What is Buyside and Sellside Liquidity & How To Trade It
You know liquidity exists. You know price hunts stops. But can you tell me RIGHT NOW whether the market is targeting buyside and sellside liquidity next?
If you can't answer that, you're still guessing.
Understanding buyside and sellside liquidity is what separates traders who get stopped out from traders who enter AFTER the stop hunt.
In this guide, I'll show you:
- What buyside and sellside liquidity is (and where it forms)
- What sellside liquidity is (and where it forms)
- How to identify which pool price is targeting next
- How to use draw on liquidity to predict moves
- How to build trades around buyside and sellside liquidity targets
This is the concept that connects everything else in SMC.
What is Buyside Liquidity?
Buyside liquidity is a pool of buy stop orders sitting ABOVE the current price.
Who creates buyside liquidity?
- Short sellers who place stop losses above swing highs
- Breakout traders who place buy stops above resistance
- Traders who set take-profit limits above equal highs
All of these orders sit above price, waiting to be triggered.
Where buyside liquidity clusters:
- Above equal highs (double tops, triple tops)
- Above recent swing highs
- Above trendline resistance
- Above previous day/week highs
- Above obvious "resistance levels" that retail traders watch
How smart money uses buyside liquidity:
When institutions want to SELL a large position, they need buyers. Where do they find buyers? Above those swing highs where buy stops are clustered.
Price drives up into buyside liquidity. All those buy stops trigger (creating a flood of buying). Institutions sell INTO that buying pressure. Then price drops.
That's why price often spikes above a swing high then immediately reverses down. It's not random. It's liquidity engineering.
What is Sellside Liquidity?
Sellside liquidity is a pool of sell stop orders sitting BELOW the current price.
Who creates sellside liquidity?
- Long traders who place stop losses below swing lows
- Breakdown traders who place sell stops below support
- Traders who set stop losses below "obvious" levels
Where sellside liquidity clusters:
- Below equal lows (double bottoms, triple bottoms)
- Below recent swing lows
- Below trendline support
- Below previous day/week lows
- Below obvious "support levels"
How smart money uses sellside liquidity:
When institutions want to BUY a large position, they need sellers. They find sellers below swing lows where sell stops are clustered.
Price drops into sellside liquidity. Sell stops trigger (creating a flood of selling). Institutions buy into that selling pressure. Then price rallies.
This is why price dips below support then immediately reverses up. The sweep of sellside liquidity gave institutions the orders they needed to fill.
How to Identify Which Liquidity Pool Price Targets Next
This is the real skill. Once you can predict whether price is heading for buyside or sellside liquidity, you know the next move before it happens.
Method 1: Check Market Structure
If market structure is bullish (higher highs, higher lows), price is generally targeting buyside liquidity. It needs to keep sweeping highs to continue the trend.
If structure is bearish (lower highs, lower lows), price is targeting sellside liquidity.
Method 2: Look at Untouched Pools
Scan left on your chart. Where are the obvious, untouched liquidity pools?
- Are there equal highs above that haven't been swept? Buyside target.
- Are there equal lows below that haven't been swept? Sellside target.
- Is there a previous week high/low that hasn't been raided? That's your target.
Price gravitates toward the nearest untouched pool. This is called "draw on liquidity."
Method 3: Follow the Displacement
When you see a strong displacement candle (big body, minimal wicks), it's telling you the direction. If displacement is bullish, price is being drawn toward buyside liquidity above. If bearish, toward sellside below.
Method 4: After a Sweep, Look for the Next Pool
Once sellside liquidity gets swept, the next target is usually buyside liquidity (and vice versa). Markets move from one pool to the other. Sweep lows, then target highs. Sweep highs, then target lows.
Draw on Liquidity (DOL)
Draw on liquidity is the concept of the "magnet" pulling price toward a specific liquidity pool.
How I use it practically:
- Mark all obvious liquidity pools on my chart (equal highs, equal lows, untouched swing points)
- Identify which pools have NOT been swept yet
- Determine which pool is closest and aligns with structure
- That pool is my draw on liquidity
The rule:
Never trade against the draw on liquidity. If there's a massive pool of sellside liquidity below that hasn't been touched, don't take longs until that pool gets swept. Price is going there first.
Example:
EUR/USD has equal lows at 1.0850 (untouched sellside liquidity). Price is currently at 1.0920. Even if you see a bullish order block at 1.0900, be careful. The draw on liquidity is DOWN toward 1.0850. Price might tap your OB, give a small bounce, then continue down to sweep those lows.
Wait for the sweep of 1.0850 first. THEN look for bullish setups.
Internal vs External Liquidity
Not all liquidity pools are equal. There are two levels you need to understand:
Internal Liquidity:
These are the minor swing points INSIDE a range or trend. The small highs and lows that form during pullbacks and consolidations.
- Equal highs/lows within a range
- Minor swing failures
- Trendline touches inside a move
Internal liquidity gets swept during the "setup" phase. Price takes these minor stops to build positions before the real move.
External Liquidity:
These are the MAJOR swing highs and lows. The big obvious levels.
- Range high and range low
- Previous day/week high and low
- Major swing points on H4/Daily
External liquidity is the real target. The big payout. The destination.
The Sequence:
Price sweeps internal liquidity → builds institutional positions → then runs toward external liquidity for the major move.
If you enter after the internal sweep, you ride the wave to the external target. That's where the big risk-to-reward comes from.
How to Trade Using Buyside and Sellside Liquidity
Setup 1: Liquidity Sweep + Structure Shift (Reversal)
- Identify a clear buyside or sellside liquidity pool
- Wait for price to sweep that pool
- After the sweep, look for CHoCH or MSS
- Enter on pullback to order block or FVG
- Target the opposite liquidity pool
Example: Price sweeps buyside liquidity (takes out equal highs). MSS confirms bearish reversal. You enter short on the pullback. Target: sellside liquidity below.
Setup 2: Buyside and Sellside Liquidity Sweep + Continuation (Trend)
- Trend is clear (bullish or bearish)
- Price pulls back and sweeps internal liquidity against the trend
- BOS confirms trend continuation
- Enter on pullback to new OB or FVG
- Target external liquidity in trend direction
Example: Uptrend. Price pulls back and sweeps a minor swing low (sellside internal liquidity). BOS confirms bullish continuation. Enter long. Target: external buyside liquidity above (the major swing high).
Common Mistakes
Mistake 1: Trading toward liquidity that already got swept
Once a pool is swept, it's done. Don't expect price to go there again immediately. Look for the NEXT untouched pool.
Mistake 2: Ignoring the draw on liquidity
Taking longs when the obvious draw is below you. Taking shorts when the obvious draw is above you. Always check which pool is the magnet.
Mistake 3: Confusing internal and external
Entering after an internal sweep thinking the move is done. The real move targets external liquidity. The internal sweep is just the setup.
Conclusion
Buyside and sellside liquidity isn't complicated. It's just answering: "Where are the stops? Above or below?"
Above = buyside liquidity. Below = sellside liquidity.
Whichever pool is untouched and aligned with structure is where price is heading next. That's your draw on liquidity. That's your target. And that's how you stop getting stopped out and start trading WITH the hunters.