Liquidity Zones
Liquidity is where the orders are. Find liquidity pools, and you find where price will go.
What Is Liquidity?
Liquidity = Clustered orders waiting to be filled
Above recent highs = Stop liquidity (sell orders)
Below recent lows = Stop liquidity (buy orders)
Price moves toward liquidity, triggers it, then reverses.
Types of Liquidity
1. Stop Liquidity
| Location | Meaning | What Happens |
|---|---|---|
| Above highs | Many stops | Price spikes, stops triggered, reverses |
| Below lows | Many stops | Price drops, stops triggered, reverses |
2. Limit Order Liquidity
| Location | Meaning | What Happens |
|---|---|---|
| Support | Buy orders pending | Price bounces |
| Resistance | Sell orders pending | Price rejects |
3. Market Structure Liquidity
| Type | Meaning |
|---|---|
| Recent highs | Past buying |
| Recent lows | Past selling |
| Swing points | Order clusters |
Finding Liquidity Zones
Method 1: Recent Highs/Lows
Recent swing high = Above stop liquidity
Recent swing low = Below stop liquidity
Method 2: Round Numbers
1.1000, 1.2000, 1.3000
50.00, 100.00
$1,000, $2,000
Round numbers magnet price.
Method 3: Range Edges
Range high = Resistance liquidity
Range low = Support liquidity
Liquidity Trading Strategies
Strategy 1: Liquidity Run
1. Price approaches high liquidity
2. Spikes into stops
3. Reverses with momentum
4. Entry: Opposite way
Strategy 2: Liquidity Magnet
1. Price moving toward round number
2. Slows near number
3. Reverses on touch
4. Entry: On rejection
Strategy 3: Liquidity Grab
1. Identified liquidity zone
2. Price reaches zone
3. Absorbs (doesn't reverse)
4. Breakout: Follow through
Liquidity Visualization
Price
│ Liquidity (stops)
│ ████████████
│ ████████████ High
│ ↓ Spike
──●────────────────────────────────
│ ↑ Reversal
│ ╱╱╱╱ Low
│ ╱╱╱
│ ╱
│ ╱ Liquidity (buys)
│
└───────────────────── Price direction
Common Mistakes
1. Trading Into Unknown Liquidity
Problem: Not identifying where liquidity is.
Solution: Map liquidity zones first.
2. No Confirmation
Problem: Entering before reversal.
Solution: Wait for price action.
3. Fighting Strong Trends
Problem: Looking for liquidity reversal in strong trend.
Solution: Follow trend, not against.
Key Takeaways
- Liquidity = Orders — Clustered orders
- Price seeks liquidity — Moves toward it
- Stop hunting — Runs stops, reverses
- Round numbers — Magnet price
- Map zones first — Before trading
Related
order-flow.md >>>
Follow the liquidity. Price goes there.