Liquidity Basics
Where stops tend to build and why price often trades there first.
Liquidity is where orders are likely to exist. In trading discussions, liquidity often refers to areas where stops are clustered, such as above equal highs, below equal lows, or around obvious prior session levels.
Markets often trade toward liquidity because larger participants need orders to enter or exit size. A push beyond a clean high can trigger buy stops, and a move below a clean low can trigger sell stops. What happens after that run is often more important than the run itself.
Beginners should watch whether price accepts beyond liquidity or rejects back into the prior range. Acceptance can lead to continuation. Rejection can create a reversal setup because trapped traders may need to exit.