Liquidity Heatmap [Eˣ]

💧 Liquidity Heatmap - Free Indicator

Overview
The Liquidity Heatmap reveals where stop losses are clustered in the market - the hidden liquidity zones that smart money targets. This indicator automatically identifies Buy-Side Liquidity (BSL) above price and Sell-Side Liquidity (SSL) below price, showing you exactly where institutional traders are likely to hunt for stops before major moves.

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🎯 What This Indicator Does

Identifies Liquidity Zones:
• Buy-Side Liquidity (BSL) - Stop losses from SHORT positions clustered above price
• Sell-Side Liquidity (SSL) - Stop losses from LONG positions clustered below price
• Automatically clusters nearby levels into high-probability zones
• Shows liquidity strength (1-5+) - higher numbers = more stops = bigger target
• Removes swept liquidity in real-time as price takes out stops

Visual Display:
• 🔴 Red Zones Above Price = Buy-Side Liquidity (shorts' stops)
• 🟢 Green Zones Below Price = Sell-Side Liquidity (longs' stops)
• Thicker/Darker Zones = Higher liquidity concentration
• BSL/SSL Labels = Show exact strength count
• Triangle Markers = Liquidity sweep alerts (when price takes stops)

Smart Features:
• Auto-removes old liquidity (customizable lookback period)
• Clusters nearby levels to reduce noise
• Tracks liquidity strength and age
• Updates in real-time as new swing points form
• Alerts when major liquidity zones are swept

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📊 How To Use This Indicator

Understanding Liquidity Concepts

What is Liquidity?
Liquidity refers to clusters of stop loss orders sitting in the market. These stops represent:
• Long traders' stop losses (below support) = [color=green]Sell-Side Liquidity[/color]
• Short traders' stop losses (above resistance) = [color=red]Buy-Side Liquidity[/color]

Why Does This Matter?
• Institutions NEED liquidity to fill large orders
• Price often "sweeps" liquidity zones before reversing
• Major liquidity = major target for smart money
• Understanding liquidity = understanding market maker behavior

The Liquidity Cycle:
1. Retail traders place stops at obvious levels (swing highs/lows)
2. Smart money identifies these clusters
3. Price is pushed to sweep the stops (liquidity grab)
4. Institutions fill their orders with this liquidity
5. Price reverses in the opposite direction

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💡 Trading Strategies

Strategy 1: Liquidity Sweep Reversals
Best For: Swing trading, catching reversals
Timeframes: 15min, 1H, 4H, Daily

Entry Setup:
1. Identify strong [color=green]Sell-Side Liquidity (SSL)[/color] zone below price
2. Wait for price to sweep down into the SSL zone
3. Look for rejection/reversal candle pattern (pin bar, engulfing)
4. Enter LONG after sweep and reversal confirmation
5. Stop loss: Below the swept liquidity zone
6. Target: Opposite liquidity zone or key resistance

Why It Works: Smart money sweeps stops to fill buy orders, then pushes price higher

Example:
• SSL zone at $45,000 with strength 3
• Price drops to $44,950, sweeps the SSL
• Strong bullish reversal candle forms
• Enter long at $45,100
• Target: BSL zone at $47,000

Strategy 2: Liquidity-to-Liquidity Runs
Best For: Day trading, scalping
Timeframes: 5min, 15min, 1H

Entry Setup:
1. Price sweeps [color=green]Sell-Side Liquidity[/color] below and reverses up
2. Identify [color=red]Buy-Side Liquidity[/color] zone above
3. Enter LONG targeting the BSL zone above
4. Exit near/at the BSL zone (don't wait for sweep)
5. Stop loss: Below recent swing low

Why It Works: Price moves from liquidity pool to liquidity pool

Variation - Reverse for Shorts:
• BSL sweep above → Look for SSL zone below
• Enter short targeting lower liquidity

Strategy 3: Liquidity Avoidance (Stop Placement)
Best For: Improving win rate on existing strategies
Timeframes: All

Rules:
1. NEVER place stops exactly at obvious liquidity zones
2. Place stops beyond the liquidity zone with buffer
3. Or place stops before the liquidity zone (tighter, riskier)
4. Monitor liquidity strength - avoid zones with strength 3+

Why It Works: Market makers hunt obvious stop clusters

Example:
• Trading long, swing low at $100 (SSL zone, strength 4)
• Bad: Stop at $99.50 (will get swept)
• Better: Stop at $98.50 (beyond the liquidity)
• Alternative: Stop at $100.50 (tighter, before sweep zone)

Strategy 4: Confluence Trading
Best For: High probability setups
Timeframes: 1H, 4H, Daily

Entry Setup:
1. Find liquidity zone that aligns with:
   • Major support/resistance level
   • Fibonacci retracement (0.618, 0.786)
   • Trendline
   • Round psychological number ($50,000, $2,000, etc)
2. Wait for sweep of this high-confluence zone
3. Enter on reversal with multiple confirmations
4. Larger position size justified by confluence

Why It Works: Multiple factors = institutional interest = higher probability

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⚙️ Settings Explained

Core Settings

Swing Detection Length (Default: 10)
• Number of bars left/right to identify swing highs and lows
• Lower values (5-8): More sensitive, more liquidity zones, more noise
• Higher values (12-20): Less sensitive, only major swings, cleaner chart
• Recommended: 8-10 for intraday, 10-15 for swing trading

Liquidity Lookback Bars (Default: 100)
• How many historical bars to track liquidity zones
• Lower values (50-75): Shows only recent liquidity
• Higher values (100-200): Shows longer-term liquidity clusters
• Zones older than this are automatically removed
• Recommended: 100-150 for most timeframes

