Setup: liquidity sweep
Lesson 35 of 39 in the course “Crypto”. Free, with animations and a quiz.
Condition: equal lows, price stopped at the same price several times. Other traders' stop-losses pile up below them. Liquidity means piles of orders like these that will fill if price reaches them.
Price dives below the lows and quickly comes back. A long wick is left: the stops fired, and someone bought up their sell orders. That is a sweep, a grab of liquidity.
Price poked below the lows. What do you need to go long (bet on a rise)? Answer: A candle closing back above the level. Answer: a close above the level. It shows the poke was false. A wick alone is not enough: price could still break the level for real.
Enter on the close of the confirming candle. SL (stop-loss, auto exit at a loss) below the wick low. TP (profit target) at the top of the range. Rule of thumb: the target is at least twice as far as the stop (1:2).
Price heads for the liquidity above, the stops sitting over the highs. Cancel: if price makes a new low below the wick before you enter, the setup is dead.
Check yourself
- What does a sweep show?
Correct answer: A false poke into a pile of stops. Price went for the stops under the lows and came back. If a candle closes above the level, it was a false break. - Where is the long SL after a sweep?
Correct answer: Below the wick low. If price goes below the wick, it is no longer a poke but a real break. The idea is cancelled. - Where do we usually aim in this setup?
Correct answer: Liquidity on the other side of the range. The stops above the range highs are the next liquidity. Price often goes there, but it does not have to.