Which reference point is suggested for placing a stop loss?

Which reference point is suggested for placing a stop loss?

• A. Above the previous daily high
• B. Liquidity sweeps
• C. Above the fair value gap
• D. Above the order block

Answer: (B)

Stop-loss placement hinges on where the market is likely to hunt liquidity. Liquidity sweeps point to zones where a lot of resting orders sit, especially stop orders around recent highs or lows. When price moves to sweep those stops, it often creates a quick shakeout, after which the market can continue in the intended direction. Placing the stop beyond that sweep gives your trade room to endure typical liquidity hunts and noise, while still protecting your risk if the move fails. Other reference points like a previous daily high, a nearby fair value gap, or an order block are important for identifying structure and potential entry or exit zones, but they don’t specifically indicate where liquidity is clustered. That’s why liquidity sweeps are the preferred reference for stop placement in this context.

Stop-loss placement hinges on where the market is likely to hunt liquidity. Liquidity sweeps point to zones where a lot of resting orders sit, especially stop orders around recent highs or lows. When price moves to sweep those stops, it often creates a quick shakeout, after which the market can continue in the intended direction. Placing the stop beyond that sweep gives your trade room to endure typical liquidity hunts and noise, while still protecting your risk if the move fails.

Other reference points like a previous daily high, a nearby fair value gap, or an order block are important for identifying structure and potential entry or exit zones, but they don’t specifically indicate where liquidity is clustered. That’s why liquidity sweeps are the preferred reference for stop placement in this context.