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Liquidity is what moves the market. Liquidity and liquidity pools are created and targeted by the markets and a lack of understanding on this topic is the main reason why the trading mind fails even if the analyst mind is correct. Traders who have been victim to their stop losses being taken by a wick before price running in their favour are the perfect example of having the correct analytical mind but a weak trading one.
Liquidity is unlike an order block or price inefficiency or anything else that can be physically identified on a chart. It is invisible, however, it is still possible to identify without the need of indicators or anything other than price action alone.
Simply put, liquidity is money in the market. Typically, this money comes in the form of retail orders and stop losses. Knowing this allows us to understand that if the market targets liquidity, and liquidity comes in the form of retail stop losses, the market must be hunting and going against retail strategies.
🟢The first and most prominent of these retail strategies is the idea of support and resistance. On the chart we can see an example of what retail traders would refer to as a level of resistance. In doing this they would short price from this level expecting a move down. This creates a liquidity pool just above this ‘resistance level’ where the average retail trader would place their stop losses. This liquidity pool is now a target for the market. So instead of trading this move down, we wait for the liquidity grab and use the rest of this strategy to capitalise on the bearish move that we can expect.
On the Chart is a demonstration of the market hunting liquidity before making its next move. Again this is where traders would be correct in terms of bias but incorrect in terms of trading.
This is an example of what an informed chart looks like. Instead of highlighting support and resistance levels, we highlight equal lows and equal highs respectively. Equals are usually in the form of otherwise referred to double tops or double bottoms but can also be more than that. The key difference, however, is that we would anticipate the market hunting the liquidity above the equal highs and below the equal lows. Due to this, we avoid being a victim to the market stopping us out by a wick and falling in our direction.
The second most prominent retail strategy or idea is the trend-line. Every time a trend-line formation is present within the market, we can now understand the amount of stop losses and, therefore, liquidity that would be sitting under this ‘trend-line’.
Above is an example of the importance of recognising trend-line liquidity. Once the liquidity above the equal highs has been hunted, we need to establish the next liquidity pool in the market. Seeing a break above the ‘resistance level’ would be seen as a ‘bullish breakout’ by the average trader. However, we can identify that as a liquidity purge and higher high, in which case we can expect a higher low to be made - which would mean a bearish retracement.
On top of this, we can see a build up of trend-line liquidity just above the discount end of the parent price range. This gives us an added confluence and confidence in the fact that we can expect lower prices with the liquidity underneath the trend-line as our first target.
Above is an example of liquidity being grabbed on the bullish side (above the equal highs) sending the uninformed trader long based off of a ‘bullish breakout’, then hunting the liquidity on the bearish side (below the trend-line) and sending the uninformed trader short based off of the break of the trend-line. This is typical of the market - it shakes out impatient and uninformed traders on both sides of the market before making the actual move.
Here is another examples of how trendline liquidity gets purged by the market. On the chart we can see a trend-line where many traders would be longing the market, unaware that they will be victims of a liquidity purge.
Below we can see that liquidity purge below the trend-line which would send the average trader short. Using the rest of the strategy, we are able to understand that price will react from specific levels to go long
Below we can see the completion of this market cycle with our levels being respected and the real bullish leg being made.
San Jose, CA-based PayPal (PYPL - Free Report) , which is one of the largest online payment solution providers, came out with quarterly earnings of $1.19 per share, beating the Zacks Consensus Estimate of 96 cents per share. The reported figure compares with earnings of $1.16 per share a year ago.
The company, which belongs to the Zacks Internet - Software industry, posted revenues of $7.89 billion in the second quarter (up 9% year over year on a currency-neutral basis), surpassing the Zacks Consensus Estimate by 1.04%.
PayPal also raised its forecast for full-year 2024 adjusted profit for the second time this year, anticipating decent consumer spending in the back-to-school and upcoming holiday shopping seasons while cutting costs to boost margins. PYPL shares jumped 8.6% on Jul 30, 2024, reflecting the upbeat results.
Inside the Headline
Despite persistent concerns over higher interest rates impacting consumer spending, PayPal has reported resilient growth in transaction volumes.Total payment volumes increased 11% year over year in the second quarter. The company's ability to maintain steady consumer activity comes at a time when other payment firms talk about pressures on business from lower-income groups.
Under the leadership of CEO Alex Chriss, PayPal has pursued aggressive cost-cutting measures to enhance operating margins. This includes a significant restructuring effort that involved a 9% reduction in its global workforce, totaling approximately 2,500 job cuts announced earlier this year. Operating margins grew 231 basis points year over year to 18.5%.
PayPal observed 6% year-over-year growth in total payments volumes in its branded checkout segment in the second quarter. Key contributors to profitability included branded checkout, Braintree and Venmo, which collectively led to an 8% increase in transaction margin dollars to $3.61 billion.
Revised Profit Expectations for 2024
PayPal has boosted its profit growth forecast for 2024 to a "low to mid-teens percentage" increase, from the earlier mentioned "mid to-high single-digit" growth. This is a key positive for the company.
Time to Invest in PayPal?
The PYPL stock has a Zacks Rank #2 (Buy) at present. The stock comes from the top-ranked (top 41%) Zacks Internet - Software Industry and the top-ranked (top 44%) Zacks Computer and Technology sector. The stock also has an upbeat VGM score of “A.”
Should You Play PayPal Via ETF Method?
Despite strong performance metrics, PayPal's third-quarter year-over-year revenue growth outlook of a "mid-single-digit percentage" missed Wall Street expectations of 7.5%, according to LSEG data, as quoted on CNBC. Competition is also rife in the digital payment business. However, the company is focused on sustaining growth amid evolving market conditions.
ETFs in Focus
The PYPL stock has a 7.6% exposure toGrayscale Future of Finance ETF (GFOF - Free Report) , a 6.95% weight in Global X FinTech ETF (FINX - Free Report) and a 6.48% exposure to Amplify Mobile Payments ETF (IPAY - Free Report) . The ETF approach is better when you want to minimize company-specific concentration risks.