0:00

Hi and welcome to the Day

0:02

Trading for Beginners podcast. This is

0:04

season 3 episode 3 and in

0:06

this episode we're talking about liquidity

0:08

grabs and market maker. So if

0:10

you've ever heard of the term

0:12

a liquidity grab or you've heard

0:14

people talk about market makers, hopefully

0:16

after this podcast you have a

0:19

better understanding of this. Now this

0:21

is kind of a timely podcast

0:23

as well. I'm recording this on

0:25

Sunday March 16th and We've seen

0:27

the beginning of March 2025, the

0:29

market has certainly crashed a little

0:31

bit to some support levels. And

0:33

what will happen maybe if we

0:35

look back at the end of

0:37

March, we might notice that this

0:40

whole month is just one big liquidity

0:42

grab. So if we were to go

0:44

to a monthly chart and look at

0:46

the monthly candlestick on the SPY or

0:48

some major stocks, we might notice that

0:51

there's going to be a big wick

0:53

down to low levels. But by the

0:55

end of the month, perhaps it closes

0:57

a little higher. And that is a

0:59

good example of a liquidity grab. So

1:01

in the previous podcast, we talked about

1:04

market structure right around this time of

1:06

the year as well. You know, people

1:08

are very scared. The fear index is

1:10

up. But if we kind of step back

1:12

and look at the high time frame support,

1:14

you know, is the market structure still intact?

1:17

Well, very well, it could be still intact.

1:19

It might just be a higher low, not

1:21

a bare market. And, you know, you know,

1:23

people are just scared. what the market maker

1:25

sometimes do. So, you know, it's the middle

1:27

of March. At the end of March, we

1:30

might look back and say, everything's fine. It's

1:32

just a normal retrace. The market scared everyone

1:34

out to sell their shares at a low

1:36

price and they scoop them all up and

1:38

then the price rebounds up. So that's sort

1:40

of in line with what a liquidity grab

1:43

is that we'll talk about. Market structure

1:45

is key and it sort of is

1:47

timely to kind of record to kind

1:49

of record this podcast right. Now, so

1:51

I am Tyler Stokes from Stokes Trades.com.

1:54

I'm on a journey to become a

1:56

full-time trader and just some notes before

1:58

we do get started. in the show

2:00

notes below. If you are a beginner, this

2:03

is your first episode. Certainly go and download

2:05

the six month blueprint because that's going to

2:07

help you get on the right path to

2:09

learning how to become a day trader and

2:12

how to trade the markets. It's a nice

2:14

path to doing the right things in the

2:16

right order. And then we do have a

2:18

community on school where you can find accountability

2:21

partners. You can link up with the group

2:23

as well and find all of our resources

2:25

there and that is free and you can

2:28

find those links. in the show notes

2:30

below the podcast. Okay, so liquidity

2:32

grabs and market makers, let's talk

2:35

about what they are. You know, if

2:37

at this stage you've been studying or

2:39

you've looked at any sort of price

2:41

chart before, even just a little bit,

2:43

you've probably seen scenarios

2:46

where price potentially crashes below what

2:48

we think is a safe level or

2:50

it spikes past. a resistance level only

2:52

to snap back to the norm, so

2:55

to speak, or a previous level. So

2:57

it can be a little wild, a

2:59

little bit confusing, the price drops and

3:02

then rebounds or goes really high and

3:04

then comes back to sort of a

3:06

retrace level. And we're wondering, you know,

3:09

is someone pulling the strings behind the

3:11

scene? So, you know, what if you

3:13

could kind of figure out why these

3:16

swings happen? Or what if you could

3:18

stop? feeling lost and start sort

3:20

of turning these moves maybe into

3:23

opportunities when you actually start trading.

