Best Free Liquidity Zones Indicator on TradingView (Full Guide)
This indicator will help you find significant liquidity zones on any market and any time frame.
It is free, and it is available on TradingView.
In this article, I will explain the settings of this indicator and how to use it.
Let me start by explaining how I identify significant liquidity zones.
To me, the main indicator of a high concentration of liquidity is the formation of multiple long wicks within the same area.
Long wicks signify price rejections and active participation of buyers and sellers.
Multiple upper wicks rejected from the same highs will mean a dense concentration of supply .
While multiple lower wicks rejected from roughly the same lows will mean a solid concentration of demand .
There is one useful indicator on TradingView that accurately identifies such wicks.
It is called Long Wick Detector by LuxAlgo.
Once you click on that, it will immediately start working.
Let's discuss the settings of this indicator:
Wick Threshold - that's the most important setting.
It defines how big a candle wick must be to be considered "long" and get picked by the indicator.
This input controls the sensitivity of the indicator.
The indicator compares the wick length to recent market volatility (usually based on ATR).
For the identification of liquidity zones on Forex market on a daily time frame, I use 0.25 input.
But please note that this parameter will be different based on the market and time frame that you analyse.
Level % means where exactly the indicator will draw a horizontal line.
With 100% default input, horizontal lines will be plotted on highs/lows of the wicks.
While with 50%, horizontal lines will be in the middle of them.
I suggest leaving 100% input.
Duration means how long the horizontal lines stay visible on your chart in the candle bars range.
I suggest changing the default number to 100 .
After 100 candles, the line disappears automatically if the price has not touched it again.
Finally, keep the "Mitigated Wicks" checkbox selected.
Unselecting that, the indicator will hide price levels that were already tested by the price, leaving only untouched ones.
And here is how to use this indicator to find liquidity zones.
You will need to find areas on your chart where at least 3 horizontal lines cluster.
It will indicate a concentration of market liquidity.
Simply unite such horizontal lines into one single area.
It will be a significant liquidity zone.
Setting up this indicator properly, it will help you find liquidity on any market.
Use it to find significant supply and demand zones on TradingView and try to integrate that with your trading strategy.
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Education
Best Technical Indicator to Identify Liquidity Zones
Liquidity zones are the essential element of Smart Money trading. These zones provide the safest and the most accurate trading opportunities.
The problem is, however, that it is quite complicated for the newbie traders to identify these zones properly. But there is ONE technical indicator that can help.
In this article, I will show you the best technical indicator for the identification of liquidity zones.
This technical indicator is called Volume profile.
Adding that on your chart, you should look for low volume and high volume nodes.
High volume nodes indicate the price levels on the chart where big volumes were traded and a high activity of the market participants occurred.
The indicator plots 3 significant volume spikes.
These are 3 high volume nodes.
After you identified high volume nodes, you should analyse a price action and recognize related historical structures.
By related structures, I mean historical levels that were respected by the market and from where significant price movements initiated.
When you underlined these structures, you should consider the wicks and candle closes.
Low volume nodes indicate the price levels on the chart where it has been relatively little trading activity and limited participation from market participants.
These zones indicate a lack of liquidity , which can impact the ease of price movement in those areas.
Here are 2 low volume nodes that I spotted.
After you spotted low volume nodes, you should analyse a price action and recognize related historical structures.
Here are the liquidity zones that are based on low volume nodes.
Again, these areas are based on wicks and candle closes.
These 5 areas will be the important liquidity zones from where Smart Money trader can look for trading opportunities.
Learn to recognize liquidity zones properly and improve your trading.
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Long
Macro Monday 4 - Global Net Liquidity and SPX500Global Net Liquidity and SPX 500 Comparison
The Global Net Liquidity (“GNL”) indicator provides an overview of how five major central banks liquidity provisions are collectively performing. This allows us to get a sense of whether global money supply is increasing (expansionary) or decreasing (contractionary).
The GNL can provide a general indication of how much liquid funds are available in Global Bank Reserves. When there is increasing liquidity, lending in all forms to the consumer is less burdensome/restrictive for the Banks and thus consumers typically have access to more finance. If GNL is increasing this can indicate that more money is available to be lent by the Banks and spent by the consumer and businesses, and when GNL is contracting it can indicate less money is circulating and less funds are available for consumers and businesses which can negatively affect overall economic performance.
