Your Guide To Identifying Liquidity Runs In The Crypto Market
How To Identify Liquidity Runs (Stop Runs) In The Crypto Market
What is a liquidity run?
A liquidity run, also known as a ‘stop run’ is when the market moves to a place of ‘liquidity’. This place of liquidity is where stop losses and liquidations are set by traders but also where breakout traders will be buying or selling.
Triggering stop losses, liquidations and manual closing/opening of trades from traders provides liquidity for bigger players to fill their short or long orders.
But more importantly it removes money from traders in the market. Markets are literally designed to take your money from you.
So a liquidity run triggers;
- Stop losses
- Opening trades from breakout traders
- Manual closing of trades where traders assume a breakout/breakdown and take the loss
At lows and highs of the market.
Traders will normally set their stop losses around the highs or lows of the market under the assumption a new high or low will breakout to a new high, or, breakdown to a new low. For high leverage traders, they will set their liquidation price at these levels as well.
The theory behind traders doing this is that they believe the market should not return to the highs/lows for continuation of trend and this is their invalidation point.
So what happens?
The market will move to where these areas are to trigger this liquidity to allow bigger players to fill their orders and then quickly the market will reverse.
If you look at the market it happens over and over and over again. You’ll mostly see this in derivatives exchanges that provide two way trading (ability to long and short) with leverage.
High Time Frame Liquidity Runs
On higher time frames they provide a harder ‘spring’ because more liquidity is resting there. This is because during a larger time of trading more participants have entered thus providing more stop losses and liquidations set.
Lower Time Frame 15m Candle Liquidity Runs
As you see even on a smaller range on the 15m candles liquidity runs still happen.
1m Low Time Frame Liquidity Runs
This happens on the 1minute chart as well.
In fact, it doesn’t matter the time frame. Where is liquidity resting? There’s a good chance that’s where the market will go before reversing.
Ethereum Liquidity Runs
As stated before, liquidity runs happen on coins that are traded two ways. So we’ll also see this happen on Ethereum.
The market is designed to remove money from its participants!
Hope this helps!