Draw a horizontal line across the last three swing highs on gold on the hourly chart. Now ask a simple question: where did every trader who is short from that area put their protective stop? Slightly above the line. Where did every breakout trader put their buy entry? Slightly above the line. Those are both buy orders, sitting at the same price, waiting. That cluster is what people mean when they say liquidity pool.
Liquidity is the ability to fill size
A large order needs a counterparty. If you want to buy 50 lots of EURUSD, someone has to be selling 50 lots at prices you are willing to pay, otherwise your fill walks up the book and your average price gets worse. That walk is the cost of illiquidity, and it is the reason large participants care where resting orders are concentrated rather than where the fair value is.
Stop orders are the purest form of resting order because they are unconditional. A stop loss on a short position is a buy order that will execute the moment price trades through the level, with no opinion attached. A dense band of them is a place where a seller can offload size into automatic buying. This is mechanics, not conspiracy. Read our piece on liquidity in forex for how the underlying market is actually structured.
Where the clusters form
Four locations account for most of it.
- Above swing highs and below swing lows, because that is the textbook stop placement for anyone who entered at the opposing extreme.
- At equal highs or equal lows, where price has stalled twice at almost the same price. The flatter the pair of tops, the more obvious the level, and obvious levels attract more orders.
- Around round numbers. 1.1000, 2400.00, 100.00. Humans round, and pending orders inherit the habit.
- At session extremes, particularly the Asian session high and low before London opens. A tight overnight range with clean edges is a magnet.
None of these are secret. That is the whole point. A level only holds orders because it is visible to everyone reading the same support and resistance lines you are.
The sweep, and what it does not prove
The pattern traders look for is a fast push through the level followed by an immediate reversal back inside the previous range. The story attached to it is that resting orders were absorbed and price then went the other way because the buying that drove it there was exit liquidity, not conviction.
The sequence is real and you can see it on any chart. The interpretation is where people overreach. A push through a high that reverses could equally be a genuine breakout that failed on a news print, a thin book at 03:00 with almost nobody quoting, or a random excursion in a range. The chart cannot distinguish between them, because the chart does not show you order flow. It shows you a price series after the fact.
Retail charts contain no order book data for spot forex. Every claim about "where the stops were" is inference from price shape, not observation. Trade it as a probabilistic level, never as a certainty, and remember that leveraged trading carries a high risk of loss.
What to do with the idea practically
The useful version is defensive and it costs nothing. If your stop is two pips above an obvious triple top, you have volunteered for the most crowded exit in the market. Moving it to a place justified by structure, above the whole formation rather than above the wick, changes your risk-reward arithmetic and you have to accept a smaller position to keep the same risk. That is the trade-off, and it is an honest one. Our note on stop loss placement works through the sizing side.
The offensive version is harder. Waiting for a sweep and entering on the reversal means you are entering after a violent move, often with a wide spread, and you need a clear invalidation. Most traders who lose money on this idea do so by entering during the push rather than after the rejection is confirmed on a closed candle. Whatever your rule is, define what "confirmed" means before the session starts, not while the candle is forming. The market structure framework gives you a way to write that rule down.
Where it overlaps with everything else
Liquidity pools, supply and demand zones and classical support and resistance are three vocabularies for the same observation: price reacts at levels where a lot of orders sit. The differences are mostly about which side of the level you expect to matter and how you draw the box. If you already have a structure-based method that works for you, adding the liquidity language on top adds nothing except a reason to second-guess yourself.
The one thing the framing genuinely adds is a reason to expect the false break. Traders raised on breakout systems treat a push through a high as a signal. Traders thinking about resting orders treat it as a question: was there follow-through, or did the move stop the moment the cluster was consumed? Answering that question with the next two or three candles rather than instantly is a discipline improvement regardless of what you call it.
Testing it honestly
If you want to know whether sweeps mean anything on your instrument and timeframe, define the pattern in mechanical terms. A candle whose high exceeds the prior swing high by some minimum amount and whose close is back below it. Then count what happened over the next N candles across a few hundred instances. You will get a number, and the number will probably be less impressive than the examples in the videos, because the examples in the videos are chosen after the fact.
Do that work in a structured backtest and keep the losing instances in the sample. A concept that survives being counted is worth trading. A concept that only looks good in screenshots is a story.
"Price is not hunting you personally. It is going where the orders are, and you put your order in the obvious spot along with everyone else."
— The SGHK Team
Key Takeaways
- Stop orders rest above highs and below lows because that is where traders conventionally place them.
- Equal highs, round numbers and the Asian session range are the most crowded locations.
- Retail charts show no order book, so every claim about where stops sat is inference from price shape.
- The practical use is defensive: stop placement away from the obvious spot, with position size adjusted to match.
Frequently Asked Questions
Are brokers hunting my stop loss?
A regulated broker filling in a deep spot market has no ability to move an interbank price to reach one client's order. Clusters get reached because thousands of traders placed orders at the same visible level, and price moving through them is ordinary market behaviour.
How do I know where liquidity is sitting?
You do not know, you infer. Prior swing highs and lows, equal highs and lows, round numbers and session extremes are the locations where stop orders conventionally accumulate, but no retail chart shows the actual resting orders in spot forex.
Should I trade the sweep or just avoid it?
Avoiding it is the version that requires no prediction: place stops beyond the whole formation and size down to keep risk constant. Trading the reversal requires a written confirmation rule and a defined invalidation, and it entails high risk like any leveraged strategy.
About SGHK
SGHK is a FinTech company that designs and builds its own software for the trading industry: the eTrader trading platform, Launch your Broker and Launch your Prop Firm. Every product is written, hosted and supported in-house and licensed to trading firms, with the CRMs branded to them, all hosted by us in the cloud, managed by each firm and built to scale across clustered servers as our clients grow. Everything is encrypted, and each firm is the only one with access to its data and its clients' data.