Buy-Side Liquidity Sweep

Entry Logic

• Entry trigger: Price rallies above a clear resistance level or previous high, taking out buy-stop orders, then immediately reverses and breaks below that level.
• Confirmation: A bearish engulfing or pin bar candle forms on the 15-minute chart after the sweep, with a significant increase in volume.
• Timeframe: 15-minute for entry and confirmation.
• Location context: Occurs above a well-defined area of buy-side liquidity (e.g., equal highs, prominent swing high).
• Market condition: Can occur in ranging or trending markets, represents a targeted move by institutional players.

Exit Logic

• Profit target: The nearest significant sell-side liquidity pool (e.g., a previous swing low).
• Scaling out: Take 50% off at a 2:1 risk/reward ratio.
• Trailing stop: Trail the stop loss above the highs of the previous two 15-minute candles.
• Signal failure exit: Exit immediately if price closes back above the swept high.
• Opposite signal exit: Exit if a strong bullish signal appears, such as a bullish market structure shift.
• Time expiration: Close the trade if it hasn't reached the target by the end of the trading session.
• Momentum loss: Exit if the downward momentum stalls and price begins to consolidate for more than an hour.

Stop Loss Structure

• Hard stop: 1 ATR above the highest point of the liquidity sweep.
• Soft stop: A 15-minute candle closing back above the resistance level.
• Max dollar loss: $160 per trade.
• Max percent loss: 0.8% of account.
• Structural stop: Placed definitively above the high of the wick that performed the sweep.

Risk Management Framework

• Risk per trade: 0.5% of account.
• Daily limit: 2 losing trades on this setup.
• Weekly limit: 3% drawdown.
• Max drawdown: 12%.
• R:R requirement: Minimum 2.5:1.

Position Sizing Model

• Sizing approach: Fixed risk amount per trade.
• Volatility adjustment: Reduce position size if the 15-minute ATR is unusually high.
• Conviction sizing: Use full size for clean sweeps of obvious highs; 50% size for less clear setups.
• Scaling in: Not recommended.
• Scaling out: At a 2R profit level.

Trade Filtering

• Market conditions to avoid: Very strong, fundamentally-driven uptrends where breakouts are likely to be genuine.
• Setups required: A clear, obvious pool of buy-side liquidity that has not been recently tested.
• Instruments: Forex majors, stock indices, and major cryptocurrencies.
• Time restrictions: Most common during the first 1-2 hours of the London or New York sessions.
• Chop/news avoidance: Avoid this setup just before a high-impact news release.

Context Framework

• Trend direction: The sweep can be a reversal signal at the top of an uptrend or a continuation signal in a downtrend.
• VWAP relationship: Price often sweeps above a key VWAP band deviation then reverses back towards the mean.
• MA relationship: The sweep might occur above the 200 SMA on a lower timeframe, tricking breakout traders.
• Range location: At the high of a daily or weekly range.
• Higher TF alignment: The 1-hour or 4-hour chart shows bearish divergence leading into the sweep.

Trade Management Rules

• Breakeven: Move stop to breakeven once price has moved 1.5R in your favor.
• Scale out: At 2R.
• Add size: Not applicable.
• Fast vs slow moves: Expect a rapid move down after the sweep; a slow drift is a warning sign.

Time Rules

• Optimal window: 8:00 AM - 10:00 AM GMT (London), 8:30 AM - 10:30 AM EST (New York).
• Times to avoid: Low-volume periods like the Asian session lunch hour.
• Session notes: Look for sweeps of the previous day's or previous week's high.

Setup Classification

• A+ criteria: A violent sweep of pristine equal highs followed by an immediate, high-volume reversal.
• A criteria: A clear sweep of a major swing high with a confirmed reversal candle.
• B criteria: The sweep is slow and grinding, or the reversal is weak.
• C criteria: The market is in a powerful, unabated uptrend.

Market Selection Criteria

• Instruments: EUR/USD, GBP/USD, SPX500, NASDAQ 100.
• Volume: A spike in volume on the reversal candle is essential.
• Volatility: Moderate to high volatility is required for the pattern to be effective.

Statistical Edge Metrics

• Win rate: 45%.
• Avg win: 3R.
• Avg loss: 1R.
• Profit factor: 1.35.
• Expectancy: 0.35R per trade.

Failure Conditions

• The liquidity sweep is actually the start of a legitimate breakout, and the trend continues upward.
• The reversal lacks institutional backing, and price consolidates before moving higher.

Psychological Rules

• Requires entering short when price has just made a new high, which feels counterintuitive.
• Must be decisive in exiting if the trade proves to be a failed setup.

Advanced Components

• Regime detection: Use order flow tools (footprint charts) to see absorption at the highs.
• Filters: Confirm with bearish divergence on the RSI or MACD.
• Correlation: Check if the DXY (for forex) or other indices are showing corresponding weakness.
• MTF alignment: The target should be a logical liquidity area on a higher timeframe chart.

Location

• Strongest: Above old highs that are clearly visible on the daily and weekly charts.
• Weakest: In the middle of a price range with no clear liquidity above.