"Liquidity" sweeps & how to think about the term liquidity the right way longer post, bookmark > first let's define liquidity - a simple way to think about it - how much you can trade + how fast and how little it moves price. a sweep is referred to as a candle pattern where price trades past a prior high or low and then closes back inside. the assumption is that stops are triggered beyond that level and the other side filled against that. if you're looking at shit from half a year ago you best believe those positions aren't just sitting there for months. stops get triggered or moved, positions close so not much is just waiting there sitting to be "swept" or is left behind. old levels can still matter which is why some of this shit works. price doesn't give a flying f but people do because of price history and candle stick charts. i.e. there's psychology established around highs and lows that stand out on a chart or also depending on how price traded around them. so when price gets close to previous areas that's where the new positioning come from. everyone sees the same crap, so new stops, new breakout positions. candles shows price traded (the advertisement) you can confirm some of the other stuff with open interest, liquidation, trapped positioning, aggression piling in or (lack thereof) etc. on more recent price action, especially if price is hanging out around certain areas for longer periods of time or chopping, there's a recency bias i.e. positioning is starting to build up at the range extremes, price will continue to revert until there's new information which is the excuse for one side going "yeah f this" = reflexivity/decisive break in that direction. the mechanics of a sweep: > liquidation - stops getting triggered in the same area which unravels price (think trail of gasoline lit on fire), which is why price moves fast. > exhaustion - positioning stopped out, inventory cleaned up. > forced stops cause temporary mispricing and leaves behind a vacuum in the books = mechanical reversion (easy to take the other side and push price in the other direction since thin). this is also magnified by new positioning that piled in aggressively (breakout/breakdown) on the quick move (bottom shorts/top longs) and stops are now in the immediate vicinity in the other direction. > on the back of this reversion, if there is no follow through on aggression in the same direction price will typically probe back to clean up the "large wick" left behind on this temporary reversion. * some of the definitions and terminology in the visual was paraphrased using the reference - Albert Kyle, “Continuous Auctions and Insider Trading,” Econometrica, 1985