NOTÍCIAS FOREX

Two currency pairs that normally move almost in step suddenly begin drifting apart. One races ahead, the other lags behind, and a trader spots an opportunity to profit if they eventually come back into line. Pairs trading is a market-neutral strategy that involves going long on one closely correlated asset and short on another. The aim is to profit from the gap between them, known as the spread, returning to its usual range, rather than trying to predict whether the wider market will rise or fall. I've always found that appealing because it shifts the focus away from making heroic market predictions and towards measuring a relationship. This guide explains how pairs trading works, why traders use it, how to select a suitable forex pair, and how experienced traders fine-tune and manage the strategy. Grab a coffee and let's begin. Pairs trading is a market-neutral strategy involving two historically correlated assets. A trader buys the underperformer and sells the outperformer, expecting the spread between them to return to its normal range. The potential profit comes from their relative performance, not from correctly predicting the market's overall direction. Ready to explore a strategy built around relative value rather than outright market direction? Pairs trading is a market-neutral, relative-value strategy in which a trader simultaneously buys one asset and sells another closely correlated asset. The objective is to profit when the spread between the two returns to its historical range, rather than from predicting the direction of the wider market. The strategy is considered a form of statistical arbitrage because the trading decision is based on a measurable relationship between two markets. It also uses mean reversion, although it is the spread between the assets that is expected to revert, not necessarily the price of either asset on its own. Read more: What is arbitrage trading? How beginners profit from it Read more: What Is Mean Reversion and How Can Traders Use It? The traditional version of pairs trading often involves two shares from the same industry. In forex, however, the same principle can be applied to two highly correlated currency pairs, such as EUR/USD and GBP/USD. These pairs frequently move in a similar direction because they both measure a European currency against the US dollar. If GBP/USD suddenly outperforms EUR/USD by an unusually large amount, a pairs trader might sell GBP/USD and buy EUR/USD, expecting the difference between their movements to narrow. In my experience, this is where the strategy becomes particularly interesting. You are not simply deciding that the dollar will rise or fall, a prediction that markets occasionally enjoy making look rather foolish. Instead, you are asking whether the relationship between two currency pairs has moved too far away from its normal trading range. For this reason, pairs trading is best understood as trading the relationship between two markets rather than trading either market in isolation. Pairs trading works by tracking the spread between two markets that have historically moved together.When that spread moves unusually far from its average, the trader buys the underperforming asset and sells the outperforming one, expecting the two to converge. A simple way to express the spread is: Spread = Price A − Price B Some traders use a price ratio instead: Spread = Price A ÷ Price B In practice, forex prices often need to be standardised or weighted before they are compared because different currency pairs have different price levels and volatility. The basic principle remains the same: measure the relationship, identify an unusual divergence and trade the expected return towards normality. Think of the two markets as a motorway and its service road. They follow roughly the same route, but the terrain may occasionally push them further apart. Provided they are still heading towards the same destination, the two roads eventually move closer together again. The spread measures the distance between them. Pairs trading is described as market-neutral because the long and short positions are intended to offset much of the broader market movement. If both currency pairs rise, the long position may gain while the short position loses. If both fall, the opposite may happen. The result depends mainly on whether the gap between the pairs narrows, not on whether the entire forex market moves higher or lower. "Market-neutral" does not mean risk-free or perfectly hedged. If the positions are sized badly or the historical relationship breaks down, the trade can still become directional and lose money. Suppose EUR/USD and GBP/USD have been moving closely together, but GBP/USD suddenly climbs much faster. A pairs trader may: I prefer to think of this as trading the elastic band between the two markets. A stretched band may snap back, but if it keeps stretching, there is usually a reason, and blindly adding to the position is rarely a clever response. Ultimately, the success of the trade depends on convergence between the two legs, not on correctly calling the direction of the US dollar or the wider forex market. Pairs trading appeals to traders because it does not depend entirely on predicting the market's next direction. In simple terms, the strategy can: However, pairs trading is not a holy grail. It only works as intended while the relationship between the two markets remains reasonably stable, and even a well-researched pair requires disciplined risk management. Choosing the pair is usually the most important, and most time-consuming, part of the process. Get this stage right and everything that follows becomes easier; choose two markets simply because their charts look vaguely similar and the strategy can unravel rather quickly. High correlation means that two assets have historically moved in the same direction to a similar degree. Traders commonly look for a strong, stable positive correlation of approximately 0.80 or higher, although the appropriate threshold depends on the timeframe and method being used. EUR/USD and GBP/USD are a familiar forex example. Both pairs often respond similarly to changes in US dollar sentiment, so their price movements can be closely correlated. Correlation should be measured across multiple periods rather than accepted from a single snapshot. A reading of 0.90 today is useful, but it does not guarantee the relationship will remain that strong next week. A shared driver is an economic or market influence that helps explain why two assets move together. Correlation is generally more convincing when there is a genuine reason behind it rather than a relationship that has appeared by chance. EUR/USD and GBP/USD share the US dollar as their quote currency. Both may therefore respond in a similar way to Federal Reserve policy, US inflation figures and changes in demand for the dollar. Other pairs can be connected through related economic forces. AUD/CAD, for example, is influenced by commodity sentiment, although the currencies do not respond identically: Australia has strong links to metals and Chinese demand, while Canada is particularly sensitive to oil. A shared driver does not guarantee that the relationship will continue, but it gives the correlation a more credible foundation. Cointegration tests whether the spread between two markets has remained relatively stable and mean-reverting over time. This differs from correlation, which only measures how closely their prices