Reading liquidity, not just candles

Every chart you look at is a summary. The candle shows an open, a high, a low and a close — four numbers standing in for thousands of decisions. Trade the summary alone and you end up drawing lines on the residue of something you never actually saw.

Price moves to where the orders are

Not to where the pattern says it should go. Above an obvious swing high sits a cluster of stop losses from everyone short, plus the buy stops of everyone waiting for a breakout. That is a pool of resting orders. It is fuel. Large participants need volume to fill into, and that is where volume lives.

Which is why the "obvious" level so often gets taken out by a few pips and then reverses hard. Nothing failed. The move did exactly what it was there to do — collect the orders, then go the other way with the size it just acquired.

What to look for instead

• —Equal highs and equal lows. Two or three touches at almost the same price is a shelf of stops advertising itself. Treat it as a target, not as support.
• —The sweep and reclaim. Price pushes through a level, fails to hold, and closes back inside. That is not a breakout that failed; it is a fill that succeeded.
• —Session opens. London and New York bring the volume that makes moves hold. A break at 3am on thin liquidity means considerably less than the same break at 9am.
• —Where the move started from, not where it ended. The area price left in a hurry is usually the area it returns to.

This does not replace your setup

It tells you which of your setups to take. The same pattern at a level where liquidity has already been swept is a different trade from the same pattern into an untouched pool of stops. One has fuel behind it. The other is fuel.

Read the second one correctly and you stop being the liquidity.