Liquidity concepts

Liquidity, in this context, refers to clusters of pending orders — often stop-losses and pending entries — that tend to accumulate around obvious levels like recent highs/lows or round numbers. Some market participants theorize that price is drawn toward these zones because they represent areas where a large number of orders can be filled.

This is a genuinely debated area of trading theory — it's a useful lens for understanding why price sometimes overshoots an 'obvious' level before reversing, but it's not a mechanical rule, and treating it as one can lead to overconfidence in setups that are really just pattern-matching after the fact.

As with all advanced concepts on this page, treat this as a framework for asking better questions about price behavior, not a formula for predicting it.