3:25

So that's what we're going to

3:27

talk about in this podcast liquidity

3:30

grabs. When I talk about those

3:32

sneaky price jolts that scoop up

3:34

shares and talk about who they might

3:36

be when people talk about they're pushing

3:38

the price down, who are these kind

3:40

of big players? So that's what we're

3:43

going to talk about here. So what is

3:45

a liquidity grab? is when price

3:47

takes a sharp detour. So plunging

3:49

below support or kind of rocketing

3:52

past resistance to snatch up shares

3:54

or cash that's waiting there. So

3:57

if you want to just picture

3:59

like a big net sweeping

4:01

through, grabbing what's available, and

4:03

then price bouncing back like

4:05

nothing happened. And it's often

4:07

tied to two things. Often

4:09

tied to two things, stop

4:11

loss orders and then leverage

4:13

liquidation. So stop loss orders,

4:15

you know, stop losses, that's

4:17

like your get me out

4:19

kind of button. So say

4:22

you set a stop at

4:24

a price of 4950 on

4:26

a stock. which is below

4:28

maybe a $50 support for that

4:30

particular stock. Well, if lots of

4:32

other traders also pick that spot,

4:35

then a quick dip is gonna

4:37

trigger a big sell-off and it's

4:39

gonna amplify the drop. So if

4:41

everyone has a stop loss on

4:44

a particular price, and the price

4:46

reaches that, then ding-ding-ding-ding-ding-ding, all those

4:48

orders are gonna be activated, and

4:50

the price is gonna fall even

4:53

further. And then we also have

4:55

leverage liquidation. So if people. often

4:57

they trade with poor cash. So

4:59

if there's a big swing, then that

5:02

might wipe out the margin that people

5:04

are betting with, forcing the broker

5:06

to dump share. So if you

5:08

bought on margin when, for example,

5:11

Bitcoin was back at around

5:13

100,000, and then it dropped all the

5:15

way down to in the 70s, well,

5:17

you are going to get a margin

5:19

call and many other people that have.

5:22

bought on margin at that high

5:24

price are going to get called

5:26

and when the price retraces enough

5:28

it's going to force you to

5:30

sell to meet your margin requirements

5:32

and there becomes more selling pressure,

5:34

sell, sell, sell, and the price

5:36

drops even more. So you know these

5:38

price hits, they happen at these hot

5:40

spots, the liquidity gets sucked up,

5:43

these shares or these orders get

5:45

sucked up, and then eventually it

5:47

reverses. once the quote-unquote net is

5:49

felt full from our analogy there.

5:51

So that's sort of why some

5:54

of these liquidity grabs happen and

5:56

we'll talk exactly about you know

5:58

what it means by grabbing. liquidity.

6:00

But those are the two main reasons.

6:02

People have stop loss orders that all

6:05

get triggered at the same time and

6:07

causes buy or sell pressure. And then

6:09

when people are leveraged and the price

6:11

goes the wrong way, they are forced

6:13

to sell when the price drops too

6:15

much, triggering a whole bunch of orders, a

6:17

whole bunch of avalanche of cell orders,

6:20

and then the price goes down, down,

6:22

down, down, down. So that's sort of

6:24

the main idea behind what's causing some

6:26

of these liquidity grabs. who are they?

6:28

Well, you know, when I've been studying

6:31

for the last year or so, and

6:33

I'm watching some stock analysis, you know,

6:35

I hear people say they are running

6:37

the price down, and they basically

6:40

refers to what's called a market

6:42

maker, but like who are these

6:44

market makers? Well, market makers, they

6:46

can see where a lot of orders

6:49

are, like the stop losses. They

6:51

can see the cluster based on

6:53

order flow or market patterns. So

6:55

not direct data, but they... do

6:57

have a good idea of where

6:59

a lot of stoplaces might be.

7:01

So if they push prices towards

7:04

those levels by buying or doing

7:06

a lot of selling at large

7:08

scales, then they can trigger those

7:10

orders and then they can grab

7:12

up shares at a cheaper price

7:14

or sell shares at a higher

7:16

price. So the market makers, they

7:18

are big players who keep trading.

7:20

flowing smoothly in the financial markets

7:22

and they play a key role

7:24

in these liquidity grabs. So you

7:26

can think of them sort of

7:28

as storekeepers with deep deep pockets,

7:30

fast tech, and they're ready to

7:32

buy or sell when a trade

7:34

is happening. So they're not sort

7:36

of random people. They are specific

7:38

types of people in institutions. So

7:41

you can think like specialized trading

7:43

firms. You may have heard of

7:45

a company called Citadel Security. So

7:47

they're just built for trading. Big

7:49

banks can be Marketmakers, so JP

7:51

Morgan Chase, Goldman Sachs, and so

7:53

on. And there's broker dealers. So

7:56

even, you know, firms like interactive

7:58

brokers, they might fill some orders.

8:00

themselves and may be acting as a market

8:02

maker. And then you've got exchange

8:04

helpers as well. So places like

8:06

the New York Stock Exchange, you'll

8:09

have designated market makers that just

8:11

are assigned to specific stocks to

8:13

ensure that there's always action. There's

8:15

always someone on the buy side

8:18

or the sell side. So these

8:20

heavy quote unquote hitters with the

8:22

money, speed and approval to make

8:24

the market. So in the context

8:26

of these liquidity grabs where prices

8:29

might dip or spike to trigger

8:31

orders like stop losses, the market

8:33

makers are often the ones with

8:35

the tools and the data to

8:38

influence those moves, whether intentionally or

8:40

not. So they aren't in control

8:42

of the whole market all the time, but

8:44

many times, especially in the short term.

