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Golden Summit · Camp 2 · Golden Canyon

Liquidity traps

At the foot of the summit lies a deep canyon, its walls streaked with veins of gold. Most of the glitter on those walls is fool's gold. Those who patiently tell the real thing apart reach the summit. Here you'll learn where stops collect, the move that sweeps them, and what a real reversal looks like.

The camp's rules

  1. 01

    Equal highs and equal lows are liquidity pools: stops pile up above and below them. Price often pays them a visit first.

  2. 02

    Sweep: price wicks beyond the pool and comes back. The stops have been taken, and the big player has filled the order. But a sweep on its own isn't a reversal.

  3. 03

    Break of structure (BOS): after the sweep, price breaks the last lower high (if the turn is up) or the last higher low (if it's down). That's the confirmation that the direction has changed.

  4. 04

    The cleanest setup: sweep + break of structure + pullback. Stop below the bottom of the pullback, target at the pool on the other side.

  5. 05

    Don't trade an unconfirmed sweep: if structure hasn't broken, price can come back to test the same pool, or just keep falling.

Teaching

Three steps

1 · Sweep: price wicks below the equal lows and closes above them. The buyers' stops have been taken.

2 · Break of structure: price closes above the last lower high. The downtrend's structure is broken, and the direction is changing.

3 · Pullback: after the break, price comes back a little and holds. That's the entry, with the stop below the bottom of the pullback.

Doruk · Summit lookout

Lessons · 4

  1. Story

    Golden Canyon

    Learn to spot the canyon's fool's gold, and remember where stops collect.

  2. Lesson

    Sweep and break

    After a sweep, wait for the break of structure, then enter on the pullback.

  3. Lesson

    The unconfirmed sweep

    Don't trade a sweep until structure breaks.

  4. Exam

    Golden Canyon exam

    Tell the pool, the sweep and the confirmation apart.

Test yourself

In a sweep + break + pullback setup, where does the stop go?
  • ✓ Just below the bottom of the pullback
  • · Below the sweep wick
  • · A few pips below your entry

After the break, the new structure is the bottom of the pullback. If that breaks, the break didn't hold.

There's been a sweep but no break. What do you wait for?
  • ✓ A close above the last lower high
  • · A longer lower wick
  • · Nothing. I sell right away: the sweep failed

Structure is the proof that the direction has changed. Until it shows up, a sweep is just a visit.