Where do the crowd’s stops usually pile up?

Above equal highs and below equal lows. Everyone sees obvious peaks and dips, so stops go right beyond them. That is where liquidity sits.

What is a sweep (liquidity grab)?

A poke past a level for the stops, then a quick return. Price briefly goes past the level, knocks out the stops and comes back. It is a trap for breakout traders.

Why do big players need liquidity?

To fill a big size without moving price against themselves. A big order moves price by itself. To buy or sell a lot you need orders on the other side, and the crowd’s stops become exactly that.

Liquidity: where the stops sit

Lesson 12 of 39 in the course “Crypto”. Free, with animations and a quiz.

Liquidity means ready orders you can trade against. Above equal highs (peaks at the same height) sit the crowd’s stops: sellers’ stop-losses and breakout buy orders. For big players that is fuel.

Price pokes above the high and the stops fire: they become market buys. A big player needs exactly that flow of buying to sell a large size without crashing the price with their own selling.

Then price drops fast. That is a liquidity sweep: a fake breakout that knocked out the stops and trapped breakout buyers. Bottom line: stops pile up at obvious levels, and a break of such a level can be fake.

Check yourself

Where do the crowd’s stops usually pile up?
Correct answer: Above equal highs and below equal lows. Everyone sees obvious peaks and dips, so stops go right beyond them. That is where liquidity sits.
What is a sweep (liquidity grab)?
Correct answer: A poke past a level for the stops, then a quick return. Price briefly goes past the level, knocks out the stops and comes back. It is a trap for breakout traders.
Why do big players need liquidity?
Correct answer: To fill a big size without moving price against themselves. A big order moves price by itself. To buy or sell a lot you need orders on the other side, and the crowd’s stops become exactly that.

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