Liquidity Sweeps

The Liquidity Sweeps indicator is designed to help traders identify strategic liquidity sweeps on their charts. By highlighting potential areas of support, resistance, or entry when Liquidity Levels are breached, this indicator becomes an essential tool for savvy traders.

A liquidity sweep is a scenario where the price temporarily breaches a liquidity level—termed as LqL—before quickly retracting back, forming a noticeable wick. This indicator provides visual cues and options on how liquidity sweeps manifest, offering critical insights into potential market movements.

How to Trade with the Liquidity Sweeps Indicator?

Liquidity sweeps occur when the price action dynamically interacts with LqLs. The indicator offers two distinctive scenarios for traders to consider:

• The wick surpasses a LqL before the price rapidly retraces.
• The closing price crosses a LqL, after which the market retests this level and a wick forms in the reverse direction, indicating potential reversals.

In the depicted scenarios, we observe bullish and bearish instances where the wick passes through an LqL then quickly returns. This action is depicted via a dotted line, signifying a particular type of Liquidity Sweep.

Another example demonstrates a broken LqL where the price tests the liquidity zone and rebounds. Such liquidity sweeps are shown with a dashed line.

During a liquidity sweep, the indicator highlights the wick-LqL distance. This measure is integral for recognizing potential support or resistance levels, or entry zones, materialized as the Sweep Area.

Traders can customize colors within indicator settings, optimizing visibility (e.g., yellow and aqua blue).

Identifying Sweep Areas

Sweep Areas are inherently marked zones that emerge from the distance between the LqL and the wick’s peak. These regions often forecast critical support or resistance areas or entry opportunities.

The examples emphasize both types of Liquidity Sweeps with a boxed Sweep Area as visual guidance. Once a Sweep Area is mitigated or elapsed by a specified number of bars (modifiable in 'Max bars' settings), these zones discontinue updating.

The 'Trigger' label marks where the price’s high crosses a LqL, marked by a red box extending between the high and LqL. The low from this bar details the launch of a dotted line, establishing potential entry or resistance points. The following bars could present short-entry chances, especially if the price breaches the exploratory dotted line.

Additionally, bullish scenarios offer entry signals post-LqL sweeps, delineated by emerging Sweep Areas.

The green dotted lines abet traders to identify when the price breaks above, creating a temporary range before continuing upward momentum.

An initial trigger here forms a Sweep Area that is promptly breached, yet the green line indicates potential entry zones subsequently. Price frequents in a compact channel before ascending past the LqL (seen as a green dashed line), uncovering new entry pathways. Afterward, the market revisits the LqL before readjusting and maintaining inside the existing channel, leading to a renewed upward trend.

Configuration and Adjustments

Liquidity Sweeps

• Swings: This setting defines the period dedicated to swing detection, where increasing this value helps identify longer-term Liquidity Levels.
• Options:
  • Only Wicks: Recognizes liquidity sweeps exclusively when a wick surpasses a prior wick.
  • Only Outbreaks & Retest: Detected solely when the closing price breaches a liquidity level, retests it, and forms an opposing wick.
  • Wicks + Outbreaks & Retest: Simultaneously discerns both conditions.

Sweep Area

• Extend: Activate or deactivate the prolonging of the Sweep Area boxes.
• Max Bars: Restrict box elongation to a designated number of bars.
• Color Sweep Area Box: Customize the hue of Sweep Area boxes for clarity.

FAQ

How can I access the Liquidity Sweeps indicator?

You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free. This versatility ensures traders can integrate the Liquidity Sweeps indicator effortlessly into their preferred trading environment, amplifying their strategic capabilities.