Liquidity Pools Basics: Where Stops and Big Orders Really Sit
Liquidity pools are zones on the chart where a ton of stops and pending orders are stacked up. Price doesn’t randomly spike through obvious highs and lows—it’s hunting those orders. If you keep placing trades right into these pools, you’re the fuel.
What a Liquidity Pool Actually Is
A liquidity pool is simply an area where:
- Many traders have their stop losses sitting.
- Large players have pending orders waiting to fill.
- The market knows there’s size to trade against.
The pool itself isn’t visible on your chart, but price behavior around obvious levels exposes where it is. This ties directly into market liquidity basics and market order flow basics.
Where Liquidity Pools Usually Form
Liquidity pools cluster in predictable places:
- Above obvious swing highs
- Below obvious swing lows
- Around round numbers and big figure levels
- At prior day high/low and session extremes
- Around clear consolidation ranges
Anywhere retail packs in stops, liquidity pools build up.
Why Price Raids Liquidity Pools
Price doesn’t “respect” your lines. It goes where the orders are. Raids on liquidity pools happen because big players need counterparties:
- They drive price into a pool of stops.
- Stops convert to market orders.
- Those orders give them the liquidity to enter or exit big size.
That’s why you see price spike through a high, print a nasty wick, and reverse hard. The raid cleared the pool and flipped direction.
Liquidity Pools and Fair Value Gaps
Strong runs from one liquidity pool to another often leave Fair Value Gaps basics behind—areas where price moved so aggressively it skipped trading in between. That’s displacement driven by the hunt for liquidity.
| Feature | What You See | What It Means |
|---|---|---|
| Stop raid wick | Sharp poke beyond high/low then reversal | Liquidity pool taken and flipped |
| FVG after raid | Clean gap in price over 3 candles | Strong imbalance from liquidity grab |
| Return to gap | Slow pullback into the FVG zone | Repricing and possible continuation |
How to Avoid Being the Liquidity
Basic rule: stop entering right at obvious breakout levels without context.
- Don’t buy exactly at the prior high.
- Don’t short exactly at the prior low.
- Don’t park stops where everyone else obviously will.
- Don’t chase after a spike that clearly raided a pool and snapped back.
Wait to see if the move after the raid holds or fails before jumping in.
Using Liquidity Pools to Your Advantage
Instead of being hunted, you can position around the hunt:
- Mark obvious highs and lows where stops are stacked.
- Watch how price behaves when it tags that level.
- If you see a sharp wick and immediate rejection, look for reversal setups.
- If price rips through and holds above/below, treat it as a real break, not a raid.
This works even better when combined with structure concepts from market structure basics.
Liquidity Pools Are the Target, Not the Mystery
Liquidity pools basics are simple: price moves toward size. If you know where the pools are likely sitting, you stop being surprised by spikes and fakeouts. You’ll start seeing the raids, not getting wrecked by them.