Obvious highs and lows attract stop-loss orders and breakout orders. When price pushes through them, those orders are triggered, providing liquidity for larger participants to enter in the opposite direction. The result is a quick spike beyond the level and a sharp reversal: a liquidity sweep.
Where liquidity sits
- Equal highs or equal lows (double tops and bottoms).
- The previous day's high and low.
- The Asian session range before London.
- Round numbers.
Recognising a sweep
- Price breaks the level by a small margin, often with a long wick.
- The candle closes back inside the previous range.
- On a lower timeframe, structure shifts quickly in the opposite direction.
Trading it
- Wait for the close back inside the range; do not anticipate.
- Enter on the first pullback after the structure shift.
- Stop beyond the sweep's extreme.
- Target the opposite side of the range.
Not being the liquidity
If your stops always sit exactly at the obvious high or low, they are part of the liquidity being swept. Place stops beyond the obvious level with a buffer, and size down to keep the dollar risk the same.