Liquidity Fair Value Bands | QuantumResearch

🔹 Liquidity Fair Value Bands | QuantumResearch

A Dynamic Liquidity-Based Fair Value Model Using Volume-Weighted Linear Regression and Deviation Bands

📘 Overview
The Liquidity Fair Value Bands is a specialized volatility and valuation indicator designed to help traders identify dynamic fair value zones based on liquidity-adjusted price behavior. Unlike standard deviation bands or traditional moving averages, this tool integrates volume-weighted linear regression to estimate a fair value baseline — a more accurate representation of price equilibrium under active market participation.

This script is not a simple mashup of existing indicators. It introduces a novel concept by fusing the following elements:

📊 Volume-Weighted Linear Regression (VWLR) to determine the fair value baseline
📈 Standard Deviation Bands layered around this baseline to visualize statistically significant deviations
🔄 Trend Signals derived from slope direction and baseline crossover
🎨 Gradient-Based Visual Modes for enhanced readability
🚨 Built-in Alerts for overbought/oversold and trend breakout conditions
🧠 Concept & Calculation

🟩 1. Fair Value Baseline (Core Innovation)

The baseline is calculated using a volume weighted linear regression.

This formula ensures that higher-volume periods influence the regression line more heavily, offering a liquidity-aware estimate of what the asset is “really worth” based on market consensus.

A positive slope indicates a growing fair value — bullish environment
A negative slope signals declining fair value — bearish environment

📏 2. Deviation Bands

Three layers of symmetric deviation bands are plotted above and below the baseline, each representing a multiple of standard deviation (1σ, 2σ, 3σ) over the same lookback period:

Upper Bands highlight statistically significant overvaluation
Lower Bands indicate undervaluation and potential reversion zones
These zones are visualized using translucent color fills to help traders instantly interpret risk/reward conditions.

🔄 3. Trend Detection

Optionally, the indicator displays up/down arrows when the price crosses the fair value baseline and a new trend is forming:

✅ Uptrend: Price crosses above baseline and baseline slope increases
🔻 Downtrend: Price drops below baseline and slope declines
These dynamic signals allow you to react to trend reversals early, rather than waiting for lagging confirmation.

🎯 How to Use
This tool excels in trend-trading, mean reversion, and liquidity-based fair value analysis.

✅ Buy Zones: Price enters lower bands (e.g. -1σ to -3σ) during lower fair value zone
❌ Sell Zones: Price enters upper bands (e.g. +1σ to +3σ) during higher fair value
🕵️‍♂️ Fair Value Confirmation: Flat baseline in consolidating markets helps avoid chop
📈 Trend Entry: Use baseline crossovers and band inflections to time entries
⚙️ Customization Features
🔧 Adjustable regression length and offset
🎨 Eight visual modes for light/dark themes
🔔 Optional alerts for significant band breaches (1σ, 2σ, 3σ)
🟡 Toggle individual band visibility (1st, 2nd, 3rd) for cleaner UI
⚡ Optional trend signal arrows
🧪 Interpretation Example
If the current price trades 2+ standard deviations above the liquidity-based fair value line, it likely indicates:

A short-term overbought market
Potential for mean reversion
Or signal that a strong trend breakout is underway (confirm with slope direction)
✅ Why It’s Unique
This is not just a Bollinger Bands variant — it is a liquidity-aware fair value model with enhanced statistical depth. The baseline adapts to both price and volume, unlike simple moving averages that assume equal importance across all candles.

It combines three important market principles:

🎯 Price Action
🏦 Liquidity Weighting
📊 Volatility Analysis
All in one clean and visually intuitive script.

📢 Disclaimer
This indicator is for educational purposes only and is not financial advice. Always use additional confluence and proper risk management in your trading.