Smart Money

Liquidity Zones: Stop Loss Hunting

6 min read•Trading Reference Guide

What is a Liquidity Zone?

Liquidity Zone = Area where many retail stop-losses cluster. Institutions hunt these zones to trigger stops and create liquidity for their orders.

SupportRetail Stops Cluster (Below Support)1. Price approaches2. Sweep!Stops triggered3. Reversal UPContinues upWhat Happened✓ Whales placed sell orders✓ Pushed price through support✓ Retail stops executed (sold)✓ Whales bought the liquiditySHORT Entry Here!Strategy: Buy AFTER sweep when price bounces back up. Don't fight the sweep, let it happen, then catch the bounce.

How Stop-Loss Hunting Works

1. Price approaches support with many retail stops

2. Whales place big sell orders to push price down

3. Retail stops trigger (forced selling)

4. Whales buy the liquidity (the sell orders executed)

5. Price reverses (now whales are long)

Price Action Signals

Liquidity Sweep UP: Price breaks above resistance → quick sharp move UP → wicks above level → reverses DOWN

Liquidity Sweep DOWN: Price breaks below support → sharp move DOWN → wicks below level → reverses UP

Trading Liquidity Sweeps

Strategy: Buy AFTER the sweep, not during it. Wait for confirmation that price is bouncing.

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