Liquidity Sweep Identification

A liquidity sweep occurs when the price moves past a key support or resistance level to trigger stop-loss orders before reversing direction. This is a deliberate action often orchestrated by larger market participants to accumulate liquidity from retail traders who are forced out of their positions.

Identifying a liquidity sweep requires observing the speed and volume of the move, as well as the subsequent reaction of the price. If the price quickly returns inside the original range, it is a strong indicator that a sweep has occurred.

Traders use this information to enter positions in the opposite direction of the sweep, betting on a mean reversion. It is a classic example of behavioral game theory in financial markets.