have moved together. Two currency pairs can show a high correlation while their spread steadily drifts further apart. Cointegration is designed to identify a longer-term equilibrium relationship, making it especially useful when testing whether a divergence has a realistic chance of reversing. Research by Carrasco Blázquez, De la Orden De la Cruz and Prado Román concluded that cointegration was the most efficient of the methods they examined for structuring a pairs trading strategy. The study compared several approaches, including correlation, distance and cointegration, although no statistical method can guarantee a profitable trade. (Pairs Trading Techniques: An Empirical Contrast, 2018) For beginners, the key distinction is simple: correlation asks whether two markets move together, while cointegration asks whether the spread between them tends to return to a stable relationship. Liquidity refers to how easily an instrument can be traded without causing a meaningful change in its price. Because pairs trading involves opening and closing two positions, both currency pairs need sufficient liquidity and consistently competitive spreads. Poor liquidity can create: This is one reason major currency pairs are often more practical candidates. EUR/USD and GBP/USD generally offer deeper liquidity than exotic pairs, although spreads and execution conditions can still change around news releases and quieter trading hours. A pair is only genuinely tradeable when the relationship is statistically credible, and both legs can be entered and exited efficiently. Read more: What is liquidity in Forex and how is it measured Read more: What is slippage and how to avoid it in trading The following example is hypothetical and provided for illustration only. It does not represent live market prices, guaranteed results or a recommendation to trade these currency pairs. Suppose EUR/USD and GBP/USD have maintained a rolling correlation of approximately 0.90. Over the period being analysed, the ratio between their prices has normally remained close to 1.175: Spread ratio = GBP/USD price ÷ EUR/USD price GBP/USD then begins outperforming EUR/USD, pushing the ratio well above its recent average. At the entry point, the ratio has widened from its usual level of around 1.175 to 1.200. The trader interprets this as an unusually large divergence and opens two positions: The pairs then begin converging. EUR/USD rises to 1.0900 while GBP/USD falls to 1.2840, bringing the ratio back to approximately 1.178, close to its historical range. The trader closes both positions: This is a particularly tidy illustration because both legs make money. Real pairs trades are rarely so obliging. One position may lose while the other gains more, and the trade can still produce a positive net result if the spread moves in the expected direction. I find it more useful to judge these trades by the combined position than to become emotionally attached to either leg. Closing the profitable side early while leaving the losing side open would dismantle the hedge and turn a relative-value trade into an unplanned directional bet. The potential profit in this example comes from the two currency pairs returning to their usual relationship, not from correctly predicting the direction of the wider forex market. A pairs trading strategy becomes far more useful when it is turned into a repeatable process. As you become more proficient with this strategy the easier it will become. The following six steps take the idea from pair selection through to the final exit while reducing the temptation to improvise halfway through the trade. Setting your selection criteria means deciding what must be true before two currency pairs qualify for consideration. This is often the hardest and most time-consuming stage because it provides the framework for every decision that follows. Before searching for a trade, define: Establishing these rules in advance helps prevent traders from adjusting the criteria merely because a particular chart looks tempting. A candidate list is a shortlist of currency-pair combinations that meet your initial requirements. You can screen the market manually or use trading software, a spreadsheet or a statistical model to compare multiple relationships. For example, a trader might begin with liquid major and minor pairs before filtering for correlations above 0.80. Any pair that passes the first screen can then be tested more thoroughly for spread stability and cointegration. How frequently the list needs updating depends on the strategy. A trader holding positions for several weeks may screen less often, while someone using shorter timeframes will need to regenerate candidates more regularly. Applying additional analysis means examining the shortlisted pairs before committing capital. The statistical relationship identifies a possible opportunity, but technical and fundamental analysis can help refine the entry, profit target and stop level. A trader might look at: This extra layer should confirm the setup rather than provide an excuse to ignore the original rules. Executing a pairs trade means opening the long and short positions as close together as possible. Both legs should ideally reach the intended prices or target spread without leaving the trader exposed to an unexpected directional move. If one position fills while the other is delayed, the trader temporarily holds what is known as legging risk. Instead of having a hedged relative-value position, they have a naked long or short trade until the second order executes. Forex traders do not usually face the share-borrowing constraints associated with short-selling stocks. The main concerns are timing, liquidity and fill price. Limit orders and, where supported by the trading platform, linked or OCO-style order management may help coordinate execution, although an OCO order does not automatically guarantee that both legs will fill together. Slippage on each position may appear small, but pairs trading starts and ends with two legs. Every additional cost reduces the available edge. Managing a pairs trade means monitoring the combined position against the rules established before entry. The spread is the main focus, but traders must also watch for news or economic developments that could affect either leg. If the spread reaches its target earlier than expected, the trader may: Psychology becomes important here. It is tempting to give a losing spread "a little more room" or hold a winning trade indefinitely because it seems to be behaving nicely. Markets have a habit of becoming less polite once the original plan has been abandoned. Closing the trade means exiting both positions when the spread reaches the profit target, hits the stop-loss level or exceeds the maximum holding period. With clear rules, the mechanics are usually straightforward; following those rules is the more difficult part. One of the classic mistakes is refusing to close a modest loss after the trade has exceeded its expected duration. The trader assumes that waiting another few days will allow the relationship to recover, but a slow or absent reversion may indicate that market conditions have fundamentally changed. I have found that a time-based exit can be just as valuable as a price-based stop. If the reason for taking the trade has not played out within a sensible period, continuing to hold it is often hope dressed up as patience. A repeatable pairs trading process therefore depends on objective