Draw on Liquidity Trading Strategy

Good morning. This is David from Trader Dale, and today we’re going to talk about a trade that we took this past Monday, May 18th, 2026. It’s a trade that I classify as a draw on liquidity trade. It’s a very high-probability trade. It typically doesn’t have the high risk-to-reward of 3:1, 4:1, or 5:1. It’s typically going to be in the 1:1 to 2:1 ratio. The one I’m going to show you today actually had a higher risk-to-reward, but this is a trade that you can really utilize almost every day, as long as you have an idea of where price is going. Meaning, what liquidity levels, whether they are a kill zone high or low, a pivot high or low, or maybe a fair value gap. This is a very powerful pattern and a tool that you can use, and it really presents itself almost every day. So, let’s dive in here and show you what I’m talking about. A draw on liquidity trade is basically a trade where you have a clear move in a certain direction with a clear target. In this case, it was the Asia lows, the kill zone lows, which are the overnight lows right here on Sunday, May 17th, before we came into the market on the 18th. Whatever you did above here, you got short and traded down into it. Typically, when we get into that 11:00 to 12:00 midday range, we tend to accumulate. So, basically, what we’re looking for is some type of accumulation, manipulation, and distribution setup into that draw on liquidity. A lot of times, what’s going to happen, and you see it here, is when the draw on liquidity is not reached and price consolidates, or in this case, tries to induce early buyers into the market, creating trendline liquidity here, we get a nice accumulation of price right above that level. So, in this case, in a short situation, you’re going to look for some type of accumulation, a manipulation of that accumulation, and then distribution to the draw on liquidity. Let’s just say, for argument’s sake, it is this red line. Now, in a long scenario, you would be looking for some type of accumulation, manipulation, and then distribution into that level. So, the example we’re going to show today is going to be a short trade. I have the NQ and the ES up at the same time. What we’re looking for is a clear draw on liquidity, which is the Asia low. Check. We’re looking for some type of accumulation and manipulation above that level. Here we have the accumulation. We’ve got trendline liquidity built up. This is engineered liquidity. When you have so many clean touches here, this is the market engineering liquidity. You’re bringing early buyers into the market. You’re also inducing more sellers to come into the market, anticipating a move lower. What you’re basically looking for, like I said, is accumulation, a manipulation with displacement, which we get here, and then a momentum change in order flow, inversing that fair value gap at the same time, targeting that level. Accumulation, manipulation, distribution. What we want to trade is the distribution. So, in order to trade the distribution, we need to identify accumulation and manipulation first. When you have accumulation, a trendline, such an obvious trendline, and then a manipulation of this trendline, meaning displacement out and then displacement back through an inverse, that is the tell and the key that this is a manipulation move because now the order flow has changed bearish and disrespected bullish on the way to your target. Another added factor is if you look at the ES, we have this red line here. One is pointing up, and one is pointing down. This is a divergence. It’s an SMT divergence, meaning this high right here did not take out this high, while on the ES, it did. That is another confluence of manipulation. When this all happens in the direction of where we want to trade, you now have a very solid draw on liquidity trade. The parameters of the trade would look like this. It is a market order right at the close. You’re going to target at least that low, and in this case, your stop is probably going to be right above that candle that created the inverse right here. So, this was just shy of a 3:1 risk-to-reward trade. In a situation like this, this is probably going to be on the higher end of risk-to-reward when you get a draw on liquidity trade. Sometimes, they’re just going to be 1:1, maybe 1.5:1. Occasionally, depending on where it is or depending on how good the setup is, you can get more. This happened to be a fantastic setup, so that is why the risk-to-reward turned out to be almost 3:1. But the key is that these are very high-probability trades. If you can identify them and if you can be sure of where price is going, these trades tend to have over a 90% win rate. If you can identify them properly, that can be very powerful, and you can use this on any draw on liquidity. Meaning, if you believe, and your research and analysis tell you that price is going to price discover and take out a certain level, whether it is a pivot high or low, session liquidity, which in this case was the Asia overnight lows, trendline liquidity, or a higher-timeframe fair value gap, and if you feel comfortable with the draw on liquidity, these patterns can be very powerful. As you can see, you could have taken it on either one of the indices. Typically, I personally prefer to trade only on the NASDAQ. So, I will trade all of my trades on the NASDAQ no matter what. Now, typically, when you have a divergence, you want to trade the weaker one for a short side. In this case, this did not make a new high, so you would want to trade the NASDAQ anyway because the NASDAQ ended up hitting its target, while the ES did not, even though it did have a nice move down. Again, this is what I call a draw on liquidity trade. It is when price has been trending in a certain direction or moving in a certain direction, already showing intent. Before price gets to a key level, it consolidates, induces early buyers, or on the short side, induces early sellers, and then forms an accumulation, manipulation, and distribution pattern into that level with an inverse fair value gap, which is our entry model. It is our entry model because an inverse fair value gap shows what is being respected and disrespected. In order for price to go down, we need bullish fair value gaps to be disrespected and bearish fair value gaps to be respected. That is exactly what is happening here. Hey everyone, it’s Dale here. I hope you enjoyed the video. If you would like to trade alongside me and our team of prop firm-funded traders every day, then click the link below the video and hop aboard. We look forward to trading with you.