Equal Highs/Lows Liquidity Pool Strategy
What Is the Equal Highs/Lows Liquidity Pool Strategy?
The Equal Highs/Lows Liquidity Pool Strategy focuses on one of the most common traps in trading. It targets areas where price forms perfectly aligned highs or lows, creating the illusion of strong support or resistance. However, these levels are often used by institutions to collect liquidity by sweeping stop losses before sharply reversing the market.
Rather than falling for this trap, this strategy positions you to catch the real move that comes after the stop hunt. By understanding how liquidity works, you can time your entries with much greater accuracy.
Why the Equal Highs/Lows Liquidity Pool Strategy Works
Retail traders love clean levels. When they see price react multiple times to a particular high or low, they assume it’s a solid level to trade from. As a result, they tend to place stop losses just above those equal highs or just below those equal lows.
Institutions and smart money traders recognize this behavior. So, they intentionally push price beyond those obvious levels to trigger stop orders, fill large positions, and then reverse the price — often leaving retail traders stuck.
This strategy helps you identify those areas early and prepares you to trade the reversal, not the fake breakout.
Tools and Conditions to Use
This setup is visual, straightforward, and very effective in manipulated markets. For best results, look for these conditions:
- Two or more equal highs or equal lows clearly forming a horizontal level
- A sharp breakout that triggers stops just above or below the level
- A strong and immediate rejection wick or reversal candle
- Confirmation through price action or lower timeframe structure breaks
- Timeframes like 1-hour, 4-hour, or daily work best, but you can also fine-tune entries on 5-minute or 15-minute charts
Step-by-Step Guide to the Equal Highs/Lows Liquidity Pool Strategy
Step 1: Spot the Market Structure
Begin by marking out flat levels that price has respected multiple times. These areas are where retail traders likely placed stop losses.
- Equal highs suggest a bearish trap setup
- Equal lows suggest a bullish trap setup
- Make sure the levels are clean and obvious on your chart
The more price has touched the level, the more likely it has built up liquidity.
Step 2: Wait for the Liquidity Sweep
Next, be patient and observe how price reacts as it approaches the level.
Look for a breakout that barely pushes above the equal highs or just below the equal lows
The move should be quick and sharp, often creating a wick
This sweep triggers stop losses and catches breakout traders on the wrong side
Do not enter yet. The trap is not complete until the reversal begins.
Step 3: Watch for Strong Rejection
Now it’s time to confirm the trap.
- After the sweep, price should snap back in the opposite direction
- A long wick or an engulfing candle is often the first clue
- Ideally, you want to see a clean rejection back inside the range
This signals that the liquidity was taken and the market is ready to reverse.
Step 4: Enter the Trade with Confirmation
Once you have confirmation of the rejection, prepare your entry.
- You can enter on the close of the rejection candle
- Or, drop to a lower timeframe and enter after an internal break of structure
- If the reversal is clean, consider placing a limit order slightly above or below the level
Your goal is to enter after the stop hunt, not during it.
Step 5: Place a Smart Stop Loss
Risk management is essential. Always protect your trade with a logical stop.
- For short trades, place your stop just above the wick that broke the equal highs
- For long trades, place your stop just below the wick that broke the equal lows
- Avoid placing stops inside the wick — price might retest before reversing fully
Let the setup breathe while still keeping risk controlled.
Step 6: Set a Realistic Take Profit Target
Now that you’re in the trade, it’s time to plan your exit.
- Use the next swing high or low as a reference point
- Consider a 1:2 or 1:3 risk-to-reward ratio
- Target prior areas of imbalance or consolidation
- You can also trail your stop behind new structure points as price moves in your favor
Let price action guide your take profit decision rather than guessing.
Risk Management Tips
- Always wait for confirmation before entering — never assume a sweep equals a reversal
- Avoid trading this setup during low-volume sessions
- Use smaller position sizes during high-impact news events
- Focus on setups that align with the higher timeframe trend
- If price consolidates instead of reversing, stay out
Common Mistakes to Avoid
- Entering during the breakout without confirmation
- Using unclear or uneven highs and lows as your liquidity zone
- Placing your stop too tight inside the wick zone
- Ignoring price action confirmation and forcing the trade
- Forgetting to analyze the broader market context