ICT Theory × Institutional Investors & Smart Money | Part ③ “Liquidity Hunting”
What is Liquidity?
Liquidity is translated into Japanese as “流動性” and refers to a point in the market wherea large number of orders are concentrated, a term used by professionals.
Institutions Target Liquidity
Institutional investors look to the areas where individual traders’ orders are concentrated in order to hide their own large orders. However, placing a large order all at once would move the price significantly. Therefore, they take advantage of the liquidity of individual traders.
Places where liquidity gathers
Main liquidity pools
Previous highs/lows
Prices that many traders are watching
Clustered orders aiming for breakouts
Psychological prices (round numbers)
Numbers like 100.00, 110.00, etc.
Prices where individual investors easily place orders
Important support and resistance
Price ranges that have repeatedly rebounded
Many traders pay attention to them
Trendlines
Near upward or downward trendlines
Accumulation of breakout orders awaiting breakout
Concentration points of stop-loss orders
Individual investors’ stop losses
A perfect target for institutions
Types of liquidity
Buy-side Liquidity
Above the previous high
Above the resistance line
Concentration of individual sell stop orders
Sell-side Liquidity
Below the previous low
Below the support line
Concentration of individual buy stop orders
Mechanism of liquidity hunting
Liquidity Hunting Steps
① Identify the liquidity pool
② Break in that direction once (to fool individual investors)
③ Individuals jump in / cut losses
④ Use those orders to build large positions
⑤ Move the price in the true direction being targeted
Example: Buy-side liquidity hunting
Price movement (break previous high → quick drop)
① Break briefly! → Individuals jump in thinking “it’s broken out!”
② Rapid drop begins! → Real target of institutions
③ Result → Individuals are forced to buy at the high and soon cut losses
Example: Sell-side liquidity hunting
Price movement (break previous low → rapid rise)
① Break briefly! → Individuals sell thinking “it’s broken below!”
② Rapid rise begins! → Real target of institutions
③ Result → Individuals are forced to sell at the low and soon cut losses
How to spot liquidity hunting
Liquidity hunting is a typical move where institutions target individual traders’ stop orders. By understanding its characteristics, you can greatly reduce the risk of falling for a deception. If you see combinations like the conditions and price actions below, you should be cautious.
Conditions where hunting occurs easily
Prices moving near important levels
Approaching previous high/low
Price levels that repeatedly rebound
Rapid breakouts
Strong momentum past important levels
Breakthrough with a large candle
Immediate reversal after the move
Return to the original price range soon after breakout
Reversal within 30 minutes to 2 hours
Sharp increase in volume
During breakout, trading volume surges, then volume decreases
Watch out for after-hunt signs!
Right after liquidity hunting, the market’s direction can flip dramatically. A move that briefly breaks highs or lows and then reverses can be evidence that institutions have placed positions. If you panic and follow, you can get caught in a deception, but if you read the signs correctly, it can present a big opportunity. Below are signs after a hunt.
Downward signs after buy-side liquidity hunting
Briefly break above the previous high
Formation of a long upper shadow on a bearish candle
Immediately fall back below the high
Large selling volume
Upward signs after sell-side liquidity hunting
Briefly fall below the previous low
Formation of a long lower shadow on a bullish candle
Immediately rise back above the low
Large buying volume
Characteristics of liquidity hunting by time zone
Asia session (8:00–16:00)
Characteristics: Many small hunts
Targets: Levels under 4-hour
Note: Many false breaks, proceed with caution
London session (16:00–24:00)
Characteristics: Large-scale hunts occur
Targets: Important points on the daily chart
Recommendation: The best time window to target
New York session (21:00–05:00 next day)
Characteristics: Fierce hunts and reversals
Targets: Extremely important weekly-chart levels
Note: Price movements are volatile; money management is crucial
Overnight (5:00–8:00)
Characteristics: Low liquidity; hunting is less frequent
Recommendation: Avoid entries
Utilization: Use to verify hunting results
Notes for liquidity hunting trading
Trading that uses liquidity hunting can be highly profitable, but it also carries unique risks. To succeed, it is important to understand common failure patterns and implement appropriate countermeasures.
Common failure patterns
① Falling for false hunts
Falling for false hunts is one of the most frequent mistakes. Distinguishing real breakouts from liquidity hunts is not easy. Especially during important economic releases or in ongoing strong trends, moves that look like hunts can actually be genuine breakouts. Entering too early without sufficient reversal confirmation can lead to large losses.
② Slippage due to late stop losses
This is also a serious issue. Many traders cannot cut losses even when levels are clearly being updated, due to the belief “this must be a hunt.” The market is always right, so you must be flexible enough to accept that your analysis might be wrong.
③ Timeframe confusion
This leads to strategic errors. Mistaking a small 15-minute hunt for a major daily-hunt, or ignoring the big trend on higher timeframes and focusing only on lower-timeframe moves can cause you to miss the overall direction.
④ Early entry timing
You may miss profits you should have captured or incur unnecessary losses. Entering before hunting confirmations or jumping in without clear reversal signals lowers success rate significantly.
Tips for success
①Check the higher-timeframe trend
Reviewing higher-timeframe trends is essential. Understand the daily or 4-hour trend direction and identify key support/resistance levels before analyzing liquidity hunts. Hunts aligned with the higher-timeframe trend have higher success probability than those against it.
② Be patient and wait
This is also crucial. Wait calmly for the hunt to complete, and refrain from entering until clear reversal signals appear. The market always has opportunities, so there is no need to trade in uncertain situations.
③ Layer multiple confirmations
By layering multiple confirmations, you can greatly improve win rate. In addition to simple liquidity hunting, combine with order blocks and FVG, and consider time of day and market participants to achieve higher reliability in trades.
④ Proper money management
For long-term success, money management is the most important factor. Limit risk per trade to 2% or less of total capital, and aim for a win-loss ratio of at least 1:2, so even with a win rate around 60%, you can accumulate profits over time.
Complete understanding of institutional investor psychology
Why do they hunt?
Efficient execution
Use individuals’ orders to execute large trades
Minimize slippage
Legality of market manipulation
Within the scope of technical analysis
Methods that do not violate regulations
Exploitation of individual psychology
Induce FOMO (fear of missing out)
Encourage panic selling
Summary
Liquidity Hunting= a strategy where institutions use individual orders
Where hunting takes place: previous highs/lows, support/resistance, psychological prices
How to spot it: rapid break followed by immediate retrace
Strategy: after confirming hunting, enter in the opposite direction
Combination: use with OB and FVG to increase win rate
Key to success: patience and calm judgment
Don’t get caught by the hunt; instead, use the hunt. This is the survival strategy for individual investors.