Internal vs External Range Liquidity: Where the Market Gets Its Fuel

Every market move needs fuel. That fuel is liquidity — the collection of orders sitting at various price levels waiting to be triggered. When these orders get hit, they create a surge of volume that powers the next directional move.

But not all liquidity is the same. Understanding where liquidity sits — inside the range or outside it — tells you what the market is doing and what it's likely to target next.

What Is Liquidity?

Market liquidity is how easy it is to buy or sell an asset without significantly changing its price. In practical terms, liquidity exists as orders — limit orders, stop losses, stop limits — resting at price levels throughout the chart.

These orders cluster in predictable locations:

• Above highs: Buy stops, breakout orders, short stop losses
• Below lows: Sell stops, breakdown orders, long stop losses

The market is drawn to these clusters because they represent pools of orders that can be consumed to facilitate larger moves. This is why price often sweeps a high or low before reversing — it's collecting the liquidity it needs.

Buy Side vs Sell Side Liquidity

• Buy side liquidity: Orders resting above a level (buy stops, breakout orders)
• Sell side liquidity: Orders resting below a level (sell stops, breakdown orders)

Internal Range Liquidity (IRL)

Internal range liquidity is the liquidity that exists within a structural range — specifically within the impulsive and pullback legs of market structure.

What It Includes:

• Minor swing highs and lows on lower timeframes
• Previous supply and demand zones within an impulsive leg
• Stop orders clustered around these internal points

How It Works:

When price creates an impulsive leg (say, a move up forming a higher high), the lower timeframe shows multiple internal swings. Each of those internal lows has orders resting below it. Each internal supply zone has orders clustered around it.

During the pullback phase, the market targets this internal range liquidity. It sweeps through those minor lows and demand zones, triggering the orders, and uses that volume to fuel the pullback into the higher timeframe demand zone.

Then, when the impulsive phase resumes, the market targets the internal range liquidity created during the pullback — the minor highs and supply zones — sweeping through them to fuel the move toward the next higher high.

The Cascade Rule:

Once 1-2 supply zones fail in a bullish move, there's a high probability the rest will fail within that leg. The same applies to demand zones in a bearish move. When internal range liquidity starts getting swept, it tends to cascade.

Using IRL for Trade Management:

Internal range liquidity points make excellent targets for:

• Partial profits: Take some profits as price reaches internal S/D levels
• Stop loss adjustments: Move stops to breakeven after IRL targets are hit
• Trade exits: Use the opposite side's IRL levels as full exit targets

External Range Liquidity (ERL)

External range liquidity is the liquidity that exists outside of structural ranges — the key swing highs and swing lows that define the market structure itself.

What It Includes:

• Previous swing highs (continuation points in bullish structure)
• Previous swing lows (continuation points in bearish structure)
• Major structural levels from higher timeframes

How It Works:

In a bullish trend, the market is drawn toward the previous swing high — the external range liquidity sitting above that level. All the buy stops, breakout orders, and short stop losses above that high represent a pool of liquidity that the impulsive phase targets.

In a bearish trend, the market targets the previous swing low — the sell stops and breakdown orders below it.

ERL and Fake-Outs:

This is where external range liquidity connects to everything we've learned about confirmations:

• Price may sweep the external range liquidity (wick below the swing low) and continue bullish — this is why hard close candle confirmation matters
• A sweep of ERL without a close break is NOT a break of structure — it's a liquidity grab
• This is exactly why a change of character needs the double break of structure confirmation, and why the first level of respect must hold

External range liquidity above swing highs may be swept, causing a small pullback before the true impulsive move continues upward. The same applies below swing lows. The hard close candle filters out these sweeps.

Targeting Higher Timeframe ERL:

The strongest trade setups target higher timeframe external range liquidity. When your analysis timeframe identifies a swing high or low, and you enter on a lower timeframe, you're trading toward a major liquidity target. This aligns your trade with the market's most likely objective.

IRL vs ERL: How They Work Together

The market alternates between targeting IRL and ERL:

1. Impulsive phase → targets ERL (the swing high/low)
2. Pullback phase → uses IRL as fuel (internal levels within the leg)
3. New impulsive phase → targets the next ERL

This creates a cycle:

| Phase | What's Targeted | What's Created | |-------|----------------|----------------| | Impulse up | ERL above (previous swing high) | New IRL within the leg | | Pullback | IRL below (internal lows and demand zones) | New IRL within the pullback | | Next impulse | ERL above (new previous swing high) + IRL from pullback | New IRL within the new leg |

Catalyst for Pullbacks

A catalyst for pullback is simply the IRL or ERL point that causes a reaction in the market. Every time price interacts with a previous level of supply, demand, or structural liquidity, it's likely to create a pullback.

These pullbacks serve a purpose: liquidity generation to fuel future moves. The pullback isn't random — it's the market collecting the orders it needs for the next impulsive leg.

This provides context for why pullbacks happen in market structure. The pullback isn't just a correction — it's the market targeting specific IRL and ERL points to gather fuel.

Practical Framework

1. Identify your structural range (higher timeframe)
2. Mark the ERL targets — the swing highs and lows the market is likely targeting
3. During pullbacks, watch the IRL being consumed — internal lows/highs and S/D zones being swept
4. Enter after the IRL is consumed and the pullback phase is complete (demand/supply holds)
5. Target the ERL as your trade objective

Key Takeaway

The market moves from liquidity pool to liquidity pool. Internal range liquidity fuels pullbacks and corrections. External range liquidity is the target of impulsive phases. When you can identify where both types sit on the chart, you understand not just where price is going, but why it's going there.

Learn how liquidity connects to order flow in our Order Flow module or explore the Glossary for quick reference.