8:47

these market makers can influence the price.

8:49

They can do it with news narratives

8:51

as well. So long term, you know,

8:53

the fundamentals of companies will play out,

8:56

but in the short term, they can

8:58

be a lot of volatility, and these

9:00

market makers can sometimes influence prices. And,

9:02

you know, you can go into more

9:04

detail and learn more about this. You

9:07

know, there's other reasons where they might

9:09

be doing this with options as well.

9:11

So when options expire at the end

9:13

of certain weeks, there's always a price

9:15

that, you know, beneficial for some market

9:18

makers and you'll often see that price

9:20

kind of hits that price exactly right

9:22

around there. So they can influence price

9:25

short term. So in terms of liquidity,

9:27

now you might hear that, you

9:29

might not quite understand what that

9:31

means. So what is liquidity in

9:33

this context? Well, when we say

9:35

grabbing liquidity, so the market makers

9:37

went and swooped up all that

9:39

liquidity, in the context of these

9:41

market makers, it's a strategic process

9:44

where They take advantage of clusters

9:46

of orders in the market to

9:48

execute trades that will

9:50

benefit their position. So liquidity

9:52

refers to the availability of buy

9:54

and sell orders in the market

9:57

that allow trades to occur without

9:59

any. any price slippage. So slippage is

10:01

like when you put it by order

10:04

in for 50 and it doesn't execute

10:07

50 and 10 cents sort of thing.

10:09

So there's a bit of slippage

10:11

there because there might not be

10:13

enough buy and sell orders that

10:15

match up whether there's not a

10:18

lot of trading on that particular

10:20

security and so on. So when you

10:22

have a lot of liquidity you

10:24

really have low price slippage. So

10:27

clusters of orders. Such as we've

10:29

mentioned stop loss orders, limit orders,

10:31

or pending trades, when they're concentrated

10:33

at specific price levels, they represent

10:35

a lot of liquidity, like a

10:38

pool of liquidity, essentially orders that

10:40

are waiting to be triggered. So

10:42

in that example, when the price

10:45

is at $50 and there's a

10:47

whole bunch of stop loss orders

10:49

at $49.50, if that's a ton

10:51

of liquidity, there are orders that are

10:53

placed by people. that when the stock

10:56

hits 4950, they're going to sell out.

10:58

So that's a lot of liquidity. That's

11:00

a lot of orders that are just

11:02

waiting to be executed if

11:05

price gets there. So what grabbing liquidity

11:07

means is that when the

11:09

market makers deliberately influence the

11:11

price movements to trigger those

11:13

clusters of orders, allowing them

11:15

to fill their own position.

11:18

So here's a few little

11:20

examples of how that might work.

11:22

First, they identify the clusters

11:24

or the orders. So market makers,

11:26

they can infer where large concentrations

11:29

of orders exist by analyzing

11:31

order flow, market patterns, or even

11:33

historical data. So they might detect

11:35

a significant number of stop loss

11:38

orders that is just below a

11:40

support level. So that's very common

11:42

in the trading. world, you know, you've

11:44

got support areas where the stock should

11:47

hit that air that support area and

11:49

bounce back, there's going to be a

11:51

lot of stopos orders under that level.

11:53

So that's one example. Pushing prices to

11:56

trigger these orders. So by strategically buying

11:58

or selling in large volume, they can

12:00

drive the price towards these clusters.

12:02

So for example, they can push

12:05

pushing the price down to hit

12:07

a group of stop losses, turns

12:09

those orders into market sell

12:12

orders, creating a wave of

12:14

activity that the market maker can

12:16

use. So pushing the orders down,

12:18

forcing people to sell, and they

12:20

can swoop in and buy those

12:22

orders that are now. relatively cheaper

12:24

and then the price will rebound

12:26

back up. So when these orders

12:28

are triggered, the market maker often

12:30

takes the other side of the

12:32

trade. So if a stop loss

12:34

is our hit and becomes sell

12:36

orders, the market maker can absorb

12:38

those shares buy them up conversely

12:40

if they push the prices up

12:42

to trigger a buy stop or

12:44

a take-profit order, they can sell

12:46

into that demand. So that's often

12:48

when stocks reach an all-time high. and

12:50

it's at a resistance level, you might

12:53

have some market makers that are pushing

12:55

that price up, and then they sell

12:57

at the top, retail, buy at the

13:00

top, and then the stock retraces,

13:02

and you know, retail traders are

13:04

left buying at all-time highs, and

13:06

the stock retraces back, and those

13:08

market makers have sold their shares

13:11

to you at a high price.

