Liquidity sweeps: why the stop hunt is the signal, not the noise
Ask where the stops are and you will know where price goes next. Stops cluster at obvious levels: equal highs from a double top, equal lows from a double bottom, yesterday's high and low.
The sweep
Price spikes above the equal highs, triggers the buy stops of everyone who was short and the breakout orders of everyone who was waiting, then closes back below the level. That is a liquidity sweep. The breakout traders are now trapped, and the market has fresh fuel to go the other way.
Sweep versus breakout
The difference is the close. A close beyond the level is a breakout; a wick beyond with a close back inside is a sweep. Only one of them is a reversal signal, which is why you must wait for the candle to finish before acting.
On an index
NIFTY sweeps the previous day's high or low several times a week, usually in the first hour. A sweep of the low followed by a bullish displacement candle and a break of the last minor swing high is the classic long setup; the mirror is the short. For sellers, a sweep of the high on a rangebound day is the moment to sell calls above it.
Automating the read
The VIP Indicator finds equal highs and lows within a quarter of an ATR of each other, draws them as liquidity, marks the sweep with an × when it happens, and feeds it into the engine's score with a three-bar window so a sweep is fresh, not stale.