What is Liquidity pool?
Likvidlik havzasi
In short
A price area where many resting orders (stop-losses, breakout orders) cluster: below equal lows, above equal highs, around round numbers and the prior day's high or low.
Also known as: liquidity, equal lows, equal highs, buy-side liquidity, sell-side liquidity
A liquidity pool is a price area where many resting orders have built up. They're mostly of two kinds: protective stop-losses and stop orders that trigger on a breakout. They tend to cluster at places everyone can see.
Where they form
- Below equal lows: stops of long positions — sell-side liquidity.
- Above equal highs: stops of short positions plus breakout orders — buy-side liquidity.
- Around round numbers ($50, $100).
- Around the prior day's and week's high and low.
Why it matters
To fill a large order you need plenty of orders on the other side. So price is often "drawn" to these pools: it pokes through the level briefly, triggers the stops and then reverses — that's called a liquidity sweep.
Practical use for a trader
- Don't put your own stop where everyone puts theirs — exactly below equal lows.
- Use pools as targets: price often travels toward the next pool.
- Watch the reversal after a sweep as a possible entry.
But not every pair of equal lows gets swept, and not every sweep is a reversal — sometimes price simply breaks through and keeps going.
Range $46.40–49.60. Levels everyone sees: equal highs and the $50 round number (above them — buy orders from breakout traders), equal lows and the prior day low (below them — buyers' stop-losses, i.e. sell orders).
Example
An illustrative stock made three lows almost in the same spot: $74.80, $74.85 and $74.90. Many traders have stops around $74.70, and the round $75 is right there too.
- Price dropped to $74.20 — the stops were triggered (a sweep).
- The day closed at $75.60, back above the equal lows.
- The trader enters at $75.60 with a stop below the sweep low at $73.90 (risk $1.70).
- The target is the equal highs above at $79: a $3.40 gain = +2R.
If price had closed below $74.20, it would have been a genuine breakdown, not a sweep.
Mistakes and tips
Place your stop at a logical invalidation point with some buffer, not exactly below obvious equal lows or a round number.
Confirm a sweep only with a candle close — a close below the level may be a real breakdown.
Use pools for take-profit too: price often heads for the pool on the opposite side.
Frequently asked questions
- What are buy-side and sell-side liquidity?
- Buy-side is the orders resting above highs (short sellers' stops, breakout buys). Sell-side is the orders below lows, mostly long traders' stops.
- Why does price hit my stop and then reverse?
- Often because the stop sat in an obvious spot where many orders cluster, and price briefly tagged that liquidity. It isn't necessarily deliberate hunting, but placing stops differently helps.
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