Liquidity Dependent Price Stability

Jan 9, 2024

The Liquidity Dependent Price Stability (LDPS) indicator is designed to measure liquidity levels on an equity and, from those measurements, provide Bullish or Bearish outlooks for future price action. These outlooks are given via reporting the equity's Liquidity Condition and Liquidity Flow.

Interpretation

Liquidity Condition (LC) and Liquidity Flow (LF) measurements are displayed with color-specific chart colors and/or with text output.

LC can be reported as "Weak Bullish", "Bullish", or "Strong Bullish" for Bullish outlooks and "Weak Bearish", "Bearish" or "Strong Bearish" for Bearish outlooks. LC can also just be reported as "Bullish" or "Bearish".

Bullish LCs have a statistical correlation with future price appreciation, and Bearish LCs have a statistical correlation with price depreciation. When LC is “Bullish”, the price is likely to go up, and if LC is “Bearish”, the price is likely to go down.

Liquidity Flow (LF) is a measure of how LC is changing. When LC is becoming more bullish, LF is reported as “Improving”. When LC is becoming more bearish, LF is reported as “Worsening”. LF is only displayed via text output.

Settings and Configurations

LDPS Sensitivity and Reactivity: Determines if you want LDPS to be more sensitive to changing conditions or less sensitive. This choice affects how certain LDPS is when forming its future outlooks. LDPS achieves this increase in sensitivity and reactivity by lowering the bar for what LDPS considers a significant change.

Aggressive: LDPS will optimize reporting early changes in LC and LF at the expensive of accuracy. Aggressive is good for low-risk trading styles that prefer to exit a position early rather than deal with increased risk of oppositional movement.

Balanced: LDPS will try to balance reporting changes in LC and LF with maintaining accuracy. Balanced style is a good setting to start out with and is applicable across the widest range of equity’s and timeframes.

Conservative: LDPS will optimize accuracy over being sensitive to changes in LC or LF. Conservative is a good choice for lower timeframes and traders who only want to change or exit positions with the greatest confidence.

LDPS Reporting Style: Determines how you want LC to be reported.

Simplified: LDPS will only report LC as “Bullish” or “Bearish”.

Full: LDPS will increase its reporting details and include the “Strong” and “Weak” pre-fixes, when appropriate.

LDPS Candle Coloring: There are three different ways that LC can be reported on the chart via coloring.

LDPS Candle Replacement: This will replace the chart’s default candles with those created by LDPS. Note: In order to see LDPS’ candles and not the chart’s, you have to disable to chart’s candles. This can be done in Settings -> Symbol and unchecking “Body”, “Borders” and “Wick” boxes.

LDPS Candle Coloring: This will just color the bodies of the chart’s default candles. Note: This setting should not have the chart’s candle’s disabled.

LDPS Background Coloring: This will color the chart’s background rather than any candles.

LDPS Text Output: LC and LF are reported via a text box that can be moved several places on the chart, or the text box can be removed.

LDPS Measurements – Display: When selected, LC and LF will be reported via the text box.

LDPS Measurement – Text Location: Determines where the text box with LC and LF are located.

LDPS Measurement – Text Size: Determines the size of LC and LF within the text box.

LDPS Measurement – Background Color: Determines the background color of the text box with LC and LF.

LDPS Condition Color Selection – Bullish / Bearish: Color selection for each type of LC. Note: If the Simplified reporting style is selected, the “Full Bullish” and “Full Bearish” are the bullish and bearish color choices, respectively.

Frequently Asked Questions:

Where can I get additional Information?

Please check the “Author’s Instructions” section below.

Where can I find the results of the LDPS research?

Please check the “Author’s Instructions” section below.

Help! Something’s not working!

Apologies. Please see the email listed in “Author’s Instructions” below and let’s get started on solving the issue.

Which Sensitivity setting should I use?

The author’s preference is Conservative in most cases, but the answer for you depends on your preferred style.

An analogy might help: the aggressive setting will ensure LDPS is early to the party – every party. Of the parties that really kick off, you can be certain LDPS is there, but they had to visit a several of parties before finding the right one.

The Conservative setting won’t bring LDPS to every party – it will gladly stay at the one it’s at but when it detects the next real big hit, LDPS will move to that party instead. It won’t be the first one there, but it is definitely earlier than most.

Should I use the Full or Simplified reporting style?

Depending on how engaged you are with the particular equity or position, either choice can be beneficial. The Full reporting style will let you detect changes in LC before they might show with the Simplified reporting style. Some enjoy the additional data, some (like the Author) enjoy keeping things simple.

I can see LDPS’ colors in the chart’s candlesticks when the settings are open, but not when the settings are closed. How come?

If you are using the “LDPS Candle Replacement” setting, be sure to turn off the Chart’s default candles by right-clicking on the chart, going to Settings, then Symbol and then un-checking “Body”, “Border” and “Wick”. This should fix the issue.

I think there’s a bug – where do I report it?

Thank you for reaching out about a potential bug or issue! Please see the email below in “Author’s Instructions” to report the issue.

Feb 9, 2024

Release Notes

Note

You will have to reload LDPS to get the new version. This can be done by removing it and then re-applying it to the chart.

Increased Depth

Several architecture changes to help LDPS determine liquidity status. These changes provide additional clarity to an equity’s liquidity status during previously difficult-to-decipher moments. LDPS should have a better handle on the situation now.

Liquidity Status Classification Algorithm Modifications

Several changes to the LDPS Liquidity Status algorithm aimed at providing greater accuracy and delineation between the various states.

Default Configuration Changes - Aesthetics

Default color choices for Strong Bullish / Bullish / Weak Bullish and Strong Bearish / Bearish / Weak bearish have been changed to more pleasing choices.

