Liquidity, Stop Hunts and False Breakouts
Why price so often pokes just above the high, takes your stop, and then goes the other way — and how to stop donating to it.
A large order needs someone to take the other side. The most reliable place to find that is where a crowd of stop orders is sitting — just above an obvious high, just below an obvious low. Those stops are, in the most literal sense, liquidity.
So price is repeatedly drawn to the levels where the most people have said "if it goes here, I am out".
Where the stops are parked
- Above equal highs — Two or three highs at the same price is a shelf of stops.
- Below equal lows — The same on the other side.
- Beyond round numbers — Everyone puts stops just past a big round figure.
- Outside yesterday’s range — The previous day’s high and low collect orders overnight.
How to tell a sweep from a real break
- 1
Watch the close, not the wick
A long wick through the level and a close back inside is a sweep. A candle closing beyond and holding is a break. - 2
Watch the speed of the return
Price snapping back within a candle or two says the move was about stops, not direction. - 3
Watch what follows
A real break brings continuation. A sweep brings an immediate move the other way — often the cleanest trade on the chart. - 4
Give the level room
If your stop is two dollars beyond an obvious high, you are the liquidity. Place it where the idea is actually wrong.
When it fails
Not every failed break is a hunt — sometimes a breakout simply fails because the news behind it was weak. And calling every move against you a "stop hunt" is a way to avoid admitting a level was wrong. The distinction is evidence: a sweep leaves a long wick and an immediate reversal, not just a losing trade.