Free course · Lesson 6 of 14

Stop losses and liquidity

Why price is drawn to obvious highs and lows.

Step by step

1. Price keeps bouncing between the same top and bottom.
2. Traders who sold near the top put their stop loss just above it, so they only lose a little if they’re wrong. Hundreds of these orders stack up there.
3. Buyers do the same thing just below the bottom.
4. Those piles of orders are called liquidity. Big banks need lots of orders to fill their own trades, so price is often pushed into these piles first.

Remember: Liquidity is the cluster of stop losses sitting just beyond an obvious high or low.