GNL is available by searching for “Global Net Liquidity” in the indicator section on TradingView. Full credit for the GNL indicator goes to Dharmatech who created/copyrighted this specific indicator on TradingView. There are many Global Liquidity Indicators available on TradingView, some have more banks and metrics included, others less, this is just the one of the main indicators focusing on the big five central banks. I fully intend on making my own Global Net Liquidity Indicator which factors in the other forms of liquidity and other Banks for a more accurate indication. Whilst the impact of smaller global liquidity providers/central banks are less impactful, including them might just offer us an edge week to week.
What is included in this GNL:
We add the following:
- Fed Balance sheet (WALCL)
- Japanese Balance sheet (FRED:JPNASSETS) Converted to USD
- Bank of China Balance Sheet (CNCBBS) Converted to USD
- UK Balance Sheet (GBCBBS) Converted to USD
- EU Balance Sheet (ECBASSET) Converted to USD
And we deduct:
- Reverse Repo Market (RRPONTSYD)
- Treasury General Account (WTREGEN)
The Chart
Please acknowledge that this chart idea has built into it a speculative projection that factors in a number of generalized technical and fundamental considerations/reference points. Lets DIG IN!
1. From a TA perspective we are relying heavily on one data period from 2018 – 2020 on the GNL /S&P500 which is not ideal however a similar pattern from this period may be playing out in an amplified way at present for both.
2. From a general fundamental standpoint we draw a correlation to the Great Inflation period (1965 – 1982) but we hone in on the early years from 1966 – 1973 as these early years are similar to the high inflationary period we find ourselves stepping into at present.
3. In both 1 and 2 above the S&P500 went through significant price volatility which in both instances took the form of a megaphone pattern. Megaphone patterns have been showing up a lot in the market recently, Tesla being a case in point. Megaphone patterns are more common in volatile markets and can offer us traders or investors a structural framework to work within.
Considering 1, 2 and 3 above we speculate that we may see a similar large megaphone pattern play out for the S&P500. This is illustrated in a previously shared chart called “A Crazy S&P Idea”. If you check this idea and hit play, you'll see we are currently tracking the 1966 - 1973 Great Inflation Fractal very closely.
In summary:
o In the past, long term GNL Contraction resulted in significant S&P500 Volatility.
o In 2018 a sudden 8 month sharp 10% GNL decline as the S&P500 was continuing to new highs was an advance warning of a subsequent 14% decline in the S&P500. This is expressed on the chart as a Negative divergence.
o A similar Negative Divergence is currently playing out. As noted the last Negative Divergence in 2018 took 8 months to complete. This would be Aug/Sept 2023 as a possible mid-term top under the current scenario after which we could expect a >10% pullback.
It is important to recognise that the timeframes I am projecting and the price action are patterns that may play out as we find ourselves in similar but not identical circumstances. It is important that we recognise that this pattern may not play out at all. A few things are certain though, Global Net Liquidity is contracting, volatility is expected as a result and the rest is looking into the past for similar patterns to help anticipate potential structures as they evolve. One such pattern which seems plausible is the megaphone, however the S&P500 could be forming a parallel channel here or a different pattern altogether. Time will tell.
If all I have done in the above chart is created awareness of GNL and of the current short term negative divergence, I think that is enough. The rest is just possible outcomes with absolutely no guarantees. I also hope that by reviewing the Great Inflationary Periods price action fractal that it can help frame in our minds just how much price volatility could be ahead of us.
On a recent chart I shared which focused on the Yield Curve Inversion the maximum timeframe for a recession to commence once the yield curve first turns back up towards the 0% level is 22 months. The first definitive turn up was in March 2023 suggesting that the maximum window before a recession could potentially start is 22 months from March 2023 which is January 2025. Never has a recession taken longer than that 22 months to occur after the yield curve makes its first turn back up towards the 0% level. For this reason I have included January 2025 as the potential megaphone top. This also coincides with the megaphone fractal pattern from the Great Inflation Period. I am not saying that this is exactly how it will play out but there is some confluence in the timeframes.
I hope you find these charts and their correlations helpful. It will be fascinating to see how these eventually play out.
PUKA
