What is a liquidity sweep (stop run)?

A liquidity sweep, or stop run, is a price action pattern where the market briefly pushes past a visible cluster of stop orders (typically beyond prior highs or lows) to trigger stops, then quickly reverses and moves back into the prior range. The goal of these moves—whether driven by liquidity-seeking algos or institutional activity—is to collect resting orders before the market resumes its dominant direction or consolidates.

How to define it on a candlestick chart

The core components to recognize a liquidity sweep on candles are:

• Break of a prior high or low: Price extends beyond a clear recent swing high or swing low. That level is where many retail stops and breakout entries are clustered.
• Quick rejection: After breaching the level, candles show strong rejection—long wicks, failed follow-through, or bearish/bullish engulfing candles opposing the breakout direction.
• Displacement back into the range: The price moves back inside the previous range and often closes within or near the middle of the range, indicating the breakout was exhausted.

These three elements together signal a classic stop run: a purposeful break, a prompt rejection, and a return to structure.

Practical examples

Example 1 — GBPUSD (1H): Imagine GBPUSD trading in a visible range between 1.2600 (support) and 1.2750 (resistance). A cluster of stop orders sits slightly above 1.2750. On one hourly candle, price spikes to 1.2785 (breaking the swing high), leaving a long upper wick, but the next candles close back below 1.2750. The sequence is: breakout candle that fails to close above resistance, immediate rejection wick, and subsequent candles that push prices back into the range. That’s a liquidity sweep—stops above resistance were likely taken before sellers returned.

Example 2 — NAS100 (5-min intraday): The index has a recent high at 17,400. An aggressive move spikes up to 17,455 on a 5-minute candle, creating a pronounced upper wick. The following candles fall rapidly, closing below 17,400 and continuing downward toward the session’s value area. Short-term traders who chased the breakout get stopped out; institutions collected liquidity and reversed the move.

Candlestick clues to watch for

• Long wick beyond a clear swing extreme with a small real body (pin bar or hammer/shooting star depending on direction).
• Engulfing candle in the opposite direction immediately after the breakout candle.
• Low-volume or weak follow-through on the breakout candle (if volume data is available), then higher-volume rejection candles.
• Multiple quick re-tests of the broken level that fail to hold above/below it.

Common mistakes traders make

• Entering too early: Traders jump in on the breakout candle expecting momentum, but if the breakout is a sweep, this leads to immediate stop-outs. Wait for confirmation—rejection candle or a close back into the range before committing.
• Ignoring higher timeframe bias: A stop run on a lower timeframe can be noise if the higher timeframe trend contradicts it. If the daily trend is strongly bearish, an intraday bullish sweep may only be a brief countertrend move.
• Using static stop placements: Placing stops too close to visible highs/lows invites being swept. Consider wider, volatility-based placement or position sizing to tolerate expected sweeps.
• Confusing a genuine breakout with a sweep: Genuine breakouts often have sustained follow-through and retest on the other side; sweeps fail quickly. Patience and context are required.

Simple validation checklist

• Did price break a recent swing high or low? (Yes/No)
• Was the breakout followed by a quick rejection wick or opposite engulfing candle? (Yes/No)
• Did price close back inside the prior range within a few bars? (Yes/No)
• Does the higher timeframe trend support a reversal or suggest it’s likely a sweep? (Align/Contradict)
• Is risk managed with appropriate stop size and position sizing if you trade the reversal? (Yes/No)

Answering these questions before trading helps distinguish genuine breakouts from liquidity sweeps and reduces costly early entries. Use the checklist, wait for clear candlestick rejection and alignment with higher timeframe context, and you’ll avoid common stop-run traps on GBPUSD, NAS100, and other markets.