What is liquidity?
Orders are fuel
Every trade needs someone on the other side. Large players need lots of orders to fill big positions, and those orders cluster at obvious places: stop losses above highs and below lows, plus breakout orders at the same spots. That pool of resting orders is liquidity, and it is thickest above equal highs and below equal lows.
Buy-side and sell-side
Buy-side liquidity sits above highs (stops of short sellers and breakout buy orders). Sell-side liquidity sits below lows (stops of buyers and breakout sell orders).
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Where does buy-side liquidity usually rest?
Above swing highs and equal highsShorts put their stops above highs, and breakout traders buy there. Both are buy orders.
Why does price often move toward obvious highs and lows?
The orders resting there let large traders fill big positionsLiquidity attracts price because that is where size can be traded.
A trader buys and puts a stop just below an obvious low. That stop is part of…
Sell-side liquidityA long position's stop is a sell order, resting below the low.
Where is sell-side liquidity resting here?
Just below the equal lowsStops of buyers sit just under the obvious lows.
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Candlr is educational. Nothing here is financial advice, and trading involves a high risk of loss.