Liquidity Sweep: Trading Stop Hunts
Identifies areas where stop-losses are likely clustered and trades the reversal after they're triggered.
What is a Liquidity Sweep?
A liquidity sweep occurs when price moves through an area where many stop-losses are placed, triggering those orders and creating a burst of liquidity. Large traders and institutions often 'hunt' these stops to fill their positions. After the sweep, price frequently reverses sharply. Understanding this dynamic can turn a frustrating pattern into a trading opportunity.
Key Characteristics
Stop hunt awareness: Know where retail stops cluster. False breakouts: Price briefly breaks a level then reverses. Quick reversals: Sweeps often reverse within minutes. Volume spikes: Triggered stops create volume bursts. Institutional activity: Smart money filling orders.
Finding Liquidity Zones
Stops tend to cluster just beyond obvious support and resistance levels, swing highs and lows, round numbers, and previous day's highs and lows. When you see price approach these areas, be alert for a sweep. Look for a quick move through the level followed by immediate rejection—this is your signal that a sweep is occurring.
Trading the Sweep
Wait for price to sweep through the liquidity zone and show rejection (a long wick or engulfing candle). Enter in the opposite direction of the sweep with a stop-loss beyond the sweep high/low. The target is typically the opposite side of the range or a key level in the reversal direction. Timing is crucial—enter quickly after confirmation, as these reversals can be fast.
Practice Risk-Free
Master these concepts with paper trading before risking real capital.
Start Paper TradingDisclaimer: This article is for educational purposes only and does not constitute financial advice. Trading involves significant risk of loss. Cryptocurrency investments are volatile and high-risk. Always do your own research before making any investment decisions.