Liquidity sweeps: why price hunts equal highs and lows
Stop losses cluster in obvious places: just below a clear low, just above a clear high, and especially around equal highs or lows. Those clusters are liquidity: resting orders that larger players can trade against.
What a sweep looks like
Price pushes beyond the level, triggers the orders resting there, and then closes back inside the range. On the chart, it usually leaves a long wick through the level.
Downtrend
Price makes lower highs and lower lows, so the structure is bearish. The last lower high is the level to watch.
Equal lows
Several lows form at almost the same price. Many traders keep their stops just below them, so liquidity builds up there.
Liquidity sweep
Price dips below the equal lows, triggers those stops, and closes back above them. The long lower wick is the footprint.
Change of character
The rally breaks the last lower high. It is the first break against the trend, so the character of the market changes.
Retest
Price pulls back into the fair value gap left by the rally, then continues higher. One possible path: how often it works has to be measured.
Sweep or breakdown?
| Sweep | Real breakdown | |
|---|---|---|
| The close | Back inside the range | Beyond the level |
| Follow-through | Little or none | Continues |
| What often comes next | A move the other way | A retest from the other side |
A sweep is only confirmed afterwards. What makes it useful is what follows it: in Smart Money Concepts, a sweep followed by a change of character is a common setup.
Why equal highs and lows
Two or more highs or lows at almost the same price look like strong support or resistance, so many traders put their stops just beyond them. The more obvious a level is, the more orders tend to rest there.