EXPLAINED: What is Liquidity?
Liquidity — Easy Summary
Liquidity means where lots of buy and sell orders are sitting in the market.
In simple words:
Liquidity = areas where many traders have placed orders.
Where is liquidity usually found?
Liquidity is often found around:
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Previous highs
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Previous lows
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Support levels
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Resistance levels
These are areas where many traders place:
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Stop losses
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Buy orders
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Sell orders
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Breakout orders
Why does price go there?
Price often moves toward liquidity because big players need enough orders to enter or exit large trades.
So the market may first grab liquidity, then move in the opposite direction.
Buy-side liquidity
Buy-side liquidity is above previous highs.
This is where many traders place buy stop orders.
Price may move above the high, collect those orders, and then fall.
Simple idea:
Liquidity above a high can be grabbed before price drops.
Sell-side liquidity
Sell-side liquidity is below previous lows.
This is where many traders place sell stop orders.
Price may move below the low, collect those orders, and then rise.
Simple idea:
Liquidity below a low can be grabbed before price rises.
Trading idea
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If price breaks above a high, it may be grabbing liquidity before falling.
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If price breaks below a low, it may be grabbing liquidity before rising.
Key lesson
Price is attracted to liquidity.
The market often moves to where the most orders are sitting.
So remember:
Liquidity is like smart money’s target.
Trade well, live free.
Timon Rossolimos
Founder, MATI Trader
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Timon Rossolimos
Founder, MATI Trader
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