Why Market Liquidity Can Be More Important Then You Think.

[bill colton]

Traders will spend a lot of time looking at price action, support and resistance levels, and technical indicators when analysing the markets. But there is another factor to consider.

Market liquidity.

Liquidity is how quickly you can buy/sell an asset with little impact on price.

High liquidity means there are generally more people buying and selling which can make larger orders easier to place. Low liquidity can mean that even smaller orders are having an impact on price.

This can also cause a widening in spreads when there is major news, low volume, and market uncertainty.

Knowing and understanding liquidity can help you make better decisions with your entries, sizing and risk of your executions.

Lastly a question, do you take liquidity into consideration when entering trades, or do you just look at technicals?