AlgoRhythmica - Liquidity Map
The AlgoRhythmica - Liquidity Map is a complex and performance heavy indicator, attempting to visualize and highlight areas of liquidity on the chart. It paints lines above and below price with different color and opacity based on the volume, and then highlight the areas with the highest cumulative volume.
What is liquidity and a liquidity map?
Liquidity refers to how quickly and easily an asset can be bought or sold in the market without affecting its price. High liquidity means that there are many buyers and sellers, and transactions can happen rapidly and smoothly.
Liquidity analysis involves examining where and how liquidity is distributed across different price levels.
Price often moves from liquidity zone to liquidity zone, and therefore, having an idea of where those zones are can give traders an understanding of potential support and resistance levels and where significant trading activities might occur.
Those looking to fill large buy orders for example would want to do that in liquid sell areas and vice versa. This indicator attempts to estimate the price levels where traders using leverage get liquidated, and therefore creates liquid areas for buying and selling.
In contrast to Bookmaps which chart the orders in the order book where traders want to transact, a liquidity map is charting where traders are 'forced' to transact due to stop-losses or margin calls. To do that, liquidity maps are mostly based on estimations. It could be based on pivot points, common stop-loss amounts, common leverage amounts or a combination of multiple factors.
As of the current version on release, this indicator is only using the leverage input by the user to estimate the liquidity.
How does it work and what makes it unique?
The indicator takes the volume in a candle and saves that volume in a line. Based on the leverage settings it then offsets that line above and below price. Say, a trader using 20x leverage without a stop-loss gets liquidated if price goes roughly 5% in the wrong direction. Therefore, by assuming common leverage amounts or common risk amounts, we can estimate where traders get liquidated or have their stop-losses based on their leverage or amount they are willing to risk.
Now keep in mind, this liquidity map is just estimating based on general assumptions, it doesn't have access to actual liquidity data.
But at the same time, we're not trading single individual traders, but we're trading the market as a whole, and interestingly enough, some risk and leverage amounts are more common than others. People like using those even numbers like 10x, 20x, 1% risk etc. That's why price do often react on the liquidity in liquidity maps such as this one.
So, when a candle is printed, and you are on a smaller timeframe and decided this is just the kind of market for 100x scalpers. You set the leverage to 100x in the settings and the indicator will paint lines above and below price offset by 1%. There are settings for three leverage amounts at the same time, so you might also set it to paint lines at 5% and 10%, just to catch those traders on higher timeframes if price really takes off.
Now let's talk about what makes this indicator really shine and stand out!
Normally, if we just left the indicator doing as above, there would be lines all over the place and very difficult to interpret which areas matter, or we could limit the indicator to only print lines at high volume candles. Now, you do have that option, but that wouldn't pick up areas where low volume trading has cumulated in the same range, such as over a weekend or during market gaps. Where other liquidity indicators out there might miss that liquidity, this indicator has several solutions for it.
The first solution is stacking semi-transparent lines on top of each other. Normally, lines of the same color and transparency wouldn't add and blend together. But this script offers a seamless transition from one color the next, blending those low volume liquidity lines together.
The second solution, and this is what I believe is really unique and powerful, is that this indicator also has the ability highlight certain liquidity. When enabled, it scans through all the lines, cumulate the volume within a specified range around the lines and then compare the cumulated volume range with the ranges around the other lines. New lines created in the range with the highest cumulated volume gets highlighted.
Without this feature you wouldn't necessarily be able to tell which of two strong areas are more liquid. When price later enters that area and crosses those lines, the liquidity there is then considered consumed and lines created in a different range will now begin to highlight.
All of this is of course enhanced, as in the picture above, when multiple copies of the indicator is used together and assigned to only calculate specific parts of the liquidity map, such as longs, shorts or specific leverage amounts.
Oh, and there's also options for assigning which part of the candle should generate the liquidity. Close, Middle Body or Open. The indicator will then assume that the majority of traders are entering their position in that part of the candle.
The offset is calculated from that part of the candle. By using multiple copies of the indicator, you can assign one for each part and that will give you the whole range of the candle. And you might assume more traders go long from the top, so to emphasize that liquidity, you could increase the size or transparency slightly of the lines generated from that part.
How do I use it?
Well, this isn't gonna give you trading signals or anything, but it will visualize the market for you in a new perspective.
Typically, high liquidity areas are often good areas for entry and TP. But always watch how the price reacts in those areas before entering a position. And remember, the liquidity estimation might not always be accurate.
