Crypto Lexicon
Liquidity Sweeps
A Liquidity Sweep, also known as a liquidity grab or stop run, occurs when price briefly pierces above a key high or below a key low to trigger resting retail stop orders before reversing aggressively in the opposite direction.
Why Liquidity Pools Cluster Around Key Highs and Lows
Retail traders are taught classical technical analysis: place buy stops above swing highs and sell stops (stop losses) below swing lows.
- Buy Side Liquidity (BSL): Resting above swing highs are thousands of buy stop orders from short sellers and breakout traders.
- Sell Side Liquidity (SSL): Resting below swing lows are thousands of stop loss market orders from long traders.
Large funds need this high volume concentration of resting orders to execute massive position entries without pushing the market away from their desired price.
The Anatomy of a Sweep Setup
- The Trigger: Price drives aggressively past an obvious support or resistance level, enticing breakout traders and executing stop losses.
- The Absorption: Institutional algorithms absorb all the triggered liquidity in seconds.
- The Rapid Rejection: Price closes back inside the previous trading range, leaving a long candlestick wick that traps breakout traders.
How to Trade Liquidity Sweeps
- Never enter breakout trades blindly at obvious equal highs or equal lows.
- Wait for the sweep wick to complete and confirm a Change of Character (CHoCH) on lower timeframes.
- Enter on the retest of the Fair Value Gap or Order Block created by the sweep candle.
Learn how to structure trades with disciplined risk management in our Complete Beginner Guide to Crypto Trading.
Knowledge check
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