NY Liquidity sweep - Muralidhar

New York Session Liquidity Sweep in the Asian Session

This term refers to a price action phenomenon where liquidity created during the New York trading session is targeted and swept (or cleared) during the subsequent Asian trading session. Let’s break this down:

Key Components:
Liquidity:

In financial markets, liquidity often refers to the areas where stop-loss orders, pending orders, or clusters of trades accumulate. These areas typically form around key levels like highs, lows, or consolidation zones.
Traders often place stop-losses above recent highs or below recent lows, creating "pools of liquidity."
New York Session:

The New York session is one of the most volatile trading sessions due to the overlap with the London session and the significant participation of institutional players.
It often leaves behind key levels, such as session highs, lows, or consolidation zones, where liquidity builds up.
Asian Session:

The Asian session is typically less volatile compared to the New York session. However, it can still be used by market makers or large players to manipulate price action.
Due to the reduced trading volume, it is easier for large players to sweep liquidity during this session.
What Happens During a Liquidity Sweep?
Formation of Liquidity Zones in the New York Session:
As the New York session progresses, traders establish positions, leaving behind liquidity pockets such as stop-loss orders around session highs and lows.
Asian Session Sweep:
In the quieter Asian session, price often moves to these liquidity zones created during the New York session.
This "sweep" is often a sharp move in price designed to trigger stop-loss orders or entice breakout traders into the market.
Once the liquidity is taken, price often reverses sharply, leaving behind a false breakout or a wick in the price chart.
Why Does This Happen?
Market Maker Behavior:

Market makers or large institutional players may manipulate prices to access liquidity.
By sweeping these zones, they can fill their larger orders at better prices.
Inducing Traders:

A sweep may be used to lure retail traders into positions before reversing the market direction, trapping them.
Practical Implications for Traders:
Identifying Liquidity Zones:

Mark key highs, lows, and consolidation areas from the New York session on your charts.
Watch for price action around these zones during the Asian session.
Avoiding Traps:

Be cautious of trading breakouts during the Asian session, as they might be liquidity grabs.
Look for confirmation before entering trades.
Using the Sweep to Your Advantage:

After the sweep, wait for signs of reversal, such as candlestick patterns or rejection wicks, to enter trades in the opposite direction.
Example:
During the New York session, a high is formed at 1.2000 on EUR/USD.
In the Asian session, price moves up to 1.2005, triggering stop-loss orders placed above 1.2000.
After the sweep, price sharply reverses, leaving a wick at 1.2005 and continuing downward.
By understanding this phenomenon, traders can better anticipate market behavior and refine their strategies to avoid being caught in liquidity traps.