The Anatomy of a Liquidity Sweep
In retail trading, we are taught to place our stop losses just below support or just above resistance. Institutions (Smart Money) know exactly where these clusters of stop losses reside. Because institutions trade with millions of dollars, they cannot simply click 'Buy' at market price—there isn't enough liquidity (sellers) available to fill their massive orders without causing extreme price slippage.
To solve this, they engineer a Liquidity Sweep.
How the Trap is Set
Imagine a clear support level at $84,000 for Bitcoin. Retail traders go long at $84,100 and place their stop losses at $83,800.
Smart money deliberately pushes the price down through $84,000, triggering retail stop orders. A cascade of selling occurs. Institutions absorb the massive liquidity at discount prices, and immediately after their orders are filled, the price skyrockets.