Liquidity Zones & Stop Hunts
Learn how institutional traders hunt retail stop losses using liquidity sweeps — understand equal highs and lows, buy-side and sell-side liquidity, and how to avoid being the victim and become the beneficiary.
Learn how institutional traders hunt retail stop losses using liquidity sweeps — understand equal highs and lows, buy-side and sell-side liquidity, and how to avoid being the victim and become the beneficiary.
In Smart Money Concepts, the single most powerful — and most frustrating for retail traders — concept is liquidity. The market does not move randomly. It moves to reach liquidity pools: the clustered stop-loss orders of retail traders that allow institutions to fill their large positions.
Understanding liquidity turns stop hunts from threats into opportunities. Instead of being the retail trader who gets stopped out before the real move, you become the trader who recognizes the sweep and enters the trade with institutions.
In market terms, liquidity is the ease with which an asset can be bought or sold without moving the price. For institutional traders attempting to fill large positions, liquidity means having a sufficient pool of orders on the other side of their trade to fill against.
Individual retail traders place stop-loss orders — automatic sell orders (for longs) or buy orders (for shorts) just beyond key technical levels. When many traders place stops at similar levels, a liquidity pool forms: a cluster of resting orders sitting just beyond a visible technical level.
Institutions know these pools exist. When they need to fill a large buy order, they engineer price to move down into the retail long stop-loss cluster (below a key low), trigger those stops (which become sell orders — exactly what the institution needs to buy from), fill their position, and then drive price higher.
This is the stop hunt — also called a liquidity sweep.
Buy-Side Liquidity (BSL) sits above price, concentrated at:
Retail traders who are short the market place their stop losses above these levels. When institutions need to buy large quantities, they drive price up through these levels, trigger the short stops (which are buy orders), fill their long positions, then drive price down.
Sell-Side Liquidity (SSL) sits below price, concentrated at:
Retail traders who are long place their stop losses below these levels. Institutions engineering a drive upward first need to go down, sweep the longs' stops, fill their own buy orders, then launch the actual bullish move.
The most obvious liquidity pools form at equal highs and equal lows — levels where price has tested the same approximate price point two or more times.
Why? Because every retail trader sees these levels. They are the most obvious "resistance" (equal highs) and "support" (equal lows) on the chart. Every retail trader who identifies "double top resistance" at equal highs places their stop loss just above those highs. Every retail trader who identifies "strong double bottom support" at equal lows places their stop loss just below.
The concentration of stops at these visible levels makes them prime targets for institutional liquidity hunts.
Ask Diplyzer:
"Identify all equal high and equal low liquidity zones on [ticker] over the last 3 months on the daily chart. Which ones have been swept recently and which are still intact?"
A liquidity sweep follows a predictable pattern:
Phase 1 – Approaching the Pool: Price moves steadily toward the liquidity zone (equal highs, for example). Retail traders see this as confirmation of the resistance and add to their short positions. More stops accumulate above the highs.
Phase 2 – The Sweep: Price breaks above the equal highs — sometimes by just a few points, sometimes by a more significant margin. Retail stop-loss orders trigger (these are buy orders — exactly what an institution needs to fill a large sell position). The wick above the equal highs on a candlestick chart is often the visual signature of the sweep.
Phase 3 – The Reversal: With their large position now filled against the triggered stops, institutions reverse direction. Price drops sharply back below the swept highs. Retail traders who entered longs on the "breakout" are now trapped.
Phase 4 – The Continuation: Price continues in the direction institutions wanted, carrying their filled position with it.
Ask Diplyzer:
"Show me any recent liquidity sweeps on [ticker] on the 4-hour chart. For each sweep, show me the candlestick that swept the liquidity and what happened to price in the following 10-20 candles."
Recognizing a liquidity sweep as it happens — or immediately after — gives you one of the most reliable entries in SMC trading.
Bullish Sweep and Reverse (Hunting Sell-Side Liquidity):
Bearish Sweep and Reverse (Hunting Buy-Side Liquidity): The mirror image — price sweeps equal highs, reversal candle forms, price closes back below the highs, enter short.
Ask Diplyzer:
"Find me any recent liquidity sweeps on [ticker] where price swept a major high or low and immediately reversed. Show me the setup and subsequent price action."
Liquidity sweeps are most meaningful when they occur in the right structural context:
The sweep creates the entry; the structure and premium/discount positioning provide the directional confidence.
Forex: Currency markets are particularly susceptible to stop hunts because the major dealers (the market's largest participants) can see where retail stop orders are concentrated through order book access.
"Show me all recent stop hunt patterns on EURUSD on the 1-hour chart. Have there been any sweeps of key equal highs or lows this week?"
Stocks: Pre-market and after-hours gaps often create or sweep liquidity before the regular session opens. The opening bell frequently sees a sweep of the overnight session highs or lows.
"Did [stock] sweep any major liquidity levels at the market open today? Was there a stop hunt before the real direction was established?"
Crypto: With high leverage available on crypto derivatives exchanges, stop hunts are extremely common. The "wick" candles on Bitcoin in particular often represent massive stop-hunting moves.
"Show me the most significant liquidity sweeps on Bitcoin in the last 2 weeks on the 4-hour chart. What was the magnitude of each sweep?"
Understanding liquidity also improves your stop-loss placement. Avoid placing stops at the obvious levels — exactly where retail traders cluster:
Don't: Place stops directly at a swing low, double bottom, or round number. Do: Place stops beyond a liquidity zone that has already been swept, or at an illogical level that institutions are unlikely to target.
Complete liquidity analysis with Diplyzer:
"Full liquidity analysis on [ticker] for the last 3 months: all equal high and equal low zones, recent liquidity sweeps, which SSL and BSL pools are still intact, and any sweep-and-reverse setups that formed recently."