💧 Understanding Liquidity — and How It Affects Your Stop Loss
🎯 The Lesson
Traders love clean entries…
but the market loves liquidity.
Your stop loss isn’t just a safety tool —
it’s a target for big players looking to fill orders.
If you don’t understand liquidity, you’ll keep getting stopped out by “spikes,”
even when your direction is correct.
⚙️ Step 1: What Is Liquidity?
Liquidity = zones where many orders sit.
Banks and institutions need liquidity to execute large positions.
Where do they find it?
👉 Below lows (sell stops)
👉 Above highs (buy stops)
These zones become magnets.
Price often goes there before moving in the real direction.
📉 Step 2: Why Your Stops Get Hit Even When Your Bias Is Correct
You buy at support.
Price wicks down, hits your stop…
then shoots up without you.
Did you misread direction?
No.
Price simply grabbed liquidity below the low.
Example:
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Support level at 1.1000
-
Liquidity sits at 1.0990
-
Your stop at 1.0995
Price tags 1.0990 → fills institutional orders → moves up
Your stop was sitting inside the liquidity zone.
📊 Step 3: Place Stops Beyond Liquidity, Not Inside
If your stop sits where liquidity sits, you’ll get hunted.
Correct placement:
-
If buying → stop goes below the liquidity low
-
If selling → stop goes above the liquidity high
This gives your trade space to survive the sweep.
Example:
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Swing low at 1.2000
-
Liquidity sits at 1.1990
Place stop at 1.1985, not 1.1995.
Small difference → massive impact.
🧮 Step 4: Combine Liquidity With ATR
Don’t guess the distance.
Use ATR to measure normal volatility so you don’t place stops too close.
Formula:
Stop = Liquidity Level – (ATR × 0.5 to 1)
This ensures your stop sits:
✔️ beyond liquidity
✔️ beyond noise
✔️ beyond random spikes
🔎 Step 5: Know Where Liquidity Pools Form
Common liquidity zones:
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Previous day’s high/low
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Asian session high/low
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Session open levels
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Consolidation boundaries
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Double tops / double bottoms
-
Obvious retail stop zones
If it looks “perfect,” it’s filled with stops.
Big players know this — and they use it.
🚀 Takeaway
The market isn’t hunting you —
it’s hunting your stop placement.
When you place stops beyond liquidity, not inside it, your accuracy improves instantly.
Most traders aren’t wrong — their stops are.
Master liquidity, and the market will stop shaking you out.
📢 Join my MQL5 channel for more trading & risk-management insights:
👉 https://www.mql5.com/en/channels/issam_kassas
