Liquidity Pools

The Liquidity Pools indicator identifies and visualizes key areas of buy-side and sell-side liquidity based on market swing highs and swing lows. This tool helps traders pinpoint price levels where significant clusters of stop orders typically reside, offering insights into potential market reversals or trend continuations.

Usage

The Usage section describes how the script can be used to navigate market structure and liquidity dynamics.

• Identifying Market Structure: By displaying "SH" (Swing High) and "SL" (Swing Low) labels, the tool clarifies recent price action. This allows traders to see the structural points that define the current trading range.
• Liquidity Targeted Movements: Traders can observe how price interacts with the highlighted liquidity zones. When price sweeps above a swing high or below a swing low, it often indicates a "liquidity raid," which can precede a reversal or provide the fuel needed for a strong breakout.
• Target Setting: The liquidity pools can act as natural targets for take-profit orders, as price is frequently drawn to these areas of high order density.

Details

The indicator identifies swing points by evaluating a user-defined number of bars to the left and right of a high or low. Once a pivot is confirmed, the script projects a horizontal liquidity zone.

The thickness or "depth" of these pools is calculated using a dynamic threshold that adjusts based on the active timeframe (Seconds, Minutes, Daily, Weekly, or Monthly). This ensures that the liquidity zones remain proportionally relevant whether trading on a 5-minute chart or a Daily chart. The tool also includes alert conditions for both the creation of new swing points and "Liquidity Raids," which occur when the price successfully crosses into a established liquidity pool.

Settings

Swing High Low Setting

• Left bar & Right bar: Determines the number of bars required to confirm a swing high or swing low. A higher value results in more significant, but fewer, pivot points.
• Show Swing High Swing Low: Toggles the visibility of the "SH" and "SL" labels on the chart.
• Show Price: Toggles the price value labels for each identified swing point.
• Price Label Color: Customizes the color of the displayed price text.

Liquidity Pools Settings

• Show Liquidity Pools: Toggles the visualization of the shaded liquidity zones.
• Line Width: Adjusts the thickness of the lines bordering the liquidity pools.
• Line Style: Changes the appearance of the boundary lines (Solid, Dashed, or Dotted).
• Buy Side Liquidity Color: Sets the color for zones residing above swing highs.
• Sell Side Liquidity Color: Sets the color for zones residing below swing lows.

FAQ

How do I adjust the sensitivity of the liquidity zones? You can modify the "Left bar & Right bar" setting. Increasing this number will filter out minor price fluctuations and focus on major institutional liquidity levels, while decreasing it will show more frequent, short-term pools.

What does a Liquidity Raid alert signify? A Liquidity Raid alert triggers when the current price crosses the price level of a previous swing high or low, indicating that the orders resting in that pool are likely being executed.

How do I access this tool? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.