Liquidity POIs: Why Zones That Took Liquidity Are Significantly Stronger
You have five demand zones on your chart. Price is heading toward them. Which one do you trade from?
The answer: the one that took liquidity before it formed.
A zone that swept stops, took out equal lows, or ran a structural level before creating the demand has something the others don't — institutional fuel. Money was involved in creating that zone. And where money was involved, money is likely to defend.
What Makes a Liquidity POI
A liquidity POI (point of interest) is a supply or demand zone that was created directly after a liquidity event. The sequence is:
- Liquidity exists — equal highs, equal lows, structural levels, trendline liquidity
- Price sweeps the liquidity — takes out the stops, fills the orders
- Price reverses aggressively — the sweep provided the fuel for the reversal
- A zone forms at the reversal point — this is your liquidity POI
The zone didn't form randomly. It formed because institutional players used the liquidity sweep to enter positions. The sweep was the mechanism; the zone is the result.
Why This Matters
When price returns to a liquidity POI, the institutional players who entered during the sweep still have positions from that level. They have a vested interest in defending it. Their remaining orders sit there. Their stop losses are placed relative to it.
A regular POI — one that formed without any liquidity event — might hold, but there's no guarantee of institutional backing. The zone was created by normal price action, not by a liquidity-fueled institutional entry.
The Difference in Practice
Regular POI (No Liquidity)
Price is trending up. It pulls back, forms a demand zone, and continues higher. The demand zone is valid — it's the last down-candle before the impulse. But nothing special happened before it formed. No stops were swept. No liquidity was taken. The zone just... exists.
Expected behavior: Might get a reaction. Might not. If the zone holds, the reaction could be small. If it fails, nothing about the formation suggested strong institutional backing.
Liquidity POI (Took Liquidity)
Price is trending up. It pulls back below a series of equal lows — sweeping the stop losses sitting there. Immediately after the sweep, price reverses aggressively, creating a demand zone. The zone was born from a liquidity event.
Expected behavior: High probability of reaction. The institutional players who entered during the sweep still have positions here. The reaction is likely to be meaningful, not just a small bounce. If this zone fails, something significant has changed in the market.
How to Identify Liquidity POIs
Check 1: Did the Zone Take a Structural Level?
Before the zone formed, did price take out a previous swing high or swing low? Did it run through a level that had stops resting behind it? If yes, the zone is a liquidity POI.
Check 2: Did the Zone Sweep Equal Highs/Lows?
Look to the left. Were there equal highs or equal lows near the zone's formation point? If price swept those equal levels and then created the zone, it's a liquidity POI.
Check 3: Is There a Wick?
Liquidity POIs often show as wicks on higher timeframes. The wick represents the sweep (price reaching for liquidity) and the body represents the zone (where price settled after the sweep). A zone with a significant wick that reaches into a liquidity pool is almost always a liquidity POI.
Check 4: Was There a Structural Break After the Zone?
After the zone formed, did price go on to break structure? If the zone both took liquidity AND broke structure afterward, it's the highest quality POI available. It proved its conviction by both collecting fuel (the sweep) and using that fuel (the structural break).
Inducement vs Liquidity: A Critical Distinction
Here's a nuance that matters: not all liquidity near a zone counts as "inducement" for that zone.
Inducement is liquidity that sits directly in front of a zone — close enough that the sweep and the zone reaction are part of the same move. When price sweeps the inducement and immediately enters the zone, the two events are connected.
General liquidity is any liquidity resting anywhere on the chart. Equal highs three legs away from your zone? That's liquidity, but it's not inducement for your specific zone. It's too far away to be connected.
Why Proximity Matters
For a liquidity event to strengthen a zone, the sweep needs to fuel the zone's reaction. If the liquidity is swept and price travels a long distance before reaching the zone, the fuel from the sweep has been used up along the way. The zone didn't directly benefit from the sweep.
True inducement for a zone:
- Sits directly above or below the zone (within the immediate vicinity)
- Gets swept as price enters the zone (or immediately before)
- The sweep and the zone reaction are essentially one continuous move
If you have to draw a long line between the liquidity sweep and the zone, it's general liquidity, not inducement. The zone might still work, but it doesn't get the extra quality boost from a direct liquidity connection.
Ranking Your Zones
When multiple zones are available, rank them by liquidity quality:
Tier 1: Liquidity POI with Inducement
Zone that took liquidity directly (inducement swept) AND broke structure afterward. Highest conviction. Always trade this if available.
Tier 2: Liquidity POI without Close Inducement
Zone that took liquidity (swept a structural level, equal highs/lows) but the sweep wasn't immediately adjacent. Still strong — money was involved in creating the zone.
Tier 3: Regular POI with Good Structure
Zone that didn't take any liquidity but has clean structure — clear order block, displacement, within the correct premium/discount area. Can be traded but expect weaker reactions.
Tier 4: Regular POI without Structure
Zone in no man's land with no liquidity event and no clear structural backing. Skip this unless nothing else is available.
The "Follow the Money" Framework
Every time you look at a zone, ask three questions in order:
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Did it take liquidity? Look to the left. Is there evidence of a sweep, a structural take, or equal level violation before the zone formed?
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Was the inducement close? Is the liquidity event directly connected to the zone, or is it far away? Close inducement = strong connection. Far liquidity = weak connection.
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Did it break structure after? After forming, did the zone lead to a structural break? If yes, the zone proved its conviction with action, not just a reaction.
The more "yes" answers, the higher the zone's quality. Three "yes" answers = highest probability entry on your chart.
Practical Application
You're looking at a 15-minute demand zone on EUR/USD.
Step 1: Look left from the zone. Is there any liquidity that was swept before the zone formed? You see equal lows from two sessions ago, sitting just below the zone. Price swept those equal lows and immediately reversed, creating the demand zone. This is inducement — close, direct, and clearly connected to the zone's formation.
Step 2: After the zone formed, did price break structure? Yes — the impulse from the zone broke through the nearest supply level. The zone has proven conviction.
Step 3: Rate the zone. Liquidity POI + close inducement + structural break = Tier 1. This is your best entry on the chart.
When price returns to this zone, you can set your limit with confidence. The institutional interest that created this zone was fueled by a liquidity event. That interest is likely to still be present when price returns.
Key Takeaway
Liquidity POIs are zones that formed after a liquidity event — a sweep of equal highs/lows, a structural take, or any event where stops were run before the zone was created. These zones have institutional fuel behind them and are significantly more likely to produce meaningful reactions. When ranking your zones, always prioritize those that took liquidity, especially when the inducement is close (directly adjacent to the zone) and the zone subsequently broke structure. Follow the money: liquidity → zone creation → structural break. That sequence tells you where institutions entered, and that's where you want to enter too.