Liquidity and stop hunts
Stop losses pile up just past obvious highs and lows. Price often runs to those piles before the real move.
Where are the orders?
means orders waiting to be filled. A spot with lots of waiting orders has lots of liquidity.
Here's the key idea. Lots of traders put their in the same obvious places:
- Just below an obvious low, especially two lows at the same price (equal lows). People who bought put their stops there. A stop that sells is a sell order, so this pile is called .
- Just above an obvious high. People who sold short put their stops there, and breakout buyers put orders there too. These are buy orders, so this pile is called .
Why would price go there?
Imagine a giant fund wants to buy a million shares. If it just hits "buy," it runs out of sellers and pushes the price up on itself. It needs a crowd of sellers all at once.
Where is there a big crowd of sell orders? Right under the obvious lows, where everyone's stops are! So when price dips just below those lows, all those stops go off and sell. The big buyer can fill its order from that crowd.
That move is called a or a : price pokes past an obvious high or low, sets off the stops, then turns around. It's like a fisherman who casts where all the fish are bunched up.
People call these big traders , and this way of reading charts is often called , or SMC.
The honest part
Nobody can see who is behind the orders. SMC is a story that fits a lot of charts, not a fact you can check each time. It's also very easy to spot a "sweep" after it happened. Before it happens, a sweep and a real breakdown look exactly the same.
An example rule set
Made up, just to see the shape. Notice how much waiting is built in:
- Mark obvious equal lows: sell-side liquidity.
- Wait for the sweep: a wick dips below the lows and the candle closes back above them.
- Wait for : a strong move up with big candles that closes above the last small high. That's a .
- Entry: on the first small dip after that strong move.
- Stop: just under the lowest point of the sweep.
- Target: the next pile of orders above, like old highs.
The important part is step 3. A dip below the lows on its own proves nothing. The strong move after it is what hints the dip was a trap.
Don't be the liquidity
One lesson helps every trader: if your stop sits exactly where everyone else's is, it's part of the pile. Many traders try to put the stop where their idea is truly wrong, not just one penny under the most obvious low.
When it works and when it fails
Works best at very clear highs and lows, when the sweep snaps back fast and a strong move follows.
Fails when the break is real. Sometimes price breaks the low and just keeps falling. That's why you wait for the close back above and the strong move, and why the stop is there. Test these rules on old charts before trusting them (Level 8).
Remember
- Stop losses pile up just below obvious lows and just above obvious highs.
- Price often sweeps those piles, then turns around.
- Wait for a close back inside and a strong move before believing a sweep.
- Nobody can see who is behind the orders. SMC is a way of reading charts, not a fact.
Check yourself
1. Where do lots of sell stop orders usually sit?
2. What is a sweep?
3. In the example rules, what has to happen after the sweep before you get in?
4. Can you see for sure who is behind the orders on a chart?
Next lesson: Order blocks and fair value gaps
Money Tree School is education, not financial advice. Examples use made-up or historical numbers to show how things work; they are not recommendations to buy or sell anything. Markets can lose money.