Liquidity

Liquidity is one of the most important things to understand in ICT trading. It’s what price is always looking for.

In simple terms, liquidity means where other traders have placed their stop-losses. These stop-losses become buy or sell orders when triggered, and smart money uses those orders to fill large positions.

So, the market often moves toward these stops, takes them out, and then reverses.

Buy-Side Liquidity

Buy-side liquidity is found above recent highs.

Here’s why:

Traders who are short (betting that the price will go down) usually put their stop-loss above a high. If the price goes above that high, their stops get hit, and that becomes a buy order.

That group of buy orders is called buy-side liquidity.

Smart money targets that area, uses those buy orders to fill their sell trades, and then often reverses the market downward.

Sell-Side Liquidity

Sell-side liquidity is found below recent lows.

Traders who are long (betting the price will go up) usually put their stop-loss below a low. If the price goes below that low, their stops get triggered, and those become sell orders.

That group of sell orders is called sell-side liquidity.

Smart money uses those sell orders to fill their buy trades, and the price often reverses back up after that.

Displacement

Displacement means a strong move in the market. It’s when price moves quickly in one direction, usually after grabbing liquidity.

In ICT trading, displacement shows us that smart money (like banks or institutions) has stepped in and is moving the market. These moves are fast, powerful, and leave behind a clue, usually a Fair Value Gap (FVG).

You’ll often see big candles in the same direction, without many wicks or pullbacks. That’s displacement.

Bullish Displacement Move

A bullish displacement means the price moved sharply upward. It shows that buyers (smart money) are stepping in and pushing the market higher.

To spot a bullish displacement:

Look for at least three strong green candles in a row.

These candles should have big bodies and small or no wicks.

There should be little to no retracement.

A Fair Value Gap (FVG) will usually form between the candles.

That FVG acts as confirmation that the displacement is valid. It shows that the price moved so quickly that it skipped over certain price levels, leaving an imbalance behind.

Bearish Displacement Move

A bearish displacement is the opposite. It shows that sellers (smart money) are in control and pushing the market lower.

To spot a bearish displacement:

Look for at least three strong red candles in a row.

These candles should have big bodies and small or no wicks.

The move should be clean and strong with minimal retracement.

A Fair Value Gap (FVG) will often appear between the candles.

This usually happens after a price sweeps a swing high (taking buy-side liquidity), then quickly drops.

Just like with bullish displacement, the FVG confirms the displacement move. It marks the imbalance left behind as the price moved quickly.

Inducement

Inducement is a smart money concept in ICT that explains why price often seems to stop you out, just before it moves in the direction you expected.

In simple terms, inducement is a trap. It’s when the market tempts retail traders to enter a trade too early at the wrong level. Price looks like it’s ready to reverse or break out, and traders jump in… only to get stopped out moments later. After that, price moves exactly where they thought it would go in the first place.

This happens because smart money — large institutions, banks, or funds need liquidity to fill big positions. They use inducement to create that liquidity by getting retail traders to enter positions, place stop losses, or get emotional.

Retail traders become liquidity for the big players. Their stop-loss orders become buy or sell orders that smart money can use to get into or out of the market.