How can technical indicators detect liquidation events and patterns?

Liquidity events are desired to be caught as one of the beautiful actions taken in technical analysis. Volume and volatility increases when liquidity occurs. In FX market, since pairs are traded, buying and selling can mean a significant ride of liquidity and the increasing factor of volume and volatility in the market shows that confirmation.

Short Interest and the amount of money lost by short sellers are some of the key components to understanding sudden upward price movements.

In MACD the momentum from the lower band to uppre band signify how strong and healthy the momentum is for buy and sell bias in the market. Oscillators like stochastic and RSI can as well tell when they got to over bought and over-sold region on their scaling range. That means a significant liquidity opportunity. IF this is combined with price action, it increases the profitability index.

This seems to be written from the perspective of the long side. We have found that Short Interest informs the long buyer and seller as to what the market knows that they don’t.

My main technique for identifying a reduction in momentum is Divergence between the price and the oscillators, specifically MACD. MACD is a great tool that can warn you about ending a trend and losing momentum by making a divergence top or bottom compare with the price. This is one of my trading tools for 3 years.

Candlestick like bullish marubozu, bullish engulfing,, long-wicked hammer on a support zone are significant signs of liquidity event that is about to take happen at that zone. Patterns like ascending triangle will show different strength level in the direction of the strongest trend by breaking out of a triangle, this is a simple show of liquidity, the buyers are ready to break above that price zone and continue to buy powerfully to a premium price range. Candlesticks and patterns are powerful price action concept that can help identify liquidity events in the market.

The definition of “technical” has changed quite a bit. It is not just price action as seen through charting. The new definition will include constraints on factors as well as Crowding, Short Interest, Classification, Cohort sampling and the like.

Technical indicators will contribute a significant input to how a technical analyst maximize a liquidation event. The first step is to choose the most aligning technical indicator for a TA trading style. Liquidation can be spotted with aids of indicators, like MA crossover, MACD crossover above or below the baseline. RSI over-bought and over-sold with anchoring candle pattern on price action. There are many ways to maximize opportunities with technical indicators.

Technical indicators are not all needed to guarantee maximum success in technical analysis, I personally believe that technical indicators should be complementary to price action to enhance higher dimension of profitability in the market space.