Particularly watch the highlighted areas for long wicks and high volume, indicating that the liquidity was enough to meet the orders and a retrace or reversal could be imminent.
Watch what happens during consolidation, market gaps and weekends. Notice the lack of liquidity and how the market maker creates liquidity by inducing traders to take positions with quick moves that instantly reverses. You might know how that works in theory, but watching it happen real-time with visualized liquidity is very interesting.
While not necessary, and as I've mentioned earlier, dividing the different functions of the indicator on multiple copies will substantially increase it's accuracy and performance!
For example, use one copy of the indicator per leverage level, or one for shorts, one for longs. One that generates from the close, one from the middle etc. creating a much clearer picture of the liquidity like the picture comparison above.
This is what the indicator offers:
When you're estimating liquidity, you want to be able to do it with accuracy and interpretability. That's why the customization options of this indicator has been really important in the development.
Timeframe Options:
It supports a wide range of time periods, from daily to yearly, enabling traders to apply it across various trading strategies, from short-term day trading to long-term investment analysis. Assuming traders are eventually taking their profits, liquidity after the set time period disappears.
Rich Visual Settings:
The indicator comes with multiple preset color themes and a completely customizable option as well. These visual settings are designed to enhance the interpretability of liquidity data, with adjustable transparency and contrast features.
Liquidity Highlighting Function:
This unique feature emphasizes areas with high liquidity concentration. It scans and highlights significant liquidity zones, aiding traders in identifying critical market levels.
Liquidity Profile:
The LQ-Profile extends liquidity lines based on their associated volume, giving traders another way of identifying high liquidity zones.
Adjustable Liquidity Estimation:
Select and adjust leverage amounts based on your particular chart and analysis. Choose what positions and leverage amounts to display liquidity for. You also have the option to determine if wicks consume liquidity or not.
Since wicks indicate that price was rejected from that area, it doesn't necessarily mean all the liquidity in that area was consumed. You could assign an additional copy of the indicator consuming with wicks and another that doesn't. That way, half the liquidity gets consumed and the other half remains until another candle closes in that area. They choices are endless and it's all about your understanding and analysis here.
Multiple Performance Options:
Depending on your particular chart and timeframe, this indicator can be very performance heavy to load. Luckily it has plenty of performance options for limiting the calculations of the indicator.
Tooltips:
As usual, this indicator comes with extensive tooltips for every function, making sure you understand every part of it.
Happy trading!
What is liquidity and a liquidity map?
Liquidity refers to how quickly and easily an asset can be bought or sold in the market without affecting its price. High liquidity means that there are many buyers and sellers, and transactions can happen rapidly and smoothly.
Liquidity analysis involves examining where and how liquidity is distributed across different price levels.
Price often moves from liquidity zone to liquidity zone, and therefore, having an idea of where those zones are can give traders an understanding of potential support and resistance levels and where significant trading activities might occur.
Those looking to fill large buy orders for example would want to do that in liquid sell areas and vice versa. This indicator attempts to estimate the price levels where traders using leverage get liquidated, and therefore creates liquid areas for buying and selling.
In contrast to Bookmaps which chart the orders in the order book where traders want to transact, a liquidity map is charting where traders are 'forced' to transact due to stop-losses or margin calls. To do that, liquidity maps are mostly based on estimations. It could be based on pivot points, common stop-loss amounts, common leverage amounts or a combination of multiple factors.
As of the current version on release, this indicator is only using the leverage input by the user to estimate the liquidity.
How does it work and what makes it unique?
The indicator takes the volume in a candle and saves that volume in a line. Based on the leverage settings it then offsets that line above and below price. Say, a trader using 20x leverage without a stop-loss gets liquidated if price goes roughly 5% in the wrong direction. Therefore, by assuming common leverage amounts or common risk amounts, we can estimate where traders get liquidated or have their stop-losses based on their leverage or amount they are willing to risk.
Now keep in mind, this liquidity map is just estimating based on general assumptions, it doesn't have access to actual liquidity data.
But at the same time, we're not trading single individual traders, but we're trading the market as a whole, and interestingly enough, some risk and leverage amounts are more common than others. People like using those even numbers like 10x, 20x, 1% risk etc. That's why price do often react on the liquidity in liquidity maps such as this one.
So, when a candle is printed, and you are on a smaller timeframe and decided this is just the kind of market for 100x scalpers. You set the leverage to 100x in the settings and the indicator will paint lines above and below price offset by 1%. There are settings for three leverage amounts at the same time, so you might also set it to paint lines at 5% and 10%, just to catch those traders on higher timeframes if price really takes off.
