This lesson focuses on a specific type of liquidity pool: Equal Highs and Equal Lows, and why they are significant targets for Smart Money.
What Are Equal Highs and Equal Lows?
In price action, it's rare for two swing points to form at the exact same price. When they do, it's often not a coincidence. From a Smart Money Concepts perspective, these formations are often deliberately engineered to create obvious pools of liquidity.
- Equal Highs (EQH): Two or more swing highs that form at roughly the same price level. Retail traders will see this as a clear resistance level.
- Equal Lows (EQL): Two or more swing lows that form at roughly the same price level. Retail traders will see this as a clear support level.
These formations are also known as "double tops" or "double bottoms" in traditional technical analysis.
Why Are They Significant?
Equal highs and lows create a very clean, obvious level on the chart. This predictability is what makes them a target.
- Above Equal Highs: A massive pool of buy-side liquidity builds up. This includes:
- Stop-losses from traders who shorted at the "resistance."
- Buy-stop orders from breakout traders expecting the resistance to break.
- Below Equal Lows: A massive pool of sell-side liquidity builds up. This includes:
- Stop-losses from traders who bought at the "support."
- Sell-stop orders from breakout traders expecting the support to break.
Smart Money sees these areas not as barriers, but as giant pools of orders they can use to fill their large positions. The market is very likely to eventually trade through these levels to grab that liquidity.
How to Trade This Concept
- Identify EQH/EQL: Train your eye to spot these clean, obvious levels on the chart.
- Anticipate the Sweep: Instead of trading the bounce from these levels, anticipate that the level will be "swept" or "run." Do not place your stop-loss right at the equal high or low.
- Look for Setups After the Sweep: The highest probability trade often comes after the liquidity has been taken. For example:
- Price sweeps above equal highs, taking out the buy-side liquidity.
- It then reverses strongly, often with a Break of Structure (BOS) to the downside on a lower timeframe.
- Traders can then look for a short entry on a pullback to a newly formed Point of Interest (like an Order Block or FVG) created during the reversal.
Conclusion
Equal Highs and Equal Lows are not strong barriers; they are magnets for price. By understanding that these levels are engineered liquidity, you can avoid being trapped and instead use the market's hunt for this liquidity to your advantage. Always look for what happens after these obvious levels are taken.
In the next lesson, we will differentiate between Internal and External Range Liquidity.