13:13

So that is the gist of

13:15

how these liquidity grabs work and

13:17

how these market makers can influence

13:19

this. trigger stop-loss orders or manipulate

13:22

price action. It often exacerbates poor

13:24

trading habits, like I just mentioned,

13:26

with these retail traders. So, you

13:28

know, retail traders may pan-exel at

13:30

support levels where prices historically are

13:32

more likely to bounce. And that's sort

13:34

of what we're seeing in the market now.

13:37

You know, a lot of people that are

13:39

trading or selling, you know, Bitcoin in the

13:41

70s. Maybe that's going to turn out...

13:43

70,000, maybe that's going to turn out to

13:46

be a bad move. If you're a retail

13:48

trader that owned Tesla and you had this

13:50

big drawdown and you panic sold in like

13:52

the low two-twenties, if you look at the

13:55

end of the year, I think Tesla could

13:57

be much higher than 220. So that is

13:59

what... the market makers can do with

14:01

fear, greed, they can force retail traders

14:04

to make bad moves. So this leads,

14:06

again, retail traders to dump positions

14:08

at the worst possible time. And

14:10

on the flip side, when prices

14:12

are pushed up to trigger those buy

14:15

stop or those take profit orders,

14:17

the retail traders often chase the

14:19

momentum and they buy at all-time

14:21

highs, hoping that the trend continues.

14:23

And if you've ever seen that

14:25

meme where people are outside of like

14:27

an office building, It's just a cartoon

14:30

and it's like Tesla at $420 and

14:32

the line is huge and then you've

14:34

got Tesla at $220 and no one

14:36

wants to buy. That is generally the

14:38

mentality of retail traders. No one wants

14:41

to buy when a stock is at

14:43

a low support level because they're scared.

14:45

Everyone wants to buy when prices run

14:47

up and they think it's going

14:49

to keep going up and up

14:52

and unfortunately you can get trapped

14:54

in that scenario. So essentially the

14:56

market makers their ability is to

14:58

fill their own positions by absorbing

15:01

shares or selling into demand to

15:03

to take advantage of the

15:05

emotions and the undisciplined tendencies

15:07

of many retail traders. So,

15:09

you know, why did they

15:11

do this? Well, obviously profit,

15:13

you know, they can trigger

15:15

these orders allowing the market

15:17

makers to capture favorable

15:20

price levels. So, you know, when example

15:22

right now, if you've watch Bitcoin a

15:24

little bit, it went up to over

15:26

100,000, and it retraced back I think

15:28

to like 71 or in the mid-70s.

15:31

Well, you know, if the market makers

15:33

forced that selling and they scooped up

15:35

and bought Bitcoin, it's, you know, 75,000,

15:37

let's call it that, you know, if

15:39

you look at that in the next

15:42

coming months or at the end of

15:44

the year, that could be a really,

15:46

really good trade. Same with Tesla, they've

15:48

pushed Tesla down to the low 200,

15:50

If we look at what Tesla is going

15:53

to be at the end of the year,

15:55

that could be a really, really great trade.

15:57

So they will profit from these liquidity grabs.

