What happens in the order flow during a liquidity sweep

A liquidity sweep is a fast move above an obvious high or below an obvious low. It triggers the stops sitting there and then fails to continue. On the chart it looks like a breakout at first. You can't tell the difference from the level itself, only from what happens after the break.

In most cases, liquidity sweep and stop run mean the same thing. I wrote up how a stop run works separately. This article is about what the term means and what you see on the footprint and the heatmap.

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What is a liquidity sweep?

Price runs through a level where traders assume lots of orders sit, takes them out and doesn't get any further. You'll find the term mostly in ICT and smart money content. ICT stands for Inner Circle Trader. There, the orders above a high are called buy-side liquidity and the orders below a low sell-side liquidity.

In order flow the word has a second meaning. There, a sweep is an aggressive order that clears several price levels of the order book at once. That describes how the order was executed and has nothing to do with a high or low as such. So when you read about a sweep, check which of the two they mean.

What happens in the market

Buy stops sit above a high. Those are the stop losses of shorts and the orders of traders who want in on the break. Below a low it's the other way around.

A stop order doesn't sit in the order book. At CME it waits until a trade reaches its price. Only then does it become active.

When price reaches the high, the first stops trigger. Their buying lifts price further and triggers the next ones. It happens fast and looks like strong buying pressure. But some of those buyers don't want to be long at all. The shorts just want out.

On the other side are limit sellers. Anyone who wants to sell in size needs buyers, and in that moment there are suddenly plenty of them. That's why the word liquidity fits here. The triggered stops are the other side for someone building or unloading a position.

My view of large players has nothing to do with smart money. What I care about is understanding the order flow, seeing what large players are forced to do, and then attaching myself to them. As a retail trader you can't trade like an institution.

I still don't believe anyone pushes the market to a high just for the few stops sitting there. There usually isn't that much. Look at the traded volume at those extremes, and it's often smaller than a little below them. What matters is who is still buying after the stops trigger.

Why you can't see a sweep coming

Because you can't see stops anywhere. The heatmap shows you limit orders, and even the full order book has no waiting stops in it. Stop trackers in order flow software mark executed stops, so only once it has already happened.

Stops at a session high or at two equal highs are therefore an assumption, though often a good one. I never say: there must be stops there, so I'm doing something now. I watch what happens when price gets there.

How do you identify a liquidity sweep on the footprint?

You often can't see it at the break itself. A triggered stop that fills right away is an aggressive order, so on the footprint it looks exactly like a real buyer. A strongly positive delta at the break therefore proves nothing. To me a burst like that is only a possibility at first. It can come from stops, or someone is simply buying at market. The tape alone won't tell you.

What you can read comes afterward, and three questions help you there.

Does new aggression keep coming at the higher prices? If it dries up right after the push, the follow-through is missing. That fits a move carried mostly by stops, but it can't prove it.

Does volume build beyond the level? If the area stays thin, little traded there and the market didn't accept those prices.

Does price fail to advance despite the buying? Then limit sellers up there are taking everything. That is absorption. If price then falls back below the level, the break didn't hold and you have a failed structure.

What the heatmap adds

The heatmap shows you the passive side, which the footprint doesn't. During a sweep, price sometimes races through an area with few or small bubbles. Then the liquidity there was pulled, or the aggression is simply pushing through.

After that, watch the passive side. Do buyers step up below price, or does it stay thin there? Are new limit sellers building above the high? In a real breakout the buy side usually follows. In a sweep it often doesn't.

Don't read this too literally. The heatmap shows you what's sitting there right now, and traders can pull limit orders at any moment. It only tells you something together with what traded.

You usually won't catch the sweep itself, since it's typically too fast. It does tell you that liquidity has been cleared in that direction.

Sweep or real breakout?

No single one of these is enough. And triggered stops can start or speed up a trend themselves. Price rises, it looks like new buying, and everyone reacts. But nobody knows whether those buyers even want higher prices. If new buyers really do come in after that, it was a breakout after all, and you don't want to fight it.

What I recommend

Treat a high or low being taken as an event that says nothing yet. After every break, ask who buys or sells next, and answer that with the footprint and the heatmap instead of the chart picture.

In our mentoring we show you how to read order flow in the live market.