Liquidity Zones Trading: Hunt Where Smart Money Hunts
Price doesn't move randomly—it seeks liquidity. Learn to identify where stops cluster and trade the sweeps that trap retail traders.
- Liquidity zones are where stop losses and orders cluster—price targets these areas to fill large positions.
- Stop hunts sweep obvious levels then reverse. Trade the reversal after sweep, not into the sweep.
- Thrive identifies liquidity zones and alerts when stop hunts occur at key levels.
Explore Liquidity Zones
Click through different liquidity zone types:
Price sweeps below obvious lows to trigger stop losses, then reverses. Smart money buys the liquidity from triggered stops.
Formation
Equal lows or obvious support level where retail places stops
Wait for sweep of lows (wick below support). Look for immediate reversal candle. Enter on confirmation of reversal. Stop below the sweep low. Target previous highs or higher.
What Are Liquidity Zones?
Liquidity is where the orders are. Large traders need liquidity to fill their positions without moving price against themselves. They can't just market buy $10M—price would spike. So they engineer moves to liquidity zones where retail stops provide the orders they need.
When you see price sweep a level and immediately reverse, that wasn't random. Smart money pushed price to grab those stops, used them to fill their position, then let price reverse.
Where Liquidity Forms
Equal Highs/Lows
When price creates equal highs or equal lows, stops cluster just beyond them. "Triple top" has massive liquidity above it. Smart money knows this and targets these levels.
Obvious Swing Points
Every visible swing high has short stops above. Every visible swing low has long stops below. The more obvious the swing, the more liquidity rests there.
Round Numbers
Retail loves round numbers. "I'll put my stop at $50,000." Everyone thinks this. Massive liquidity at round numbers = frequent stop hunts.
Previous Day/Week Levels
PDH (Previous Day High), PDL (Previous Day Low), PWH, PWL—institutional levels with significant liquidity. Price often sweeps these early in session.
| Zone Type | Location | Liquidity | Trade |
|---|---|---|---|
| Equal lows | Just below | Long stops | Buy on sweep reversal |
| Equal highs | Just above | Short stops | Sell on sweep reversal |
| Swing points | Beyond swings | Both sides | Fade the sweep |
| Round numbers | At/beyond round | Heavy | Wait for reaction |
Trading Stop Hunts
The Pattern
- Identify obvious liquidity level (equal lows, swing point, etc.)
- Wait for price to sweep the level (wick through)
- Look for immediate reversal candle
- Enter on reversal confirmation
- Stop just beyond the sweep wick
- Target previous swing in opposite direction
Key Points
- Don't anticipate—wait for the sweep
- Reversal must be immediate and strong
- No reversal = it might be real breakout
- Higher timeframe bias matters—trade sweeps in trend direction
Protecting Your Stops
If your stops are at obvious levels, they'll get hunted.
- Don't place stops exactly at swing points—add buffer
- Use structure-based stops (below order block, not below exact low)
- Accept that some stops will hit—that's part of trading
- Consider time-based exits for ranging conditions
Common Mistakes
- Anticipating the sweep: You enter "where it should reverse" but sweep goes further
- No confirmation: Entering immediately on sweep without reversal = catching knife
- Fighting trend: Fading sweeps against trend has low win rate
- Obvious stops: Using exact swing levels as stops = getting hunted
Frequently Asked Questions
What are liquidity zones?
Liquidity zones are areas where many orders rest—stop losses, limit orders, pending entries. These areas attract price because large players need liquidity to fill their positions.
What is a stop hunt?
Stop hunt is when price moves to an obvious level to trigger clustered stop losses, then reverses. Smart money uses triggered stops as liquidity to fill their positions at better prices.
Where do liquidity zones form?
Below obvious swing lows (stops from longs), above obvious swing highs (stops from shorts), at equal highs/lows (obvious levels), round numbers, and previous day/week highs and lows.
How do I identify a stop hunt vs a real breakout?
Stop hunts show quick reversals—price sweeps level then immediately reverses with strong candle. Real breakouts show follow-through. Wait for the reaction before concluding.
Should I place my stops at obvious levels?
Obvious stops get hunted. Place stops beyond where hunt would likely reach—give room for the sweep. Better: use structure-based stops with buffer rather than exact swing levels.
What is a liquidity sweep?
Price sweeping through a liquidity level (usually with a wick), grabbing the stops/orders there, then reversing. The sweep was the purpose—not to continue but to collect liquidity.
How do I trade liquidity sweeps?
Wait for sweep to complete (don't anticipate). Look for immediate reversal candle. Enter on confirmation. Stop just beyond the sweep wick. Target previous swing in opposite direction.
What timeframe shows liquidity best?
All timeframes have liquidity zones. Higher TF zones (daily, 4H) are more significant. Lower TF zones get swept more frequently. Trade lower TF sweeps into higher TF liquidity zones for best setups.