Lesson 61 of 69
Liquidity and stop hunts
8 min read
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Every order needs someone on the other side. , in this framework, means the places on a chart where a large number of resting orders — mostly stop losses — are likely to sit. Big participants need those orders to fill size without moving price against themselves.
Where stops cluster
- Just above recent swing highs, equal highs or a range ceiling — that is where short sellers put their stops.
- Just below recent swing lows, equal lows or a range floor — that is where buyers put their stops.
- Around obvious round numbers and yesterday's high and low, because most people mark the same levels.
| Term | Where it sits | Whose stops |
|---|---|---|
| Buy-side liquidity | Above highs | Sellers — their stops are buy orders |
| Sell-side liquidity | Below lows | Buyers — their stops are sell orders |
Why it is called buy-side above the highs
A on a short position is a buy order. So the cluster of orders above the highs is buying pressure waiting to be triggered — hence buy-side liquidity, even though it sits above a level sellers were defending.
The liquidity sweep (or stop hunt)
A sweep is when price pushes just far enough past a high or low to trigger the stops resting there, then immediately reverses back inside the range — typically leaving a long wick behind.
- 1Price approaches an obvious high or low that many traders are watching.
- 2It trades through it briefly, triggering stops and tempting traders in.
- 3It fails to hold beyond the level and closes back inside — the breakout traders are now trapped and their exits fuel the move the other way.
Why this is worth understanding
It explains a frustration nearly every beginner has: being stopped out by a couple of before price runs to your target. Placing stops immediately beyond an obvious level puts them exactly where the most orders are. Placing them beyond the zone — with a smaller to keep risk at 1% — often survives the same move.
Keep it proportionate
"The market hunted my stop" is sometimes true and often not. Most losses are ordinary — the trade idea was simply wrong. Nobody is targeting an individual retail account, and no explanation of price behaviour removes the need for a stop loss.
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Key takeaways
- Liquidity sits where clusters of stop losses live: above swing highs and below swing lows.
- A stop hunt is price reaching for that liquidity before moving in the intended direction.
- Equal highs and equal lows are the most obvious liquidity pools on any chart.
- Being swept out repeatedly usually means stops are placed where everyone else places them.
Knowledge check
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1. In this context, 'liquidity' most often refers to…
2. Buy-side liquidity typically sits…
3. A liquidity sweep or 'stop hunt' describes…
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