Overview
This lecture explains the concept of liquidity sweeps in trading, covering what liquidity is, why liquidity sweeps occur, how to identify them, and the importance of timing and confluence when trading these market moves.
Liquidity & Liquidity Sweeps
- Liquidity refers to pending and resting orders, such as stop losses and entry orders, in the market.
- A liquidity sweep occurs when market makers move price to trigger these pending orders, causing reversals.
- Liquidity is usually found above highs and below lows on charts.
- Two main sources of pending orders above highs: breakout buyers and stop-losses from sellers.
- In downtrends, sell orders accumulate below lows due to breakout sellers and stop-losses from buyers.
Sessions and Market Movement
- The trading day is divided into three sessions: Asian, London, and New York.
- Each session introduces new liquidity as traders enter the market.
- Market makers seek to fill massive buy/sell orders by moving price to areas of high liquidity (above highs or below lows).
- Session opens are key times for liquidity sweeps due to increased volume and new orders.
Types & Quality of Liquidity Draws
- Major liquidity draws include session highs/lows, relative equal highs/lows, and low resistance highs/lows (trendline liquidity).
- Session highs/lows are high-confluence areas where many orders cluster.
- Relative equal highs/lows are closely stacked highs or lows that attract pending orders.
- Low resistance liquidity refers to multiple stacked highs or lows, making them attractive targets for sweeps.
- Equal highs/lows (exact same price) are also strong liquidity draws but less common.
Timing & Execution Strategy
- Liquidity sweeps are most reliable near session opens (Asian at 18:00, London at 3:00, New York at 9:30 Eastern).
- Optimal setups involve marking out high-probability highs/lows and waiting for confirmation (e.g., break of structure, fair value gap fills) before entering trades.
- Enter trades after a sweep and confirmation, and exit at other high-probability liquidity areas where price may reverse.
Key Terms & Definitions
- Liquidity — Pending and resting orders (stop-losses and entry orders) in the market.
- Liquidity Sweep — A move where price triggers and fills clusters of pending orders, often resulting in a reversal.
- Draw on Liquidity — A price level (high or low) with a concentration of pending orders.
- Session High/Low — The highest or lowest price of a market session.
- Relative Equal Highs/Lows — Several highs or lows clustered near the same price.
- Low Resistance Liquidity — Multiple stacked highs or lows, often along a trendline.
- Break of Structure — A price movement that signals a potential reversal or change in trend.
Action Items / Next Steps
- Practice identifying liquidity sweeps on different timeframes in your own charts.
- Mark session highs/lows, relative equal highs/lows, and low resistance areas as potential liquidity draws.
- Wait for additional confirmation (like break of structure) before executing trades off liquidity sweeps.
- Watch the free course for deeper learning on execution strategies and confluences.