1. Welcome to the Next Level of Liquidity Mastery
📌 Liquidity is the fuel that drives the market. Smart Money knows this—and now, so will you.
In the ICT Essential Course, we covered how price seeks liquidity and how institutions use liquidity pools to trap retail traders. But in this chapter, we take it deeper.
🚀 By the end of this chapter, you will understand:
✔️ How liquidity inducement works and why Smart Money engineers fake breakouts.
✔️ The key difference between real breakouts and liquidity sweeps.
✔️ Why institutions push price into stop-loss zones before reversing.
✔️ How to position yourself to trade against retail traps and with Smart Money.
This is Dave – No Nonsense Trader, and if you’re ready to stop falling for liquidity traps and start trading like institutions do, let’s dive in.
📌 Image Guide:
📷 Suggested Image: A side-by-side comparison of a liquidity trap vs. a real breakout.
🎨 AI Prompt:
“Design a trading infographic illustrating liquidity inducement vs. a real breakout. Highlight fake moves engineered by Smart Money and the correct way to trade liquidity grabs.”
2. Liquidity Inducement: The Art of Trapping Retail Traders
📌 Liquidity inducement is when Smart Money lures retail traders into making the wrong move.
How Does Liquidity Inducement Work?
1️⃣ Price moves toward a key level, encouraging retail traders to enter.
2️⃣ Retail traders get trapped as price spikes beyond their stop-loss zones.
3️⃣ Institutions absorb the liquidity and reverse price in the opposite direction.
🔍 Example:
A retail trader sees a resistance level being broken and enters a long position, thinking it’s a bullish breakout. Smart Money sweeps liquidity, reverses price, and drops the market—stopping them out.
Meanwhile, Dave – No Nonsense Trader and other Smart Money traders wait for the stop hunt to finish, then enter in the right direction.
📌 Image Guide:
📷 Suggested Image: A trading chart showing a fake breakout liquidity inducement, with price sweeping stops before reversing.
🎨 AI Prompt:
“Create a trading chart illustrating a liquidity inducement scenario, where price sweeps stop-losses above resistance before reversing downward. Include clear annotations for Smart Money vs. retail traders.”
3. Engineered Liquidity & Fake Breakouts
📌 Smart Money does not trade breakouts the way retail traders do. Instead, they engineer liquidity by manipulating price.
The 3 Types of Engineered Liquidity Traps
✔️ Equal Highs & Lows Liquidity Trap – Price consolidates, attracting retail traders before a sudden stop hunt.
✔️ Breakout & Reversal Trap – A move beyond a key level followed by a strong reversal.
✔️ News-Based Stop Hunt – A high-impact news event used to sweep liquidity before the real move.
🔍 Example:
Before a major news event, Smart Money pushes price above a key swing high, triggering retail breakout traders. Once retail traders pile in, Smart Money absorbs their liquidity, reverses price, and moves in the opposite direction.
This is why Dave – No Nonsense Trader always emphasizes: liquidity sweeps come before the real move.
📌 Image Guide:
📷 Suggested Image: A chart with three liquidity trap examples, showing engineered price manipulation before a reversal.
🎨 AI Prompt:
“Design a trading chart illustrating three types of engineered liquidity traps in ICT trading: equal highs/lows stop hunt, breakout reversal trap, and news-based stop hunt. Use clear annotations for each setup.”
4. Liquidity Voids & Imbalances: What Happens After Stop Hunts?
📌 Liquidity voids (Fair Value Gaps) appear after aggressive price moves.
What Do Liquidity Voids Tell Us?
✔️ They show where price moved too fast, leaving unfilled orders.
✔️ They act as magnets—price tends to retrace into these zones.
✔️ Smart Money often enters at the retracement into a liquidity void.
🔍 Example:
If price sweeps Buy-Side Liquidity (BSL) and moves aggressively downward, a liquidity void forms. Smart Money may enter short on a retrace into this area.
This is why Dave – No Nonsense Trader teaches traders to wait for price to return to these zones before entering a trade.
📌 Image Guide:
📷 Suggested Image: A trading chart showing a liquidity void forming after a major stop hunt, followed by price retracing into it.
🎨 AI Prompt:
“Create a trading chart illustrating a liquidity void (Fair Value Gap) forming after a liquidity sweep, followed by price retracing into the imbalance before continuing in the original direction. Use clear annotations.”
5. How to Trade Against Liquidity Inducements
📌 Now that you understand how institutions create liquidity traps, let’s talk about how to trade them.
Step-by-Step Guide to Trading Liquidity Inducements:
1️⃣ Identify the Liquidity Zone – Find where retail traders will likely place stop-losses.
2️⃣ Wait for the Liquidity Sweep – Let price hunt stops before making your move.
3️⃣ Look for a Confirmation Signal – Order Block, Fair Value Gap, or BOS confirmation.
4️⃣ Enter in the Direction of Smart Money – Trade against the liquidity trap, not into it.
5️⃣ Manage Risk & Target Next Liquidity Pool – Follow proper risk management.
🔍 Example:
Instead of chasing a breakout, Dave – No Nonsense Trader waits for the stop hunt, enters after price confirms the reversal, and rides the move in the right direction.
📌 Image Guide:
📷 Suggested Image: A trade setup using liquidity inducement, showing price sweeping liquidity, confirming, and then reversing.
🎨 AI Prompt:
“Create a trading chart illustrating a successful ICT trade setup using liquidity inducement. Show price sweeping liquidity, confirming a reversal, and Smart Money entering in the correct direction.”
6. What’s Next?
🔥 In the next chapter, we take this even further. You’ll learn:
✅ How to refine Order Block & Fair Value Gap entries.
✅ How to combine liquidity sweeps with institutional entry models.
✅ Why Smart Money moves price in fractal cycles across multiple timeframes.
📌 Key Takeaways from This Chapter:
✅ Liquidity inducements trick retail traders—don’t fall for them.
✅ Engineered liquidity is Smart Money setting up stop hunts.
✅ Price moves fast after a liquidity grab—watch for liquidity voids.
✅ Wait for the sweep, confirm the entry, then trade with Smart Money.
📌 Next Up: Chapter Three – Refining Order Block & Fair Value Gap Entries 🚀
🔥 You’re now beginning to see the markets through the eyes of Smart Money. Keep going!