selection, coordinated execution and the discipline to close both legs when the original conditions no longer apply. Once you have the basic process in place, a clean pairs trade comes down to three measurable judgements. This is where "the charts look as though they have drifted apart" becomes "the spread has moved far enough for me to act." Each measurement addresses a different weakness in the basic strategy. A z-score measures how many standard deviations the current spread sits above or below its historical average. The basic formula is: Z-score = (Current spread − Mean spread) ÷ Spread standard deviation A trader first chooses a lookback window, such as the previous 20 to 60 bars. The rolling average and standard deviation of the spread are then calculated across that period. A straightforward rules-based approach might be: Suppose the spread between EUR/USD and GBP/USD reaches a z-score of +2. This indicates that it is two standard deviations above its recent mean. The trader sells the relative outperformer and buys the underperformer, then closes both positions if the z-score returns towards zero. However, a z-score moving beyond +3 or −3 should not automatically be treated as a better bargain. It may indicate that the underlying relationship is breaking down due to a policy shift, economic surprise or broader change in market conditions. Adding repeatedly to a widening spread can turn a controlled trade into a rather expensive lesson. A hedge ratio determines the relative position size of each leg. Market neutrality does not necessarily mean placing the same monetary amount on both sides; it means balancing the positions so their exposure to shared market movements is as close as reasonably possible. The ratio may be estimated using: Suppose GBP/USD has been approximately 1.3 times as volatile as EUR/USD over the chosen period. Using a simplified volatility adjustment, the GBP/USD position might be reduced to roughly 77% of the EUR/USD exposure: 1 ÷ 1.3 = 0.77 If the strategy calls for buying EUR/USD and selling GBP/USD, the trader will therefore use a smaller position on the more volatile GBP/USD leg. The exact lot sizes would also need to account for pip value, account currency and the trader's maximum permitted loss. The hedge ratio can change as volatility and market relationships evolve. It should be recalculated periodically because an outdated ratio may allow what began as a balanced trade to acquire an unintended directional bias. The half-life is an estimate of how long the spread normally takes to travel halfway back towards its mean. It provides a practical measure of mean-reversion speed and can be estimated from the spread's mean-reversion coefficient using a model related to the Ornstein–Uhlenbeck process. The mathematics can become fairly involved, but the trading idea is straightforward. Half-life can help a trader: Imagine that the EUR/USD and GBP/USD spread has an estimated half-life of three trading days. The trader would expect a meaningful portion of the convergence to occur within that general period. If the spread remains wide after several half-lives, the original assumption deserves serious reconsideration. Holding the trade for three weeks because "it normally reverts in three days" is not patience; it is evidence that the model may no longer describe the market. Used together, the z-score, hedge ratio and half-life turn pairs trading into a more structured decision process by defining the entry, balancing the exposure and placing a sensible limit on the time allowed for convergence. Experience with pairs trading usually changes what you pay attention to. Beginners tend to concentrate on spotting a wide spread; after doing it for a while, you spend far more time asking why the spread widened and whether the relationship is still valid. This is a common mistake traders make. These are the risks I would keep firmly on the watchlist: Read more: What Is the Spread in Forex? Learn to Calculate and Trade It Pairs trading rewards careful research, regular monitoring, clear exit rules and the discipline to act on them. It may be market-neutral, but it is certainly not set-and-forget. Ready to explore correlated forex pairs while managing both sides of the trade from one account? A pair in pairs trading consists of two related assets traded simultaneously. The trader buys the relative underperformer and sells the outperformer, aiming to profit if their historical price relationship returns to normal. A pairs trading strategy is a non-directional, relative-value approach that identifies two historically related assets whose spread has moved outside its usual range. The trader goes long on the underperformer and short on the outperformer, expecting the spread to converge. If EUR/USD and GBP/USD normally move together but GBP/USD begins significantly outperforming, a trader might buy EUR/USD and sell GBP/USD. Both positions are closed if the spread returns towards its historical average. Yes. The main risk is that the historical relationship permanently changes and the spread continues widening instead of reverting, potentially creating a loss across the combined position. Yes, pairs trading can be applied to highly correlated currency pairs such as EUR/USD and GBP/USD or AUD/USD and NZD/USD. The principle is the same as with stocks: trade the expected reversion of the spread rather than the direction of one market. Pairs trading is on the more advanced side because it requires an understanding of correlation, short-selling, position sizing and the costs of managing two legs. Beginners should learn the fundamentals of risk management first and practise the process on a demo account, with no assumption that profits are guaranteed. There is no universal minimum, but two simultaneous positions both require margin and incur trading costs. Position sizes should reflect your risk tolerance, and the account should retain a sufficient margin buffer for adverse price movements. Pairs trading offers a market-neutral way to seek profit from the changing relationship between two correlated assets rather than from predicting the market's overall direction. Its potential edge comes from careful pair selection, coordinated execution and measurable controls such as z-scores, hedge ratios and half-life estimates. Research and discipline matter far more than making a dramatic market call. Start by testing the relationship, define the conditions that would prove the idea wrong and practise managing both legs as a single position. Lee W. is a seasoned professional trader with over 10 years of experience. Passionate about sharing valuable expertise and unique market insights, Lee W. now serves as an external and independent market analyst for RADEX MARKETS. Reviewed by RADEX MARKETS Risk Warning: Trading derivatives and leveraged products carries a high level of risk, including the risk of losing substantially more than your initial investment. Trading strategies: Related concepts:

A decisive risk-off movement swept through financial markets on Thursday, as developments in the Middle East pushed crude oil prices back into three-figure territory. The US military has concluded its 13th consecutive night of strikes against the Iranian regime; neighbouring countries have reported retaliatory missile and drone attacks originating from Iran; Yemen’s Houthi rebels have targeted Saudi ships in the Red Sea and fears continue to grow that the attacks may escalate to a wider regional conflict. The Persian Gulf being closed off is bad enough for global trade, but if the Red Sea follows suit, then the world will have lost not one but two vital shipping lanes. Oil markets were certainly shaken, as the Brent Crude benchmark pushed north of $100 for the first time in two months after rising 6% on Thursday, while US oil contracts jumped to $93 per barrel. Meanwhile, in Abu Dhabi, Murban Crude futures exploded higher yesterday, briefly reaching $114 per barrel before settling lower at $108, nevertheless a 20% daily rise for the local benchmark. The surge in oil prices has spooked markets into more defensive positions as the threat of inflation rears its ugly head once again. Capital flowed away from riskier assets and back into the safe hands of the US dollar, pushing the DXY as high as 101.5 on Thursday. Precious metals suffered, with gold falling 2% and retreating back to $4,050 per ounce, while silver sank back down to the $57 range after shaving more than 3% from its tally. Bitcoin likewise succumbed to the fear, enduring a $1,000 haircut to slump back to $65,000 per coin, dragging the broader crypto markets down with it. US stocks were also hit hard, but more on that later. The fact of the day in currencies is that the Japanese yen has officially hit a 40-year low against the dollar, with the pair peaking as high as 164 during yesterday’s session. The move has prompted all the usual questions as to when the Bank of Japan will intervene to defend its currency, but the fact is that the central bank has already done so multiple times over the last four years and has failed to achieve anything other than a fleeting respite to the seemingly inevitable decline. The US Treasury said much of the same, claiming that the only answer was for the BoJ to hike rates on the yen, thereby narrowing the interest rate differential even further and limiting the undesirable volatility that has plagued the pair since 2021. Tesla and Google both reported quarterly earnings after the bell on Wednesday, and shares in both companies shot down the following day. While Google managed to beat estimates, with cloud revenue increasing 82% year-over-year and overall revenue growing by 24%, investors were concerned about the company’s plans to increase capital expenditures this year and the next. It was much the same problem over at Tesla, which is expected to burn $25 billion in capex this year, while the beleaguered car manufacturer also had to justify the additional misfortune of falling short of revenue estimates. Shares in Alphabet (GOOG) fell 7% on Thursday, which was only half the drop incurred by Tesla (TSLA), which plummeted 14.5% over the same time frame, bringing the stock down to a miserable 29% year-to-date loss. Markets are not happy about the colossal amounts of money being thrown at AI infrastructure and Wall Street is becoming less keen on dishing out blank cheques to companies with even the flimsiest of artificial intelligence aspirations. Investors are starting to ask uncomfortable questions regarding return on investment, and so far, many of the big names have not been able to provide satisfactory answers. The worrying earnings reports triggered a wider selloff in the Magnificent Seven, each component of which performed dismally yesterday, dragging the Nasdaq 100 (NDX) down 1.9% when all was said and done. The Nikkei appears to have latched on to the negative momentum this morning, falling 3% within the first hour of the opening bell in Tokyo. Potentially rough day ahead for big tech. #OIL #TSLA #GOOG About the Author Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS. Reviewed by RADEX MARKETS Risk Warning: Trading derivatives and leveraged products carries a high level of risk, including the risk of losing substantially more than your initial investment.

Markets collectively decided that the selloff in semiconductors had gone on for long enough earlier this week, as dip buyers stepped up to the mark on Monday, killing the downward momentum that has plagued the sector since the end of June. Buy side pressure overwhelmed the books completely the following day, pushing a number of companies to double-digit gains – companies that had been on the other side of the equation just days prior. SanDisk (SNDK) and SK Hynix (SKHY) both surged 14% on Tuesday; Micron (MU) and Western Digital (WDC) were not far behind with 12% rises of their own; Seagate (STX) gained 11%, while AMD and Intel (INTC) both closed yesterday’s session 8% higher. The euphoria spread to Asian markets early this morning, pushing SK Hynix on the South Korean stock market to a 9% rally and lifting the wider Kospi index 5.5% higher within the first hour of the opening bell. Over in Japan, the Nikkei 225 showed a little more restraint, but nevertheless rapidly added 2% to its tally as trading got underway. How long the rally will last is anyone’s guess, but for the time being semiconductors, and particularly memory stocks, are back on the menu. The broad move higher comes ahead of major earnings reports this week and the next, including Alphabet (GOOG) and Tesla (TSLA) later today. Both companies will undoubtedly provide updates on their latest AI ambitions and new infrastructure requirements, which will send a clear message to chipmakers about what to expect in terms of demand over the coming months. If the major tech companies continue to push for larger data centres and greater computing power, the long-term outlook for semiconductors will be confidently reinforced. Cryptocurrencies may be undergoing a momentum shift of their own. Yesterday, Bitcoin closed at its highest level since early June at $66,500 per coin. The wider crypto sphere is likewise attempting to halt its endless slide into irrelevancy which has dominated the industry since the October 2025 peak. While risk appetite has returned somewhat this week, lifting precious metals by the same token, cryptocurrencies can point to a number of specific reasons as to why the field can afford to be cautiously optimistic. The first is that Treasury Secretary Scott Bessent told viewers in an interview on Tuesday that the Clarity Act was “on the 1-yard line” to pass through the US Senate. The bold claim was received with open arms by the crypto space as a whole, including companies such as Coinbase (COIN) and Circle (CRCL), which rose 9.6% and 8.6% respectively upon hearing the news. Furthermore, BlackRock CEO Larry Fink made some very interesting comments last week, stating that the crypto markets had been carrying far too much leverage, which has now been washed out, leaving cryptocurrencies in a more stable position than the one previously occupied. Other commenters have said much the same; the catastrophic fallout from last October’s record high was indeed a result of too much leverage, but according to Coinglass and other sources, much of this leverage has since been removed from the market. Institutional flows are also cause for jubilation. Bitcoin ETFs suffered horrendous outflows in June, but the trend abruptly reversed last week, which saw over $700 million in inflows instead. Crypto bros could do with some good luck after the past ten months of dismal price action. #SOXX #BTC #GOOG About the Author Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS. Reviewed by RADEX MARKETS Risk Warning: Trading derivatives and leveraged products carries a high level of risk, including the risk of losing substantially more than your initial investment.

