Have you ever wondered why the market often spikes just above a clear resistance level, "hunts" all the stop losses, and then immediately reverses and trends exactly where you thought it would go?
It feels personal. Like someone is watching your screen.
It isn't personal. It is Liquidity.
To understand the market, you have to stop looking at "lines" and start looking for "orders." Here is the professional's guide to where the big money actually moves.
What is Liquidity?
Liquidity is the ability to buy or sell an asset without causing a massive change in its price.
Imagine you are a bank and you need to buy £500 million of GBP/USD. If you just click "Buy" at the current price, you will drive the price up so fast that your average entry will be terrible. You need to find a place where there are a lot of Sell Orders waiting, so you can fill your massive "Buy" order against them.
Where are all the sell orders? They are the Stop Losses of the retail traders who are "Short."
The "Stop Hunt" Explained
Retail traders are taught to put their stops in the same places: just above the last high or just below the last low. These are called "Liquidity Pools."
Institutions know this. They drive the price into these pools to trigger the stops.
- A "Stop Loss" on a Short position is actually a Buy Order.
- The institution uses those retail Buy Orders to fill their own massive Sell Orders.
Once the liquidity is "captured," the institution has their position, and the price is free to move in the real direction.
How to Spot Liquidity Zones
Look for the "Clean Highs" and "Equal Lows." These are the areas where the most retail stops are clustered.
- Double Tops: Everyone has their stop just above those two highs.
- Round Numbers: Levels like 1.25000 or 1.30000 attract massive amounts of orders.
- Trendlines: Retail traders love trendlines. Institutions love to break them, hunt the stops, and then resume the trend.
Trading WITH the Big Money
The goal is to stop being the "prey" and start being the "shadow."
Don't enter at the resistance level. Wait for the market to spike above it (the "Stop Hunt"), and then enter when the price returns below the level. This is called a "Liquidity Grab" or a "Fakeout."
By entering after the hunt, you are entering with the institutions, and your stop loss is much safer because the "cleaning" has already happened.
Final Word
Stop thinking about support and resistance as "walls." Think of them as "puddles" where orders are collected.
When you start seeing the market through the lens of liquidity, the "manipulation" disappears and the institutional logic becomes clear.
Pete's Liquidity Checklist
- Identify the most obvious retail stop-loss zones.
- Wait for a "Sweep" of those zones.
- Look for a strong rejection candle (Pin Bar or Engulfing) after the sweep.
- Entry on the close of that candle.
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