Trading glossary

Liquidity: meaning in trading

In trading, liquidity is the pool of resting orders (mostly stop losses) sitting at obvious highs and lows.

Traders put their stops in predictable places: just above a recent high, just below a recent low, or beyond a range. Hundreds of orders stack up there.

Large players need those orders to fill big positions, so price is often drawn to them. Once the stops are taken, the move has used its fuel and frequently reverses.

The Asia high and low are some of the most obvious liquidity of the trading day.

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