Liquidity sweep or breakout?

ABCPick one, then read the solution.

Show the solution

Solution: B. B's wick ran above the old high, triggered the stops resting there and the candle closed back below the level. Liquidity was taken and price was not accepted above, so it is a sweep, and the drop that followed broke the last low. A is a breakout: it closed above the level and the next candles held above it. C never reached the level, so nothing was swept.

Cancelled if price closes back above B's high.

Illustrative diagram, not market data.

The sweep sequence

1. Mark the pool. Equal highs, the previous day's high, an obvious swing high.
2. Wait for the run. Price trades above it and triggers the stops.
3. Watch the close. The candle closes back below the level. No close back inside, no sweep.
4. Wait for the shift. Price breaks the last swing low on your entry timeframe: a change of character.
5. Enter on the pullback. The reversal usually leaves a fair value gap; enter as price comes back into it, stop above the sweep high.

Five clues for a short after an equal-highs sweep

• The highs sit at a clear resistance on the higher timeframe.
• RSI falls back under 50 after the sweep.
• Price breaks the last swing low (change of character).
• The retest of the broken low fails.
• A shooting star or bearish engulfing candle forms on the retest.

No single clue is enough. Three or more together make the idea worth a trade with a stop above the sweep.

Targets

The opposite pool of liquidity is the natural target: equal lows, the previous day's low, the low of the range. Aim for at least twice the distance to your stop; if the nearest pool is closer than that, the trade is not worth taking.

Questions

What is the difference between a liquidity sweep and a liquidity grab?

Most traders use the words for the same thing: price runs the stops beyond a high or low and reverses. Some reserve grab for a single-candle wick and sweep for a move that trades beyond the level for a while before returning.

How do I trade a liquidity sweep?

Mark the pool, wait for price to run it and close back inside, then wait for a break of the last swing in the other direction. Enter on the pullback, usually into the fair value gap the reversal leaves, with the stop beyond the sweep.

How do I know it is not a breakout?

Wait for the close. A breakout closes beyond the level and holds on the retest. A sweep closes back inside, and the next candles fail to get back beyond it.

Which timeframe is best?

Mark the pools on the 4-hour or hourly chart, and watch the sweep and the shift on the 15-minute or 5-minute chart.