Have you ever wondered why your stop-loss orders seem to always be precisely targeted?

In simple terms, this boils down to one word: liquidity. This factor essentially determines 90% of your profit and loss outcomes.

The routines of ordinary traders are quite similar—buy at support levels, sell at resistance levels. The problem is, institutional traders have long targeted your stop-loss orders. They are not competing with the market; they are playing a game with your order book.

**What exactly is liquidity?**

A simple understanding is order volume. Especially those orders accumulated in the form of stop-losses. They are usually concentrated in two places: support and resistance levels, and near ascending/descending trend lines.

What does the standard textbook approach suggest? Sell at resistance, set stop-losses above the high points. It sounds correct, but this is exactly the scenario institutions want to see.

**How do institutions extract liquidity?**

Imagine you need to liquidate contracts worth millions of dollars. Placing sell orders directly below resistance? Not realistic. Your large order would crash the market, resulting in a terrible execution price.

A smarter approach is the opposite. When the price breaks through resistance upward, all stop-loss buy orders and breakout orders are activated. As large buy orders flood in, institutions quietly complete massive sell orders and can get better prices. Then what happens? A false breakout forms, and after draining liquidity, the market reverses and crashes down.

**The trap game in supply zones**

When a double top or equal high forms within a supply zone, don’t rush to act. Why? Liquidity inducement. The market will first push through these highs, clearing out all stop-losses, before truly declining. As a result, you get perfectly stopped out, even if your directional judgment was correct.

Things can get even more complicated. When multiple potential supply zones appear simultaneously, the market might ignore the first area altogether and jump to a higher level to attract liquidity.

**How to avoid the trap**

Blindly placing orders in supply and demand zones needs to change. Watch the market movements more carefully, use standard confirmation models to verify true intentions, and don’t let yourself become the liquidity being slaughtered.