Buy side liquidity is the pool of buy orders resting above obvious highs on a chart: short sellers' stop-losses plus breakout entries. Sell side liquidity is the mirror image: sell orders resting below obvious lows. Ever wondered why price so often stretches just past a clean high or low before turning? These two pools are the answer. And if you have ever been stopped out by a wick that reversed a second later, you have already met them; you just hadn't been introduced. Quick word before we start: this is a chart-reading concept, and it has nothing to do with the "buy side vs sell side" of the finance industry, where the terms describe funds and brokers. In this guide I'll cover what each pool is, exactly where both sit, how to identify them on your own charts, and how traders actually put them to work: the strategies, a step-by-step routine, the psychology that keeps the pools forming, and the habits that cost traders the most money at these levels. Buy side liquidity is the cluster of buy orders sitting above visible highs; sell side liquidity is the mirror cluster of sell orders below visible lows. Price is often drawn to these pools, so knowing where they sit helps you anticipate which levels the market may reach for before it turns. Ready to mark these levels on a live chart? Buy side and sell side liquidity are the two pools of resting orders the market gravitates towards. Why there and not somewhere else? Stops protecting short positions live above old highs; stops protecting long positions live below old lows; and breakout traders park their entry orders at the very same levels. That double stack of stops plus entries is what turns an ordinary high or low into a magnet (and yes, the stop you tucked two pips past the high counts too). A liquidity pool is a price area where a large number of pending orders sit waiting to be filled. The bigger and more visible the pool, the more likely price is to reach for it. The vocabulary comes from a school of chart analysis called Smart Money Concepts, spread widely through ICT-style teaching. Strip away the jargon and the idea is old and simple: orders cluster where everyone can see the same level, and the market visits the places where orders live. For me that plain version was worth more than a year of indicator tweaking: once I accepted that my own stop is just another resting order sitting in someone's pool, the whole concept clicked. Buy side liquidity is the pool of buy orders resting above obvious highs — stops on short positions plus breakout buy orders. Two groups build it: traders who are short and must buy to exit if price rises, and traders waiting to buy a confirmed break higher. A dense pocket of guaranteed buyers is exactly where sell-heavy positions get filled, which is why price is drawn there. A BSL pocket only marks where those resting orders sit; what price does after they are filled is a separate question. Sell side liquidity is the pool of sell orders resting below obvious lows — stops on long positions plus breakout sell orders. Longs who must sell to exit build one half of it; traders waiting to sell a confirmed break lower build the other. The market reaches down for this pocket just as readily as it reaches up for BSL, and for the same reason: guaranteed counterparties. The mechanism is identical — the difference is location and what a raid on each side implies. When sell side liquidity below a low is taken and price snaps back above it, the sell orders below have been filled and bias tilts bullish. When buy side liquidity above a high is taken and price snaps back below it, the buy orders above have been filled and bias tilts bearish. In my experience the sell side raid is the one that catches retail traders hardest: more beginners hold longs than shorts, so the heavier crowd of stops tends to pile up under the lows, and that is where I have seen the most painful wicks. One nuance keeps this table useful: the bias reading only counts when price closes back inside the range. A breakout that holds beyond the level is the market actually leaving. When a liquidity pool is taken, the resting orders get filled in one burst: price spikes through the level, and whether it then holds beyond or snaps back tells you if you watched a breakout or a raid. The reason this keeps happening is mechanical. Large positions cannot be filled without someone on the other side of the trade, and a stacked pool of stops is the one place the other side is guaranteed to show up. So price "reaches for" these levels because that is where the volume lives — mechanics, not conspiracy. It matters to you for an uncomfortable reason: your stop is part of someone's fill. The first time I saw my own exit price print as the low of the day, I stopped taking raids personally and started keeping notes on where I had parked the stop instead. Picture GBP/USD with an obvious high at 1.2764. Price pushes up, spikes to 1.2771, fills the buy orders parked above the high, then closes the candle back below 1.2764. The pool above the high has been taken, the resting buy orders have been filled, and the bias for the next move tilts bearish. A liquidity raid is a fast push through an obvious high or low that fills the orders resting there and then returns inside the old range. Traders also call it a sweep or a stop run, depending on the school. Read more: Liquidity Grab Guide: Definition, Signals & Trading Techniques The pools form on their own: every stop and pending order left on the chart adds to one, and the more obvious the level, the more orders pile onto it. So identification is simply marking the levels where the crowd's orders must be, above price for buy side, below price for sell side. My own pre-London routine is exactly this: mark yesterday's high and low, circle any equal highs or lows, note the nearest round number. Five minutes on a live chart with a broker such as RADEX MARKETS, and the session's map is set. Four kinds of level do most of the work. The previous day's and week's highs and lows are the most-watched lines on any chart, which makes them the most reliable pools (everyone watches them, and that is precisely the point). Stops and breakout orders stack just beyond them: buy side liquidity above the highs, sell side liquidity below the lows. In my experience yesterday's high and low produce more clean raids than every other level combined, so they are the first two lines I draw each morning. If you mark nothing else, mark these. Equal highs and equal lows are two or more touches at nearly the same price. The crowd reads the double touch as proof the level will hold, so stops stack right behind it, and that stack of stops is exactly what makes the level a target. The cleaner the equal levels look, the bigger the pool sitting behind them. My own trade journal is blunt about this: the prettier a set of equal lows looked to me, the more often the third touch swept them before the real bounce came. Equal highs (EQH) are two or more swing highs printed at almost the same price; equal lows (EQL) are the mirror at the bottom. Both act as visible reference points where the crowd parks stops, which is why they attract raids. Round numbers pull in orders for no deeper reason than human habit, and the effect is measurable: a Federal Reserve Bank of New York study of a major dealing bank's order book found that almost 10% of stop-loss and take-profit orders were placed at rates ending in 00, such as 1.4300 (Osler, Stop-Loss Orders and Price Cascades in Currency Markets). Session extremes behave the same way: the Asia-session high and low are often the first