Every stop-loss you place is someone else's entry. That's the game — and once you understand it, you'll never look at a chart the same way.
What Is Liquidity?
In simple terms, liquidity is where orders are clustered in the market. When price reaches these zones, large players — banks, hedge funds, institutions — can fill their massive orders without moving the price too much.
Retail traders unknowingly create these pools by placing stop-losses at obvious levels: below swing lows, above swing highs, under round numbers.
Key Concept
Liquidity is NOT a support or resistance level. It's a pool of stop orders that smart money hunts before reversing.
Where Does Liquidity Sit?
The most common liquidity pools form in predictable places because retail traders all follow the same textbooks.
✦ Common Liquidity Pools
- Below equal lows (sell-side liquidity)
- Above equal highs (buy-side liquidity)
- Under round numbers like ₹500, $1.3000
- At the most recent swing high/low
- Below ascending trendlines where stops cluster
How to Trade Liquidity Sweeps
The strategy is simple: wait for price to sweep a liquidity pool, then look for a reversal confirmation before entering in the opposite direction.
The 3-Step Entry Process
Mark the liquidity pool
Identify equal highs, equal lows, or obvious swing points on your chart.
Wait for the sweep
Price must wick through the level and close back above/below it.
💡 Do not enter during the sweep — wait for the close.Enter on confirmation candle
Look for a strong engulfing or displacement candle after the sweep.
Key Takeaways
✦ What to Remember
- Stop-losses create liquidity — yours and everyone else's
- Smart money hunts these pools before reversing
- Sweeps without a close through the level = failed sweep
- Always wait for displacement after the sweep
- Combine with HTF bias for highest-probability setups