Liquidity and Stop Hunts

What is liquidity?

Liquidity is the pool of pending orders in the market — mainly retail stop losses. They tend to cluster just above recent highs and just below recent lows. Institutions need this liquidity to fill large orders.

What is a stop hunt?

A stop hunt happens when price is deliberately pushed into a liquidity zone, triggers retail stops and then reverses sharply in the opposite direction. It is the classic "trap" that catches unaware traders.

How to use it to your advantage

Instead of placing stops at obvious levels, identify the liquidity zones and wait for the stop hunt to happen. The reversal after a liquidity sweep often offers high-probability entries in the institutional direction.