pools the market reaches for when London opens. Both can hold either pool — above current price they are BSL, below it SSL. I have stopped fighting the habit myself; my take-profit orders still drift towards the round figure, so I assume everyone else's do too and treat every 00 level as a small pool by default. A pool being tapped leaves a signature: a long wick punching through the level, a quick close back inside the range, and often a burst of tick volume as the resting orders fill. Recognising that signature is the identification skill; deciding what to do about it is the next section. The table below compresses all of it into one reference you can keep beside your charts. Read more: What is liquidity in Forex and how is it measured Traders use buy side and sell side liquidity in two directions: fading a raid after price snaps back inside the range, or riding a genuine breakout once the pool has been cleared. In both cases the pools do the same job — they define where entries make sense, where stops belong, and where targets are waiting. This is where the levels you marked turn into trade decisions. Fading the raid means waiting for a pool to be taken and for price to close back inside the range, then trading back towards the opposite side. You saw the spike, you saw the failure, and now you trade the failure. The snap-back close is my entry condition; until it prints, there is no trade to take, because during the spike itself you have no evidence of which outcome you are in. The cost of this strategy is simple: some raids keep running, and those losses are what you pay for taking the pattern. Read more: Liquidity Sweep: How It Works and How to Trade It Trading the real breakout means joining the move only after a cleared level holds on the retest. Once a pool is swept and price stays beyond it, the orders that were resting there have been filled, so fewer resting orders remain to stall the move. Enter on the retest rather than the first candle through. In my first month with this pattern I skipped the retest, bought first candles, and lost the difference; the rule exists because I needed it. You will often be late by design, and that lateness is what confirms you are in a breakout rather than a raid. Placing stops beyond the pools means parking your exit past the wick zone of the nearest pool instead of inside it, where it would sit with everyone else's stops. Suppose you are long EUR/USD from 1.0871 with equal lows sitting at 1.0843. A stop 2 pips under the lows at 1.0841 lives inside the pool; a stop 14 pips beyond it at 1.0829 survives the typical sweep. A wider stop means a smaller position for the same risk, and in my view it is the single most worthwhile trade-off in this whole article. Most traders who complain about stop hunts are really complaining about where they parked the stop. Targeting the opposite pool means using the far pool as your take-profit level: a long entered after an SSL raid aims at the buy side liquidity above, and a short entered after a BSL raid aims at the sell side liquidity below. When the distance is large, taking partial profit at the nearer pool keeps the trade calm; on a quiet session the nearer pool is often all you get, and my view is you take it and say thank you. Neither pool is guaranteed to be reached, so treat targets as probabilities. Everything above compresses into a routine you can repeat every session, and the routine does not change whether it is a sleepy Tuesday or an NFP Friday: Step 6 changed my own results more than any entry technique. Moving stops from 2–3 pips under an equal low to 12–15 pips beyond the wick zone roughly halved how often I was clipped before the move I actually wanted. The entries stayed the same; only the parking spot changed. Liquidity pools exist because of how people think, which is why they refuse to disappear no matter how many articles are written about them. Stops cluster at obvious levels because everyone anchors to the same reference points: the same high, the same double top, the same round number. A level feels protective precisely because it is visible, and visibility is what fills the pool. The collectively obvious spot becomes, collectively, the least safe spot on the chart. I know the trap and I still feel the pull to hide my stop "just under the low" every single time; the instinct never switches off, I just override it with the routine. Big players hunt liquidity pools because they need volume, and a stacked pool is the only place a guaranteed counterparty exists. Nobody is chasing your fifty-dollar stop; an institution filling a large position simply has to trade where the orders are, and the orders are behind the obvious levels. Reading raids as order-filling keeps you analytical. Reading them as persecution turns every loss into a story about being cheated, and stories like that cost money. A stop hunt is a move that pushes price into a cluster of stop-loss orders, triggers them, and then reverses. The name suggests intent, but in liquid markets the effect usually comes from large players filling positions where the resting orders sit. The pools keep refilling because of an emotional loop. FOMO places breakout buy orders above the high and adds to the buy side pool; fear places stops just under the obvious low and adds to the sell side pool. I have made this exact mistake myself: I once bought the first spike through a London-morning high, 9 pips above the level, and watched the raid finish four minutes later with my position 23 pips underwater before the real move started — without me. The market did not trick me; I chose that entry. Most liquidity losses come from a short list of repeatable habits. Each one below tells you what it causes, with an example of how it plays out: Every habit on this list has a mirror fix in the step-by-step routine above. I have committed all five at some point, which is exactly why the fixes are written as a checklist rather than as advice. None of them needs new knowledge, only the discipline to use what you already marked on the chart. Buy side liquidity is the pool of buy orders resting above obvious highs on a chart: stop-losses protecting short positions plus breakout buy orders. Price is often drawn towards these clusters because they guarantee willing buyers at that level. Sell side liquidity is the pool of sell orders resting below obvious lows: stop-losses protecting long positions plus breakout sell orders. It is the mirror image of buy side liquidity, sitting on the underside of the chart. The buy orders above the high get filled in one burst and price spikes through the level. If price then closes back below the high, the move reads as a raid with a bearish tilt; if it holds above, it reads as a genuine breakout. Mark the levels where resting orders visibly cluster: previous day and week highs and lows, equal highs and equal lows, round numbers, and session extremes. Zones above current price hold buy side liquidity; zones below hold sell side liquidity. In ICT and Smart Money Concepts vocabulary, liquidity means the clusters of resting orders, mostly stop-losses, that the market seeks out, split into buy side liquidity above highs and sell side liquidity below lows. A liquidity sweep is a fast run through a liquidity pool that fills the resting orders and then snaps back inside the range. It is one of the clearest signs that a level was raided rather than genuinely broken. Traders fade a raid after price snaps back inside the range, join a breakout once the cleared level holds on the retest, keep their stops beyond the obvious pools rather than