Market Structure & Liquidity

01

Reading Highs and Lows Correctly

Market structure is nothing more than highs and lows. That sounds simple, but almost everyone gets it wrong — not because the concept is hard, but because they mark the wrong swing points. A high or low only matters if it actually changed something: broke a previous level, or set up the next leg. Every candle technically has a “high” and a “low,” but only a handful on any chart are structurally significant.

Structure is the foundation everything else in this post sits on top of. If you can’t reliably mark the right swing points, none of the concepts below — liquidity, order blocks, bias — will line up the way they’re supposed to.

02

Manipulation vs Displacement

Once structure is marked, every move that tests it falls into one of two buckets. A move that pokes past a high or low and then quickly fails is manipulation — price was drawn there to trigger stops and fill orders, not to actually continue. A move that pushes through structure with real speed and conviction, leaving imbalance behind it, is displacement — that’s a signal of genuine continuation.

In short: manipulation tends to reverse, displacement tends to continue. Learning to tell the two apart in real time — before the candle closes, not after — is most of what separates a confident read from a guess.

03

External vs Internal Liquidity

Liquidity is just resting orders — stop losses and pending entries sitting above highs and below lows. I split it into two categories. External liquidity sits at the obvious highs and lows on the chart, the levels everyone can see. Internal liquidity sits inside the range, usually inside the imbalances left behind by displacement (see the FVG post for that concept in detail).

Price is always doing one of two things: reaching for external liquidity, or filling in internal liquidity on its way there. Once you start viewing every chart through that lens, most of the “random” wicks and pullbacks start to make a lot more sense.

04

Premium & Discount

Every price swing has a midpoint. Above that midpoint is premium — expensive relative to the recent range. Below it is discount — cheap relative to the recent range. If I think trading is a business, I want to be buying my “product” at a discount and selling it at a premium, the same way any business owner would think about inventory.

This is why a lot of reversals happen roughly around the midpoint of the previous leg — it’s not magic, it’s just where the last batch of buyers or sellers stopped being willing to pay up (or sell down) any further.

05

Order Blocks & Breaker Blocks

An order block is the last candle (or small cluster of candles) printed just before a strong, displaced move away from it. In an uptrend, that’s usually the last down-close candle before price expands higher — it tends to act as support if price comes back to test it. In a downtrend, it’s the mirror image.

A breaker block is what’s left behind after an order block fails — the level flips from support to resistance (or vice versa) once price closes back through it. I pay closer attention to breaker blocks around the times of day I already expect a liquidity sweep, since that’s when they tend to produce the cleanest entries.

06

Daily Bias & the Weekly Cycle

Daily bias is simply which side I expect today’s candle to close on — are buyers or sellers in control. Once that’s decided, the job during the session is just waiting for a lower-timeframe setup that agrees with it, instead of reacting to every wiggle on a 1-minute chart.

I build that bias around the four major trading sessions:

Zoomed out further, I also keep a loose weekly rhythm in mind — early week often behaves more like accumulation and testing, the middle of the week is where the bigger manipulation moves tend to show up, and the back half of the week is usually where the real distribution or trend continuation plays out. It’s a tendency, not a rule — I use it to set expectations, not to force trades.

07

Sizing Risk Around Drawdown

Structure and liquidity only tell me where to look — they don’t protect the account. The part that actually keeps me in the game long enough for the edge to play out is how I size risk relative to recent performance, not just per trade.

In practice: I hold size steady once a trade is at breakeven, I’m comfortable sizing up after a stretch of green trades, and I deliberately cut size back after a couple of losses in a row rather than trying to “win it back” at the same size. If I’m down two trades, or I hit one meaningful loss, that’s my cue to step away rather than force a third or fourth entry — most of my worst days came from ignoring that rule, not from a bad setup.