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The waters of the two moats are a great place to hide, to get rid of any burns, and to easily take down poor combatants (everyone moves slower in the water). It's also a great spot for a Sentry Gun, something players won't suspect will be there. Engineers will usually build their Sentries in front of their base, near the train cars, near their spawning rooms, and inside the intel room.
In the water, the best spot to put a Sentry Gun is in the middle or above the large pipe. In the middle the Sentry Gun can detect any enemies swimming on the far left or right side of the moat. If Engineers stand near a Dispenser, they can stay in the water as long as they like.
Underwater the Engineer can sneak attack the enemies and create a shortcut. The quickest way to do this is by building everything on top of the large pipe (the one by the enemy base) in this order: Teleporter Exit, Dispenser, and Sentry Gun. Don't forget to put a Teleporter Entrance near your spawning room before you start building everything else.
Enemies coming through the pipe won't see the Sentry Gun above them and will easily get hit by it. It should take them awhile before the figure out where the Teleporter Exit is, so your teammates will have a hidden shortcut to get inside the enemy base.