inside them, and use the opposite pool as a natural target. Buy side and sell side liquidity are simply the two big clusters of resting orders: buys stacked above the highs, sells stacked below the lows. Once you know where the pools sit, the spikes that used to look random start to carry information: which side was taken, whether price snapped back or held, and what that says about the next move. The working rules are short. Mark the pools before you enter. Read raids and breakouts by the close, not the spike. Keep your own stop out of the crowd's pool. Aim at the opposite side and accept partials on the way. When you are ready to go deeper, the liquidity sweep and liquidity grab guides below pick up exactly where this one stops. After enough sessions watching these levels, my conclusion is a plain one: marking the pools does not tell you where price will go next; it tells you where the crowd's stop and entry orders are waiting. The real information arrives after those orders are filled: a close back inside the range points to a reversal, a hold beyond the level points to a genuine breakout, and everything before that close is movement you do not have to trade. The RADEX MARKETS editorial team consists of seasoned financial professionals and market observers. Dedicated to delivering objective market summaries, macroeconomic insights, and educational content, the team strives to keep traders well-informed in a fast-paced financial environment. Reviewed by RADEX MARKETS Risk Warning: Trading derivatives and leveraged products carries a high level of risk, including the risk of losing substantially more than your initial investment. Deeper into liquidity: Related concepts:

The US blockade of Iran has been reinstated. The global shipping chokepoint that is the Strait of Hormuz has been put under extreme pressure since hostilities began back in March, and as of the 14th of July 2026, the United States has once again restricted all naval traffic to and from Iranian ports. Naval blockades are certainly nothing new, in fact such military tactics emerged very quickly after the first war galleys splashed into Mediterranean waters in the early bronze age, thousands of years ago. Blockades have remained an effective tool of war ever since, spanning many civilisations and many technological eras. But just how effective were such measures in terms of economic reach and overall results? Time for a journey into the past. The Peloponnesian war was a prolonged conflict for control of Ancient Greece. It pitted a collection of states led by Athens against an alliance of territories led by Sparta. To begin with, Athens was the dominant naval power, whereas Sparta was the major force on land. Given Greek geography, this initially gave the upper hand to the Athenians, who would wield their unrivalled sea power to protect their own trade routes, while raiding and blockading allied Spartan ports, causing economic pressure and even starvation among their enemies. The mighty trireme ruled the waves during this period, an oar-powered galley manned by hundreds of rowers and mounted with a bronze ram at the bow. The vessel was famous for its manoeuvrability and short bursts of speed that could cripple rival ships. It was the battleship of its age and for centuries would strike fear in the hearts of ancient peoples. As time progressed, Sparta became more effective at naval warfare and would eventually gain the upper hand on the Aegean Sea. The decisive moment occurred when Spartan forces outmanoeuvred the Athenian fleet at the battle of Aegospotami, during which 170 enemy ships were captured or destroyed. With the rival navy scattered to the wind, Sparta was in a position to launch a blockade of Athens itself, controlling the sea on one side and occupying the surrounding lands on the other. The city-state was cut off. Food supplies dwindled. Famine quickly followed. Presented with the choice between starvation and surrender, Athens chose the latter, concluding the final chapter of the war. Athens lost the war because it was completely reliant on naval shipments of food. As soon as this lifeline was severed, the city state was doomed. Food stores shrank with every passing week, rapidly cornering the leadership of the nation into an untenable position. Starvation is the ultimate expression of economic warfare, making blockades a ruthlessly effective strategy. The naval blockade of Athens was the first well-known example of such; it would not be the last. While the thousand-year rivalry between England and France has waxed and waned over the centuries, the Napoleonic era was arguably one of the more hostile periods between the two competing powers. In 1803, Britain declared war on France in response to Napoleon Bonaparte’s aggressive territory expansions throughout Europe. Comparisons with the Peloponnesian war are somewhat justified here, with France being the uncontested continental power and Britain being the unrivalled master of the seas. On the very first day of the war, the Royal Navy deployed hundreds of warships to surround French ports, preventing the French Navy from mustering a coherent force of its own. Three years later, in 1806, the military blockade would evolve into a full containment of France’s northern coast, extending all the way to Germany. This effectively criminalised all trade along one of the busiest commercial shipping lanes in Europe, forcing Napolean to enact measures of economic warfare of his own. The response from the French Empire was the Continental Blockade, which severed all connections between Britain and continental Europe. The blockade banned British imports and even forbade all forms of correspondence with the British Empire. The system was designed to establish French industrial and commercial supremacy in Europe, from which Britain would be entirely isolated. The Continental System backfired spectacularly. Although the measures reduced British exports to Europe by half, Britain adapted by turning its gaze further afield, expanding its trade relations to the far corners of the world. Unfortunately for Napoleon, the French economy would not weather the storm so eloquently. The lack of trade with Britain destroyed French port cities; the shipbuilding and ropemaking industries collapsed; the lack of raw materials dealt a huge blow to textiles and sugar refining, while the French state itself suffered massive losses in missing customs revenue due to the lack of trade. Adding insult to injury, because the British Empire still had control of the world’s shipping lanes, smuggled goods often ended up in France anyway, via unofficial, untaxable pathways. The system would also strain the economies of France’s allies. Portugal and Russia suffered so badly under the Continental Blockade that both countries would eventually refuse to obey the terms therein. Napoleon deployed his armies to quell the dissent, dragging hundreds of thousands of troops into the Iberian Peninsula in 1808, before embarking on the utterly catastrophic invasion of Russia in 1812. The latter defeat ultimately led to Bonaparte’s abdication in 1814, marking the end of the Napoleonic era. The purpose of the blockade was clear, but France lost the war because it lacked the means to properly enforce such an undertaking and suffered irrecoverable losses in trying to do so. The fall of Napoleon would usher in a century of peace on the European continent, but the engines of war would reignite soon enough. Blockades would play a defining role in the First and Second World Wars, employed liberally by all belligerents to economically and militarily stifle their opponents over the course of both conflicts. The allied blockade of Germany during the First World War would see German exports decline by 60%, causing daily civilian food intake to drop from around 3,000 calories in 1914 to just 1,200 calories by the end of the war. Supplies of fertiliser and raw materials were also cut off, affecting crop yields and forcing the German military to salvage metal from public and private infrastructure alike. The response was just as devastating. During the same period, German U-boats sank over 5,000 allied and neutral vessels, resulting in the loss of 12 million tonnes of cargo. A third of the world’s merchant ships were destroyed over the course of the war, almost severing Britain’s food supplies entirely and forcing the British government to borrow heavily from the United States. Incidentally, this borrowing would irreversibly shift the financial balance of power away from the British Empire and towards the new continent. The reason New York occupies such a major role in today’s financial world is in part due to the economic circumstances that arose as a result of the First World War. Blockades would be deployed just as mercilessly two decades later. Just as it did against Napoleon the century prior, the Royal Navy launched a blockade of German territories immediately upon the declaration of war. While Germany had prepared for the inevitable move, heavily stockpiling resources before the conflict erupted, the stranglehold would eventually result in fuel shortages that would grind the German military to a halt. Mirroring its previous efforts, the German U-boat fleet would in turn wreak havoc among British shipping lanes, causing food imports to halve over the course of the war. While living conditions within the British Isles undeniably suffered as a result of these actions, the campaign ultimately failed to starve people into submission. On the far side of the world, the same military tactics were being employed in an entirely separate theatre. Following the attack on Pearl Harbour, the United States Navy would orchestrate a clinically effective blockade against Imperial Japan, unleashing unrestricted submarine warfare to cripple the island nation’s merchant fleet, sinking over 1,000 vessels in the process. By the end of the war, imports of petroleum and raw materials had plummeted by over 90%, destroying Japan’s ability to maintain military production. Aircraft were no longer built, warships were starved of fuel, transportation ground to a halt, factories sat idle and food supplies dwindled to dangerously low levels. The blockade is widely regarded as one of the most effective campaigns ever conducted. If trade sanctions are the artillery of economic warfare, then naval blockades are the atomic bomb. Such measures cut down to the bone of supply and demand dynamics, nullifying one side of the equation completely. History has made it abundantly clear that successfully engineering a naval blockade requires nothing short of total command of the sea, as well as an unwavering commitment to see events through to completion, no matter how long that may take. With regard to the ongoing conflict in Iran, nothing has fundamentally changed. When the United States suspended its blockade as part of the short-lasting memorandum of understanding, Iran took the brief window of opportunity to export around 70 million barrels of crude oil. The move significantly weakened one of the blockade’s stated objectives of preventing oil exports from generating revenue for the Iranian regime. The blockade has since been reinstated, but unlike the initial round, it will not be lifted until a comprehensive, permanent treaty has been signed. How long that takes is anyone’s guess. If history is anything to go by, this could take a while. About the Author Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS. Reviewed by RADEX MARKETS Risk Warning: Trading derivatives and leveraged products carries a high level of risk, including the risk of losing substantially more than your initial investment.

The United States concluded its eighth consecutive night of strikes over the weekend, targeting Iranian maritime and air defence facilities. Suffice to say that tensions between the two sides are not cooling down. Oil prices are reacting in no uncertain terms this morning, with Brent Crude pushing north of $90 per barrel and WTI rising to $83. With that said, markets at large do not appear to be too flustered as of yet, with gold remaining stable and silver edging higher enough to reclaim $56 per ounce. Bitcoin is not showing much interest in current events either, stabilising under $65,000 per coin as markets begin a new week. US futures are likewise flat as a pancake so far, with sights set on events further afield. The selloff in semiconductor stocks continued deep into last week, but the relentless selling pressure finally began to show signs of petering out by Friday. A number of familiar names initially dropped sharply as the session got underway, but buyers quickly stepped up to the plate to drive prices higher, painting some long wicks along the way. AMD, Nvidia (NVDA), Broadcom (AVGO), Intel (INTC), Micron (MU) and SanDisk (SNDK) all incurred minor to modest losses, but most closed off the session lows, while Western Digital (WDC) and Seagate (STX) broke the trend by closing 2.2% and 5.7% higher respectively. The SOX semiconductor index fund (SOXX) fell another 1.6% on Friday, translating to a 10% loss on the week. The Japanese Nikkei 225, heavily exposed to the semiconductor sector, was down 6.4% by the weekly close, the index’s worst week of the year by far, while the Korean Kospi index had shed the better part of 9% on Thursday evening before closing early for the week. The rotation from chip stocks to the wider tech sector is well illustrated by Apple (AAPL) overtaking Nvidia (NVDA) to become the world’s most valuable company. Japanese markets are closed due to a public holiday today, so traders will have to start the week without the usual barometer for market sentiment, although Korean markets are holding steady so far this morning after opening marginally lower. Too early to tell if the panic is over, and certainly too early to call the bottom on the recent devastation in global semiconductor stocks, which has wiped out over $3 trillion since the end of June. Not much to write home about in this week’s economic calendar. As mentioned above, Japanese markets will remain closed on Monday, limiting liquidity even more than normal this morning. Canadian CPI data will grace the newswires later this afternoon, followed by the UK employment rate and weekly ADP numbers on Tuesday. UK inflation is the sole item on the menu on Wednesday, while Thursday delivers an interest rate decision from the European Central Bank, which is once again expected to hold the deposit rate steady at 2.25%. The meatier releases this week are to be found on the earnings calendar, which delivers both Alphabet (GOOG) and Tesla (TSLA) after market close on Wednesday, followed by Intel (INTC) after the bell on Thursday. The question on everyone’s mind is whether capital will continue to rotate out of semiconductors and into the magnificent seven, which have outperformed convincingly over the past few weeks. #SOXX #IRAN #GOOG About the Author Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS. Reviewed by RADEX MARKETS Risk Warning: Trading derivatives and leveraged products carries a high level of risk, including the risk of losing substantially more than your initial investment.