Liquidity is simply resting orders — clusters of stop-losses and pending orders sitting at obvious prices. Big players need liquidity to fill large positions without moving price against themselves, so price is often drawn to where liquidity rests.
Two flavors:
- Buy-side liquidity (BSL) sits above highs — the stop-losses of shorts and the breakout-buy orders. Price runs up into it to trigger those buys, then can reverse down.
- Sell-side liquidity (SSL) sits below lows — the stops of longs and breakout-sell orders. Price dips below to trigger them, then can reverse up.
The mental flip. Beginners think "price broke the high, I'll buy the breakout." The liquidity lens says "price ran the high to fill orders — is this a real breakout, or a raid before a reversal?" More often than the crowd expects, the obvious high or low is a target, not a launchpad.
Learn to ask, on every chart: where are the stops? That's where price wants to go.