To get a grip on what a liquidity sweep actually is, we first have to break down the concept of liquidity itself. You can find liquidity in every corner of the market, as it sits right above and below every single candle. The simplest way to look at it is to view liquidity zones as the exact spots where traders place their stop losses. For instance, if a trader is in a winning long trade, they’ll typically trail their stop loss just under the most recent swing low that price formed.
Here is an example:
As you can see a lot of people that entered long positions would most likely have there stop loss placed on that low created within price, so this is an area of liquidity.
What will then usually occur after these areas of liquidity are created will be a sweep of the liquidity (Liquidity Sweep).
To identify a real liquidity sweep you would need to see a rejection within price after it has sweeped an area of liquidity.
Here are a couple examples of liquidity Sweeps:
Bullish Liquidity Sweep:
Bearish Liquidity Sweep:
