Crystal Pass · Camp 4 · Underground Lake
Liquidity
At the deepest point of the pass, all the water drains into a single lake. In the market, orders also collect in certain places: above the highs and below the lows where everyone puts their stops. Yakut, the caravan leader, will tell you why big players go looking for these lakes.
The camp's rules
- 01
Liquidity is the orders waiting at a price, ready to trade. A big order needs a lot of orders on the other side to get filled.
- 02
Stops collect in certain places: just above obvious highs and just below obvious lows. Equal highs and equal lows are the biggest pools.
- 03
Sweep: price reaches into a pool with a wick, triggers the stops, and closes back on the old side of the level in the same candle.
- 04
A sweep plus a strong rejection signals a reversal: once the stops have been taken out, there's no fuel left in that direction.
- 05
Tell the three apart: a sweep stays in the wick; a false breakout closes on the far side for a few candles and then gets reclaimed; a real breakout holds on the far side.
- 06
The stop goes beyond the tip of the sweep wick.
Teaching
Pools
Buyers put their stops under an obvious low. Sellers put theirs above an obvious high.
Breakout traders leave orders in the same places: buys above the high, sells below the low.
The result: the area just above obvious highs and just below obvious lows is full of waiting orders. These are liquidity pools.
Yakut · Caravan leader
Equal highs, equal lows
If price has turned at the same level two or three times, everyone has their eye on it.
Everyone sees the same level, everyone puts their stop in the same place, and the pool grows.
At the Breakwater you called these levels support and resistance. Now you know one more thing: water builds up behind them.
Yakut · Caravan leader
In with the wick, out with the body
A sweep happens in a single candle: a wick crosses the level where the pool sits, triggers the stops, and the candle closes back on the old side of the level.
It leaves a long wick behind. Remember from the Harbor: a wick is where price went but couldn't hold.
The stops have been taken out and the big player's order is filled. There's no fuel left to push that way.
Yakut · Caravan leader
A sweep at the low
The mirror image: price pokes a wick under an obvious low, triggers the sell stops there, and closes back above the low.
This is what I told you by the lake: when everyone sells, I buy. Once there's no one left to sell, price turns.
Yakut · Caravan leader
Three possibilities
When price goes past a level, one of three things is happening.
Sweep: only the wick gets through, and the candle closes on the old side.
False breakout: a candle closes on the far side, price stalls for a few candles, and then the level gets reclaimed.
Real breakout: a candle closes on the far side, and the level holds on the retest.
Billur · Pass guide
Lessons · 5
- Story
The underground lake
Meet Yakut the caravan leader, and see where orders pile up.
- Lesson
Where do stops pile up?
Find liquidity pools on a chart: above the highs, below the lows.
- Lesson
Sweep
Recognize the sweep wick and read the reversal that follows.
- Lesson
Sweep, trap or breakout?
Give every move past a level its right name.
- Exam
Crystal Pass exam
Breakouts, traps and sweeps: eight realistic charts.
Test yourself
The orders waiting just above a high are mostly which kind?
- ✓ Buys: sellers' stops and breakout buyers
- · Sells
- · No orders wait there
Two kinds of buy orders pile up above a high: the stops of sellers, and the orders of everyone saying "I'll buy if it breaks." For a big seller, that's buyers ready and waiting.
What should you take from Billur's warning?
- ✓ If my stop is where everyone else's is, I should know price may pay it a visit
- · I shouldn't use a stop
- · I should always put my stop right above the nearest low
You still need a stop. But now you know: the area under an obvious low is crowded, and price can drop in and turn right back. In the next lesson you'll learn what that visit is called.