Liquidity: where the orders wait
Liquidity means places where many orders are waiting. Price is pulled towards them, because big players need those orders to fill their own trades.
Where liquidity sits
| Place | Why orders are there |
|---|---|
| Above swing highs (buy-side) | Sellers' stop-losses, and breakout buy orders |
| Below swing lows (sell-side) | Buyers' stop-losses, and breakout sell orders |
| Equal highs or equal lows | The most obvious level, so the most stops. Strongest magnet. |
| Yesterday's high and low | Everyone watches them |
| Asian session high and low | Often swept at the London open (1:45 PM Kathmandu time in winter) |
| Round numbers | 1.1000 on EURUSD, 4,000 on gold |
| Trend lines | Many traders put stops just beyond them |
Sweep or breakout?
| Sweep (liquidity grab) | Real breakout |
|---|---|
| Wick goes beyond the level, candle closes back inside | Candle closes beyond the level and keeps going |
| Often followed by a CHoCH the other way | Followed by a retest and continuation |
| Sign of a reversal | Sign of a new move |
Key idea
Ask two questions on every chart: "Where are the stops?" and "Which side has price not taken yet?" Price often goes to take the obvious liquidity first, then reverses.
Quick check