RiskPicksWhat is a Liquidity Sweep?
A liquidity sweep (or stop hunt) occurs when price moves just past a significant high or low: triggering the stop loss orders clustered there: then immediately reverses. Large players use this to fill their orders at better prices.
Where liquidity pools form
- Above equal highs: buy stops from short sellers sit just above
- Below equal lows: sell stops from long traders sit just below
- Above/below previous day high/low
- Round numbers: $50, $100, etc.
Trading the sweep
Wait for the sweep to happen, then enter in the opposite direction once price reverses back inside the range. The sweep itself is not the entry: the rejection after the sweep is.