Trader's Glossary

LiquidityLiquidity Pool

A price cluster of resting stop-loss orders, typically above swing highs (buy-stops) or below swing lows (sell-stops). Smart money targets these.

Liquidity in trading refers to clusters of resting stop-loss orders that institutions can use to fill their own positions. Buyside liquidity sits above recent swing highs (where shorts have stops). Sellside sits below swing lows (where longs have stops). Equal highs and equal lows are the strongest pools — multiple retail traders all set stops at the same level.

Smart money intentionally drives price into liquidity pools to fill institutional orders against the resulting stop-out flow. Trading near liquidity without a plan is suicide; trading the REJECTION of a liquidity sweep is one of the highest-edge plays in markets.