#Education

What is liquidity, and why does price always follow it?

Liquidity refers to positions on the chart that gather a large number of stop-loss orders, pending orders, and trader positions.

Liquidity is typically concentrated in:
- Above local highs;
- Below local lows;
- Near obvious support and resistance levels.

Why is this important?

Large players need sufficient depth to open or close positions. Therefore, price tends to move in the direction where orders are most dense.

For example, if most traders have opened short positions and placed their stop-losses above the high, price may first break above that high, sweep the stop-losses (eat liquidity), and then reverse downward.

This is why the market often goes against the majority's expectations.

A common mistake beginners make is treating a breakout as a signal of a trend start. In reality, it may just be a liquidity grab before a reversal.

Remember a simple rule:

Price does not move away from liquidity; it moves toward liquidity.

So before entering a trade, always ask yourself:
Where is the nearest liquidity, and who has the most to gain by taking it?