Liquidity in Trading: The Basics You Must Understand

👉 If you can’t identify liquidity, you become the liquidity.
It's not an indicator, It's not a pattern. It's not a theory.
It's how the markets actually move.

Every trader has seen it happen: you take a position at the “obvious” level, only to get stopped out by a quick wick — and then the market runs exactly where you expected. That wasn’t bad luck. That was liquidity.



In this post, you’ll learn few main forms of liquidity that move markets and how to avoid being stop hunted and actually use such a phenomena for your advantage.

1. Don't be a liquidity
   

Price doesn’t move randomly inside ranges. It hunts liquidity at the edges.
• Retail trap: Traders pile orders right at the range high/low.
• Smart money: Hunt's edges of range before starting the move.

Wait for the sweep of those levels. The stop runs happen first, the real move comes after.

⚠️ If a pivot level gets tapped multiple times, it's on purpose. Smart money are creating illusion of strong support / Resistance.

Les informed traders trades patterns like : Double bottom, Double top and they put the stop losses above the range - This creates a Liquidity cluster which smart money needs to execute their orders. They will come for it before the real move happen.



How to enter continuation
Even in strong trends, price doesn’t move in straight lines.
• Consolidation → Expansion: Liquidity builds during pullbacks or sideways pauses, then gets released in a sharp move.



• Retracement → Expansion: don’t chase the first pullback. Wait for at least 50% pullbacks. Not earlier. Best setup is when it has all like the one below.
Double top as liquidity, range, 50% pullback , stop hunt



• Double tops and Triple tops are engendered liquidity if you see it expect price go thru that levels



The win isn’t catching the exact bottom. It’s catching a clean entry with strong Trend continuation - low timeframe reversal and with right timeframe allignements.

So here is again GBPUSD example where we had the weekly range, stop hunt to 50% of the swing.



After stop hunt occurs you wait for. H4 OB being created in other words engulf of last bulky down candle and clean close above. Then you can enter with SL below the stop hunted lows, not only that traders was liquidated there but also another group of traders entered shorts and they will be now liquidated above that double top and its your target.



Importance of key level
Even when smart money moves price to the highs where it seems there is not key level always look left price mostly stop just right above or below the key level. Ranges for some time makes false move in the direction which sucks traders in to to a trade and then they hit key level and go that direction.



If the move is not going from key level it's a trap. We can use many types of levels, but here is a tip for the forex Whole, quarter, half levels are strong. If your order block, supply / demand occurs or classic support occurs around that level it will have higher probability and its not because of psychological level. It's because these levels are what institutions are trading.

[I]Stop hunts are not your enemy — unless you ignore it. The market makers hunts liquidity before it moves. By starting thinking about the markets this was way you will recognize and will be able to visualize future movements.

Summary
Big challenge is waiting patiently for the stop hunt to happen. And yes sometimes price moves without a stop hunt and you will miss a move. But it's always better not to be in a trade you want to be than being In trade you dont want to be.

Shift from being the exit liquidity to being the trader who patiently waits, confirms, and executes with precision.

🩸 Spot the trap. 🩸 Wait for the sweep. 🩸 Trade with intention.

Dont trust me and fact check this on your chart for your confidence. It's only way to start to see markets differently.


David Perk aka Dave FX Hunter