Chart Fanatics
July 20, 2026
Price Action Trading: Engineering Liquidity for Profitable Entries
TL;DR
A technical analysis strategy demonstrates how to identify engineered liquidity patterns in price action, using highs and lows to set up profitable trading entries with defined stop losses targeting previous support levels.
Key Takeaways
- 1Engineered liquidity occurs when price takes out previous highs then sells off to create internal liquidity points, attracting early sellers
- 2The pattern involves a multi-step process: taking out a high, creating a sell-off, inducing sellers, then reversing back above the high for entry signals
- 3Stop losses are placed strategically above the engineered high, with profit targets at previous support lows on the left side of the chart
- 4Price action traders look for market reactions at key levels where buyers and sellers converge, creating entry opportunities
- 5This method relies on understanding order flow psychology—where buyers and sellers enter at predictable price levels
Notable Quotes
“The first step taking out something from the left-hand side. In this example, a high. The next step is you want to see the market sell off to the downside, maybe induce some early sellers.”
“This is going to be now known as our engineered liquidity.”
Chapters
1. Introduction to the Da Vinci Model
Overview of the bearish scenario setup using the Da Vinci model and identifying key liquidity levels for downside price movement.
2. Bullish Reaction and High Breakout
Market takes out old highs from the left, creating a setup for observing internal price patterns and high respecting behavior.
3. Engineered Liquidity Concept
Definition and mechanics of engineered liquidity, where price breaks above a high to attract buyers before reversing downward.
4. Multi-Step Entry Strategy
Step-by-step process of taking out highs, creating sell-offs to induce early sellers, and internal liquidity point formation.
5. Trade Execution and Stop Loss Placement
How to enter the trade after the high is taken out again, with stop loss placement and targeting of previous support lows.
Glossary
- Engineered Liquidity
- A price action pattern where price moves above a previous high to attract buyers, then reverses downward to collect stop losses and create a selling opportunity
- Internal Liquidity Point
- A price level created within a move where buyers or sellers are trapped, serving as a reversal point for the next market phase
- Price Action
- Trading strategy based on analyzing historical price movement patterns and chart levels rather than indicators
- Stop Loss
- A predetermined price level where a losing trade is automatically closed to limit losses
- Da Vinci Model
- A technical analysis framework for identifying bearish and bullish price scenarios using liquidity levels and price structure