orders at a price are used up, price moves to the next level that has any.
This is why price can move fast through 'empty' areas and stall where lots of orders rest. It's not magic — it's supply being eaten.
“Price shot up for no reason.”
“Buyers cleared the sell orders overhead; with little resting supply above, price travelled quickly to the next liquidity.”
What is liquidity?
- Liquidity is the resting orders available to trade.
- Consuming sell liquidity lifts price; consuming buy liquidity drops it.
- Price moves fast where liquidity is thin, stalls where it's deep.
Up next — Now that you know what moves price, let's read the record it leaves behind. Next: the candle.