For best results, use with default LDPM stylization and dark mode and background set to #191d2e.

Color Legend

A color legend has been added. It can be applied to the chart to show the chosen colors for the various LDPS Liquidity Conditions (Weak Bullish / Bearish, etc.) for when a reference might be handy.

Oct 21, 2024

Release Notes

The Liquidity-Dependent Price Stability algorithm underwent some structural and algorithmic changes to help facilitate a greater dynamacism with regards to handling greater ranges of liquidity environments. Namely, I wasn’t satisfied with how the various `Sensitivity Modes` were adapting and managing the data streams between settings. In order to help these modes adapt and maintain fidelity, the following changes, and others, were made:

- Key Algorithmic Changes
 One of the main focuses in improvements was allowing LDPS to maintain its sensitivity even on larger-scales such as above LDPM-233. This was accomplished such that the higher-order LDPMs do not degrade into one another anymore, but rather, the algorithm works to keep the data streams appropriate per LDPM order so as to not loose sensitivity on said order.

 Liquidity Flow has been revamped to Liquidity Levels .

 Another mode for LDPS has been introduced: Diamond Mode.


- Liquidity Condition
 Liquidity Conditions can now be toggled via the `LDPS Reporting Style` between `Interpretive` and `Declarative`.
 Interpretive: This is the traditional reporting method and includes `Bullish` and `Bearish` designators.
 Declarative: This reporting method simply reports where LDPS is detecting the majority of the transactions. The options are:
• At Ask: the majority of the transactions seem to be occurring at or very near the ask.
• Ask~Mid: The majority of the transactions seem to be occurring between the ask and the mid-point between the bid and the ask.
• At Mid: The majority of the transactions seem to be occurring between the bid and the ask near the mid-point.
• Mid~Bid: The majority of the transactions seem to be occurring seem to be between the mid-point and the bid.
• At Bid: The majority of the transactions seem to be occurring at the bid.

• Note: The `Simplified` Detail Amount will simply use either `At Ask` or `At Bid`


 Default has been set to `Interpretive`
 Sensitivity Mode Addition: Diamond Mode
The new algorithm allows for greater breadth and depth of analysis, and as such, LDPS received its first expansion via the `Diamond Mode`.
 Calibrated to minimize non-long-term (time-interval dependent)-significant indicates via a more robust noise-removal algorithm.

- Liquidity Flow has been changed to Liquidity Levels
The current state of representing the Liquidity Flow was not intuitive and in conjunction with the color-scheme, was often-times was giving the wrong interpretation of the data to its users. As such, the Liquidity Flow has been changed to Liquidity Levels to better demonstrate the liquidity situation’s changing conditions.

The new Liquidity Levels tell us how the liquidity is at the organic side. However: please note that this may be independent of your assessment of the organic side as per LDPM’s invertedness or not. In other words, if you see inverted LDPMs, consider that LDPS is still reporting Liquidity Levels at the inverted organic (i.e.: the absent) side until sufficient conditions change to suggest the real organic side has swapped.

 Algorithm Improvements allow for more granular assessment with regards to overall liquidity levels.

 Liquidity Flow can be: `Increasing`, `Decreasing` or `Neutral`
 These designate if liquidity is increasing its flow towards the organic side or decreasing.

 Liquidity Flow: Increasing or Decreasing
The old `Improving` and `Worsening` designators were confusing and replaced with `Increasing` and `Decreasing`.
 `Increasing` indicates that liquidity is improving at the organic side.
 `Decreasing` indicates that liquidity is deteriorating at the organic side.

 Text Display – Colors
To minimize mixed messages, the Liquidity Level text-output display color is no longer intrinsically tied to the `Bullish` or `Bearish` color choices.
 Liquidity Level text output color can be selected in the Settings.

- General Changes

 Updates performed to the Settings and Configurations panel.
 The default location for LDPS’ text output has been changed to `Bottom Center`.
 The default size for LDPS’ text output has bene changed to `Large`.
 The `Simplified` detail amount will now use the `Strong Bullish` and `Strong Bearish` color schemes, respectively.
 The setting `Sensitivity and Specificity` has been renamed `Sensitivity Mode`.
 The setting `LDPS Reporting Style` has been renamed `LDPS Detail Amount`
 The default `LDPS Detail Amount` has been changed to `Simplified`.

Oct 29, 2024

Release Notes

Updates:

- Some clarification added with regards to the Liquidity Flow. An additional layer of computing was applied which changes the Flow states to:

• Towards the Ask
  
• Towards the Bid
  
• Neutral
  

This represents where the liquidity is flowing to, i.e.: `Towards the Bid` indicates that transactions are starting to occur more readily at the bid, as opposed to the Ask. This suggests that price will continue to follow the bid, whether it be an eager bid or an organic bid.

Nov 6, 2024

Release Notes

Updates for 2024-11-06:

- LDPS Updates
→ Alerts
» LDPS has been given alerts, similar to LDPM:
→ Is Bullish / Bearish : This will alert at the close of the candle if the candle closes as the specified type.
→ Becomes Bullish / Bearish: This will alert if conditions change from Bullish to Bearish or vice-versa. This can activate at any time in the candle.
→ Liquidity Moving to Bid / Ask: Similar to the first alert but this one will alert (after checking at candle-close) if liquidity is moving to the chosen side. This checks for activation at the close of the candle.
→ Flow Change – Bid / Ask: This will alert at any time if the candle has switched to flowing towards the Bid or to the Ask, respectively.
→ Suspected Bull / Bear Trap: This will alert at the close of the candle if conditions appear to be in a Bull or Bear trap, respectively.

Apr 6

Release Notes

• Core algorithm adjusted to provide greater sensitivity to changes while improving specificity.