Discussing the article: "Price Action Analysis Toolkit Development (Part 27): Liquidity Sweep With MA Filter Tool"
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Check out the new article: Price Action Analysis Toolkit Development Part 27): Liquidity Sweep With MA Filter Tool.
Understanding the subtle dynamics behind price movements can give you a critical edge. One such phenomenon is the liquidity sweep, a deliberate strategy that large traders, especially institutions, use to push prices through key support or resistance levels. These levels often coincide with clusters of retail stop-loss orders, creating pockets of liquidity that big players can exploit to enter or exit sizeable positions with minimal slippage.
Large institutional traders do not influence the markets by chance. Their strategy often involves pushing prices beyond well-known support or resistance levels, intentionally triggering smaller orders such as stop-losses and pending entries. This brief movement, called a liquidity sweep, allows them to acquire or offload large positions at more favorable prices without immediately counteracting the market’s direction.
For many retail traders, these moves can feel like deceptive traps. The price may dip below a familiar low, triggering stop-losses, only to bounce back quickly. Conversely, it might break above resistance, triggering stops, and then sharply reverse. Once the major players have absorbed this influx of liquidity, the market often resumes its prior trend with renewed strength. Recognizing these liquidity sweeps early can help traders avoid being stopped out prematurely and instead position themselves to follow the institutional flow, rather than reacting to their temporary shakeouts.
In this article, we will develop an MQL5 Expert Advisor designed to identify liquidity sweeps as they unfold. The EA begins by analyzing candles that break below or above previous swing points, then close back within the range, indicators of potential liquidity absorption. It incorporates optional filters, such as candlestick color changes or moving average confirmations, to ensure the signals align with your market bias. When a valid pattern is detected, the EA visually marks it on the chart with arrows or labels and generates an alert.
Author: Christian Benjamin