15:59

And there's other reasons too. management so market

16:01

makers they often need to balance

16:03

their holding so grabbing liquidity at

16:06

times can help them acquire or

16:08

offload shares as they need to

16:10

manage their inventories that's a little

16:12

bit more technical and market impact

16:15

so by triggering these orders they

16:17

can create momentum or volatility that

16:19

aligns with their broader trading strategy

16:21

so again you know the whole talk this

16:23

month has been these market makers

16:25

are just trying to scare the

16:28

market and forcing people to sell

16:30

low low low and you know soon

16:32

hopefully we're going to see a rebound

16:34

back so this could be a great

16:37

time to buy some stocks and certainly

16:39

this is not financial advice but you

16:41

know to buy things when they're come

16:44

down when everyone's scared is generally a

16:46

really good time to buy investments so

16:48

if you want to just do a

16:50

few more examples and then we'll wrap

16:53

this up so If we imagine a

16:55

stock trading at a certain price, there's

16:57

a cluster of stop loss orders sitting

16:59

just below a key support level, a

17:01

large player might sell the asset to

17:04

drive the price down to that level,

17:06

triggering those stop losses, as the sell orders

17:08

hit the market, they buy the

17:10

asset at the lower price. So

17:12

we kind of talked a little

17:14

bit about that. Another example, if

17:16

you imagine that a stock surged

17:18

all the way to... maybe an

17:21

all-time high of 150 with significant

17:23

hype driving the retail traders to

17:25

buy it aggressively. They expect the

17:27

rally to continue. Many of these

17:29

traders place their buy orders around

17:31

this level, which unfortunately sometimes is

17:33

a key resistance zone where past

17:35

selling pressure has emerged and what

17:37

sits above that level is a

17:39

lot of resistance. So a market maker

17:41

or large player sees this cluster of

17:44

buy orders around this area. And

17:46

they might initially push the price to,

17:48

you know, higher than 150 up to

17:50

150 true, maybe up to 151 or

17:53

152, triggering a whole bunch of, you

17:55

know, FOMO in the market. And instead

17:57

of breaking out, they're going to sell

17:59

in. to this and unload positions at

18:01

the peak. And then this buying dries

18:04

up the resistance that the price is

18:06

gonna reverse sharply sometimes dropping back

18:08

down. So that's a scenario that

18:10

sometimes happens. And if you look

18:12

at price charts, you can kind

18:14

of see that as well. If

18:16

you start scanning through price charts,

18:18

you can see these liquidity grabs

18:20

at support levels just below and

18:22

then at resistance levels as the

18:24

stock goes up high. It's gone

18:26

up too high and it's going

18:28

to have to come back down.

18:30

So the key takeaway, grabbing liquidity

18:32

means exploiting clusters of orders to create

18:34

favorable trading opportunities. The market makers,

18:37

they trigger these orders by influencing

18:39

price movements, allowing them to execute

18:41

trades that align with their goals,

18:44

whether for profit inventory management or

18:46

market impact. So it's a calculated

18:48

strategy to capitalize on the natural

18:51

flow up the market. Don't be

18:53

too discouraged because you can take

18:55

advantage of this as well. You

18:57

can now understand a little bit

19:00

what's happening and not get so

19:02

scared and not sell shares once

19:04

they've dropped through some support levels

19:07

and don't chase, you know, you

19:09

can learn not to chase as

19:11

well by understanding how these liquidity

19:13

grabs are happening. And for the

19:15

most part, a lot of this happens

19:17

in the short term, so these

19:19

market makers can influence the price,

19:22

but... So if you even have

19:24

some long-term investments that can be

19:26

quite volatile in the short term

19:28

over the long term, these market

19:30

makers can't do too much once

19:32

the fundamentals of a company sort

19:35

of eventually line back up. But

19:37

for short-term trading, certainly this concept

19:39

is something to keep in mind. It's

19:41

sort of like the market's wild

19:44

side driving prices below supports, leaping

19:46

past resistance only to kind of

19:48

boomerang. back and the market makers

19:51

they do this. They're big players.

19:53

They can snag up those shares

19:55

at discount or sell at premium

19:58

prices. So I hope that you found at

20:00

this useful. Hopefully now if you're watching

20:02

more analysis from anyone online and they're

20:04

talking about liquidity grabs or market makers

20:06

you have a bit of a better

20:08

understanding. As always with all these podcasts

20:10

always good to go and get some

20:13

more resources because some other people might

20:15

explain market makers a little bit differently,

20:17

a little bit better or they might

20:19

include things that we didn't touch on

20:21

in this podcast. So certainly. a good

20:23

intro to this topic as always but

20:25

certainly something that you might want to

20:28

look into and investigate a little bit

20:30

more your self and it will

20:32

be interesting again it's March 16th

20:34

I'm recording this podcast let's see what

20:36

happens at the end of March let's

20:38

see if this just turns into a

20:40

big wick on the charts and all

20:42

this selling pressure turns into just one

20:45

big liquidity grab and we bounce back

20:47

at the end of the month hopefully

20:49

and maybe maybe at the end of

20:51

April, it won't take too long for

20:53

us to kind of rebound out of

20:55

this. And, you know, again, not financial

20:57

advice, but sometimes these are the best

21:00

opportunities to make investments when

21:02

everyone's scared, when the market's pulled back

21:04

and the market eventually bottoms, you know,

21:06

looking forward to the next year or

21:09

so, this could be a good time to

21:11

buy some investments. Again, not financial

21:13

advice. So, thanks so much for

21:15

listening. Check out the resources in

21:17

the show notes. Download the six-month

21:19

blueprint stochstrays.com/blueprint and come join our

21:21

community on school where we can

21:23

maybe touch base and discuss more

21:25

of how the end of the

21:27

month is going in regard to

21:29

what's happening right now with a

21:31

lot of this sell-off. So thanks

21:33

so much for listening and we'll

21:35

talk to you in the next

21:37

episode.