Liquidity
Day 13 of 26 · 10 min read · By DT Terminal
Liquidity is where orders are waiting: stop losses above old highs and below old lows, and pending orders at obvious levels. This lesson shows where those pools usually build up, what a sweep of one looks like, and how a sweep differs from a real break of structure.
Unlock the full lesson in the app
Worked examples, the quiz and the interactive tools are in the app. Free account.
What liquidity means on a chart
On a chart, liquidity means orders already waiting at a price. Many are thought to be stop losses: buyers often stop below the nearest swing low, sellers above the nearest swing high. Breakout traders add orders at the same spots.
A long's stop is a sell order and a short's stop is a buy order, so the orders gather on predictable sides:
- Buy-side liquidity (BSL) rests above swing highs.
- Sell-side liquidity (SSL) rests below swing lows.
| Pool | Where it rests | Orders waiting there | Filled when |
|---|---|---|---|
| Buy-side (BSL) | Above swing highs and equal highs | Shorts’ stop losses, breakout buy stops | Price trades up through the high |
| Sell-side (SSL) | Below swing lows and equal lows | Longs’ stop losses, breakout sell stops | Price trades down through the low |
A large order needs someone on the other side. That is one common explanation for price reaching for obvious highs and lows: a model, not a fact.
Why price reaches for a pool
A trader selling size can fill against the buy orders resting above a high, and a trader buying size can fill against the sell orders below a low. Nobody sees the whole market's orders, so this is a model that explains a lot of price action, not a fact about any one move.
Why equal highs and equal lows matter
Two or more swing highs at about the same price are equal highs; two or more such lows are equal lows. Many traders read them as a double top or bottom, or a clean range edge, and put stops just beyond. That makes them the clearest pools on a chart.
The pool sits beyond the outermost one: above the higher of equal highs, below the lower of equal lows.
| Swings | Prices | Apart | Read as |
|---|---|---|---|
GBPUSD Asian lows | 1.33412 and 1.33408 | 0.4 pips | Equal lows, SSL below the lower |
BTCUSD weekend highs | 108,850 and 108,880 | $30 | Equal highs, BSL above the higher |
EURUSD M15 highs | 1.17250 and 1.17190 | 6.0 pips | Two separate highs, not a pair |
How equal is equal, and other obvious levels
Equal rarely means equal to the last digit. On a forex pair on the lower timeframes, highs within a pip or two of each other are usually read as equal, and the tolerance grows with the timeframe and with how far the instrument moves in a day.
Other obvious levels collect stops for the same reason: the previous day's high and low, round numbers, and the high and low of a session, which Day 5, Market sessions covers. It is the common explanation for why price so often trades through the obvious high or low before it turns.
A sweep or a real break
At a pool, a candle does one of two things. In a liquidity sweep (also called a stop hunt or liquidity grab), a wick trades beyond the level, fills the stops, and the candle closes back inside. In a real break, a body closes beyond it.
The rule from Day 10, Market structure: closes matter more than wicks. Try each case:
Interactive tool
Sweep or break
This interactive tool runs in the app, with your own numbers.
| Sweep | Real break | |
|---|---|---|
| Wick beyond the level | Yes | Usually |
| Body close | Back inside the level | Beyond the level |
| Stops beyond | Filled | Filled |
| What it often leads to | A move back the other way, confirmed only by a shift | Continuation, with the old level often acting as support or resistance |
Liquidity
What price does at a pool
- The pool
- Bearish shift
- Bullish shift
Buy-side liquidity
above swing highs and equal highs
Sell-side liquidity
below swing lows and equal lows
Resting
equal highs, stops waiting beyond
Sweep
a wick beyond, the close back inside
Sweep, then shift
a body closes beyond the swing that launched it
Real break
a body closes beyond the level
Check your sweep trades in Analytics
Example 01: a sweep that turned out to be a break
Worked example
Example 01: A sweep that turned out to be a real break
The worked example, with every number walked through, is in the app.
After a few dozen trades, Analytics filters by tag, so you can read each kind of trade on its own, and its Time tab shows the hours of the day they worked in.
Internal and external range liquidity
Zoom out to a range: the swing low and swing high that bound the current leg. External range liquidity rests outside it, above the range high and below the range low. Internal range liquidity sits inside: the minor highs and lows pullbacks leave, and imbalances such as the fair value gaps in Day 12, Fair value gaps.
A common description: after price takes an external pool, it often comes back inside to a gap or minor swing, then reaches for the next external pool.
| Type | Where | Examples | Why traders watch it |
|---|---|---|---|
| External | Beyond the range high and low | The swing high and low, equal highs or lows at the edges | A sweep here can end a leg; a break here extends the trend |
| Internal | Inside the range | Minor pullback highs and lows, fair value gaps | Where a pullback often reaches before the next leg |
Go deeper
When a pullback runs a minor low inside the range, that is internal sell-side liquidity being taken, which on its own says little about the bigger trend.
The sweep and shift sequence
A sweep on its own reverses nothing. The sequence needs a market structure shift (MSS) next: in an uptrend, a body close below the last higher low, the low that launched the sweep.
- A clear pool forms: equal highs above an uptrend, or equal lows below a downtrend.
- A wick takes it and the candle closes back inside. That is the sweep.
- A body closes beyond the swing that launched the sweep. That is the shift.
- The new direction is confirmed only by the first lower high and lower low, or higher low and higher high.
DT Terminal ChartsBTCUSD · H1Sweep, then shiftThe chart, price by price
On the usual reading, the traders who bought the breakout above the highs are now caught on the wrong side, their stops sit below, and the structure has broken against the trend. Plenty of sweeps are followed by a break in the original direction instead, as Example 01 showed. Always name the timeframe too: a sweep and shift on M5 can be an ordinary pullback on H4.
The chart is the BTCUSD H1 weekend range from Example 03: two highs at 108,850 and 108,880, a Monday candle that wicks to 109,140 and closes at 108,720, back under both, and a later body that closes at 108,180, below the last higher low at 108,310. In the backtester, a Horizontal ray from each high keeps the pool on the chart as you play forward, so you see the sweep the moment it prints.
The sequence on a real setup
Worked example
Example 02: Equal lows on GBPUSD, swept before London
The worked example, with every number walked through, is in the app.
Replay sweeps in the backtester
GBPUSD M15. Mark equal highs and lows before price reaches them, then note sweep or break, and whether a shift followed.The detail, and a second example on BTCUSD
The two lows are 0.4 pips apart, so sell-side liquidity rests below 1.33408, the lower of the two. Price had been falling through the session, and its last lower high is 1.33520. The sweep candle printed fifteen minutes before the London open. It took the sell stops below the equal lows, and the close above 1.33520 at 08:30 is a bullish shift: the full sequence.
Worked example
Example 03: Buy-side liquidity on BTCUSD above a weekend range
The worked example, with every number walked through, is in the app.
Check yourself
Quick review · 0 of 0