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Internal and External Liquidity in ICT

Internal and External Liquidity in ICT | Smart Money Concepts (SMC) Trading Introduction In the world of ICT (Inner Circle Trader) and Smart Money Concepts (SMC) trading , understanding liquidity is critical for anticipating market moves and aligning with institutional players. Two key types of liquidity every trader should understand are internal and external liquidity . This guide breaks down the difference between internal and external liquidity in ICT trading, why they matter, and how to use them to your advantage in your strategy. What Is Liquidity in ICT Trading? In ICT and SMC terminology, liquidity refers to areas in the market where orders are clustered — primarily stop-loss orders and pending buy/sell orders. These zones are attractive to smart money (institutions, banks, hedge funds) because they offer high-volume areas to execute large positions with minimal slippage. Liquidity is often hidden behind price action structures, and understanding where it's ...
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Turtle Soup in Smart Money Concept

Turtle Soup in Smart Money Concept: A Trader’s Guide to Liquidity Grabs

Introduction

In the world of price action and institutional trading, Smart Money Concepts (SMC) has gained traction among traders aiming to trade like banks and large financial institutions. One intriguing pattern that aligns with these principles is the Turtle Soup setup.

Originally coined by legendary trader Linda Raschke, the Turtle Soup setup involves trading false breakouts of prior highs or lows. When combined with the Smart Money Concept, it becomes a powerful tool for identifying liquidity grabs and market reversals.

In this article, we’ll break down:

  • What Turtle Soup is

  • How it fits into the Smart Money Concept

  • A step-by-step guide to trade it

  • Real chart examples (if applicable)

  • Tips to enhance its reliability

What is Turtle Soup?

The Turtle Soup setup is a counter-trend trading pattern that capitalizes on the failure of breakouts. It’s based on the idea that many traders place stop-loss orders just above a prior swing high or below a swing low. When the market briefly breaks these levels and then reverses, it signals a stop-hunt or liquidity sweep—exactly the kind of move institutions use to fill large orders.

Key characteristics:

  • Price breaks a previous swing high/low

  • The breakout fails quickly

  • Price reverses and closes back within the range

  • Entry is taken after confirmation of the reversal

Turtle Soup in the Smart Money Concept (SMC)

The Smart Money Concept emphasizes understanding how institutions move the market. Key SMC ideas include:

  • Liquidity zones

  • Order blocks

  • Inducement

  • Breaks of structure (BoS)

  • Market structure shifts (MSS)

In this context, Turtle Soup is a classic example of a liquidity grab. Smart Money often targets liquidity pools (stop-loss clusters) to enter trades at favorable prices. When retail traders get trapped during false breakouts, Smart Money steps in on the other side of their trades.

Here’s how Turtle Soup aligns with SMC:

Turtle Soup Element SMC Equivalent
False breakout Liquidity grab
Quick reversal Market structure shift (MSS)
Prior high/low External liquidity
Entry on reversal Inside order block or FVG

How to Trade Turtle Soup with Smart Money Principles

Step-by-Step Strategy:

  1. Identify Key Swing Highs/Lows:
    Look for obvious prior highs/lows where retail stop orders are likely resting.

  2. Wait for a Break (Sweep) of the Level:
    Let price take out the high/low. Don't enter yet.

  3. Watch for Reversal Signs:
    Confirm with:

    • Market structure shift

    • Rejection candles (e.g., pin bars)

    • Price closing back below (or above) the level

  4. Entry:

    • Conservative: Enter on the close of a confirmation candle.

    • Aggressive: Enter as price moves back into the range.

  5. Stop Loss:

    • Just beyond the extreme of the false breakout.

  6. Take Profit:

    • Next major structure point

    • 2R or 3R target

    • Exit at internal liquidity

Example Scenario (Visual Reference Optional)

Imagine price forms a triple top, and then finally breaks above the highest point—inducing breakout buyers. But within a few candles, price snaps back down and closes below the breakout level. This is a Turtle Soup and a liquidity grab. The Smart Money used that breakout to fill short positions, and now the market begins to trend lower.

Pro Tips for Using Turtle Soup in SMC:

✅ Combine with a higher timeframe bias (e.g., H1/H4 structure)
✅ Use Fair Value Gaps (FVGs) or Order Blocks for entries
✅ Avoid trading during high-impact news
✅ Confirm with volume spikes or divergence (optional)

Final Thoughts

The Turtle Soup pattern is more than just a false breakout—it’s a clear signal of Smart Money liquidity engineering. When used within the SMC framework, it becomes a low-risk, high-reward setup that helps traders align with institutional order flow.

Mastering this strategy requires patience and precision, but with practice, it can become one of the most effective tools in your SMC arsenal.


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