Now let's talk about what makes this indicator really shine and stand out!
Normally, if we just left the indicator doing as above, there would be lines all over the place and very difficult to interpret which areas matter, or we could limit the indicator to only print lines at high volume candles. Now, you do have that option, but that wouldn't pick up areas where low volume trading has cumulated in the same range, such as over a weekend or during market gaps. Where other liquidity indicators out there might miss that liquidity, this indicator has several solutions for it.
The first solution is stacking semi-transparent lines on top of each other. Normally, lines of the same color and transparency wouldn't add and blend together. But this script offers a seamless transition from one color the next, blending those low volume liquidity lines together.
The second solution, and this is what I believe is really unique and powerful, is that this indicator also has the ability highlight certain liquidity. When enabled, it scans through all the lines, cumulate the volume within a specified range around the lines and then compare the cumulated volume range with the ranges around the other lines. New lines created in the range with the highest cumulated volume gets highlighted.
Without this feature you wouldn't necessarily be able to tell which of two strong areas are more liquid. When price later enters that area and crosses those lines, the liquidity there is then considered consumed and lines created in a different range will now begin to highlight.
All of this is of course enhanced, as in the picture above, when multiple copies of the indicator is used together and assigned to only calculate specific parts of the liquidity map, such as longs, shorts or specific leverage amounts.
Oh, and there's also options for assigning which part of the candle should generate the liquidity. Close, Middle Body or Open. The indicator will then assume that the majority of traders are entering their position in that part of the candle.
The offset is calculated from that part of the candle. By using multiple copies of the indicator, you can assign one for each part and that will give you the whole range of the candle. And you might assume more traders go long from the top, so to emphasize that liquidity, you could increase the size or transparency slightly of the lines generated from that part.
How do I use it?
Well, this isn't gonna give you trading signals or anything, but it will visualize the market for you in a new perspective.
Typically, high liquidity areas are often good areas for entry and TP. But always watch how the price reacts in those areas before entering a position. And remember, the liquidity estimation might not always be accurate.
Particularly watch the highlighted areas for long wicks and high volume, indicating that the liquidity was enough to meet the orders and a retrace or reversal could be imminent.
Watch what happens during consolidation, market gaps and weekends. Notice the lack of liquidity and how the market maker creates liquidity by inducing traders to take positions with quick moves that instantly reverses. You might know how that works in theory, but watching it happen real-time with visualized liquidity is very interesting.
While not necessary, and as I've mentioned earlier, dividing the different functions of the indicator on multiple copies will substantially increase it's accuracy and performance!
For example, use one copy of the indicator per leverage level, or one for shorts, one for longs. One that generates from the close, one from the middle etc. creating a much clearer picture of the liquidity like the picture comparison above.
This is what the indicator offers:
When you're estimating liquidity, you want to be able to do it with accuracy and interpretability. That's why the customization options of this indicator has been really important in the development.
Timeframe Options:
It supports a wide range of time periods, from daily to yearly, enabling traders to apply it across various trading strategies, from short-term day trading to long-term investment analysis. Assuming traders are eventually taking their profits, liquidity after the set time period disappears.
Rich Visual Settings:
The indicator comes with multiple preset color themes and a completely customizable option as well. These visual settings are designed to enhance the interpretability of liquidity data, with adjustable transparency and contrast features.
Liquidity Highlighting Function:
This unique feature emphasizes areas with high liquidity concentration. It scans and highlights significant liquidity zones, aiding traders in identifying critical market levels.
Liquidity Profile:
The LQ-Profile extends liquidity lines based on their associated volume, giving traders another way of identifying high liquidity zones.
Adjustable Liquidity Estimation:
Select and adjust leverage amounts based on your particular chart and analysis. Choose what positions and leverage amounts to display liquidity for. You also have the option to determine if wicks consume liquidity or not.
Since wicks indicate that price was rejected from that area, it doesn't necessarily mean all the liquidity in that area was consumed. You could assign an additional copy of the indicator consuming with wicks and another that doesn't. That way, half the liquidity gets consumed and the other half remains until another candle closes in that area. They choices are endless and it's all about your understanding and analysis here.
Multiple Performance Options:
Depending on your particular chart and timeframe, this indicator can be very performance heavy to load. Luckily it has plenty of performance options for limiting the calculations of the indicator.
Tooltips:
As usual, this indicator comes with extensive tooltips for every function, making sure you understand every part of it.
Happy trading!
リリースノート:
-Added an option for Dynamic Period Length
-Removed the max leverage limit
-Removed the max leverage limit
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