Liquidity sweep

Stop-losses and breakout orders collect in predictable places: above recent highs and below recent lows. When price reaches such a place, those orders become market orders. That gives a large trader enough volume to enter or exit a position.

A sweep is the candle, or short series of candles, that takes the level and fails to hold beyond it. The usual picture is a long wick through the level and a close back on the original side. The term comes from ICT (Inner Circle Trader) and smart money concepts. Older names for the same event are stop hunt and false breakout.

• Buy-side liquidity – buy stops above highs: stop-losses of short positions and entry orders of breakout buyers. A sweep of buy-side liquidity is a spike above a high that closes back below it. It is read as bearish.
• Sell-side liquidity – sell stops below lows: stop-losses of long positions and entry orders of breakout sellers. A sweep of sell-side liquidity is a spike below a low that closes back above it. It is read as bullish.
• The clearest pools sit at equal highs and equal lows, the high and low of the previous day or week, and the extremes of a trading session.

The diagram above shows the first case: two equal lows, a wick below them and a close back above the level.

• Equal lows – price makes two lows at 100.0 and 100.1. A candle drops to 99.4 and closes at 100.6. The stops below 100 were taken and price is back in the range: a sell-side sweep.
• Previous day's high – yesterday's high is 250. In the morning price spikes to 251.2 and the hourly candle closes at 249.5: a buy-side sweep.
• Range high on news – price holds under 1.1000 for hours, jumps to 1.1015 on a data release and falls back under 1.1000 within minutes.

Both start the same way: price crosses a level. The difference is what happens next, so a sweep can be named only after the candle has closed.

• Breakout – candles close beyond the level, the level holds on a retest and price continues.
• Sweep – price crosses the level with a wick or one fast candle, fails to stay beyond it and moves away in the opposite direction.

Most traders use the two terms for the same thing. Where a distinction is made, a liquidity grab is one quick wick through a single level, and a sweep is a wider move that clears several highs or lows before it reverses. The trading logic is the same.

On Charts the Liquidity Swings and Sweeps indicator in the Smart Money group marks swing levels and the sweeps of them. Smart Money indicators are included in Plus and Premium.

• Levels – mark them first: equal highs and lows, the previous day's high and low, the edges of a range.
• Trigger – a candle that trades through the level and closes back inside it.
• Confirmation – a break of structure on a lower timeframe in the new direction. It often leaves a fair value gap or an order block to enter from.
• Entry – on the close of the sweep candle, or on the return to the gap or block.
• Stop – beyond the extreme of the sweep wick.
• Target – the opposite side of the range, where the other pool of liquidity sits.

• Entering before the close – a wick is not a sweep until the candle closes back inside. A real breakout looks the same until then.
• Calling every wick a sweep – the level has to be obvious: a high or low that many traders can see.
• Fading a strong trend – in a strong trend levels break and hold, and sweeps against the trend often fail.
• A stop that is too tight – price sometimes takes the same level twice.