Zone Proximity % (Default: 0.5)
• Percentage threshold to group nearby levels into single zone
• Lower values (0.2-0.4): Keeps levels separate, more zones
• Higher values (0.6-1.0): Aggressive clustering, fewer zones
• Recommended: 0.4-0.6 for crypto, 0.3-0.5 for forex, 0.5-0.8 for stocks

Visualization Settings

Show Buy-Side Liquidity
• Toggle ON/OFF red zones above price
• Turn OFF if only interested in downside liquidity

Show Sell-Side Liquidity
• Toggle ON/OFF green zones below price
• Turn OFF if only interested in upside liquidity

Show Liquidity Labels
• Toggle BSL/SSL labels with strength numbers
• Turn OFF for cleaner chart appearance
• Keep ON to see exact liquidity strength

Display Style
• Boxes: Filled rectangular zones (best for visualizing strength)
• Lines: Horizontal dashed lines (minimal, clean look)
• Both: Boxes + Lines (maximum visibility)

Color Intensity
• Low: 85% transparency (subtle, less distracting)
• Medium: 75% transparency (balanced visibility)
• High: 65% transparency (bold, maximum visibility)

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📱 Info Panel Guide

Located in the top-right corner, the info panel provides real-time liquidity statistics:

Buy-Side Zones
• Count of active BSL zones above current price
• Higher number = More upside targets for price

Sell-Side Zones
• Count of active SSL zones below current price
• Higher number = More downside targets for price

Total Zones
• Combined count of all active liquidity
• Useful for gauging overall market structure

Nearest BSL
• Distance in % to closest Buy-Side Liquidity above
• Example: +2.5% means BSL is 2.5% above current price
• Quick reference for next upside target

Nearest SSL
• Distance in % to closest Sell-Side Liquidity below
• Example: -1.8% means SSL is 1.8% below current price
• Quick reference for next downside target

Liquidity Bias
• ⬆️ [color=green]Bullish[/color]: More BSL than SSL (upside targets dominate)
• ⬇️ [color=red]Bearish[/color]: More SSL than BSL (downside targets dominate)
• ↔️ Balanced: Equal liquidity on both sides (range-bound)

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🎓 Understanding Liquidity Strength

What Do The Numbers Mean?

Strength 1: Single swing point
• Light liquidity, minor target
• Can be ignored in trending markets
• Useful in ranging/choppy conditions

Strength 2-3: Moderate liquidity cluster
• Multiple nearby swing points merged
• Decent target for intraday moves
• Watch for potential sweeps

Strength 4-5: Strong liquidity cluster
• Major cluster of stops
• High-probability target for institutions
• Expect reactions when swept

Strength 6+: Extreme liquidity pool
• Massive stop cluster (rare)
• Critical zone - high probability of sweep
• Often marks major support/resistance
• Ideal for confluence setups

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📱 Alert Setup

This indicator includes 2 powerful alert types:

1. Buy-Side Liquidity Sweep
• Triggers when price sweeps BSL zone above
• Shows potential bullish reversal opportunity
• Often precedes upward continuation after sweep

2. Sell-Side Liquidity Sweep
• Triggers when price sweeps SSL zone below
• Shows potential bearish reversal opportunity
• Often precedes downward continuation after sweep

To Set Up Alerts:
1. Click the "Alert" button (clock icon) in TradingView
2. Condition: Select "Liquidity Heatmap"
3. Choose alert type: BSL Sweep or SSL Sweep
4. Configure notification method (push, email, webhook)
5. Click "Create"

Pro Tip: Set alerts for both BSL and SSL sweeps to catch opportunities in both directions

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💎 Pro Tips & Best Practices

✅ DO:

• Wait for confirmation - Don't enter immediately on sweep, wait for reversal pattern
• Combine with trend - SSL sweeps in uptrends = higher probability longs
• Check multiple timeframes - 1H liquidity + 4H liquidity = strongest zones
• Monitor strength - Focus on zones with strength 3+
• Use proper risk management - Liquidity sweeps can go further than expected
• Watch for re-sweeps - Sometimes liquidity zones get swept multiple times
• Consider volume - High volume sweeps = stronger reversal potential

⚠️ DON'T:

• Don't fade strong trends - In strong trends, sweeps often continue rather than reverse
• Don't overtrade - Not every sweep is a tradeable setup
• Don't ignore context - Check broader market conditions and news
• Don't use alone - Combine with price action, support/resistance, and other analysis
• Don't place stops at liquidity - Your stops will be hunted
• Don't expect perfection - Some sweeps fail, some zones never get hit

🎯 Best Timeframes:
• Scalping: 5min, 15min (fast moves, frequent sweeps)
• Day Trading: 15min, 1H (balanced view)
• Swing Trading: 1H, 4H, Daily (major liquidity zones)
• Position Trading: 4H, Daily, Weekly (institutional liquidity)

🔥 Best Markets:
• Crypto (high volatility, frequent liquidity grabs)
• Forex (EUR/USD, GBP/USD - liquid pairs)
• Futures (ES, NQ, CL - high liquidity contracts)
• Stocks (large caps with high volume)

⏰ Best Times:
• Market opens (high volatility = liquidity hunting)
• Before/after major news events
• Session overlaps (London/NY for forex)
• First hour and last hour of trading

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🚀 What Makes This Different?

Unlike basic pivot indicators, the Liquidity Heatmap:

• Institutional Perspective - Shows where smart money hunts stops
• Dynamic Clustering - Automatically groups nearby levels for clarity
• Strength Tracking - Not just where, but HOW MUCH liquidity exists
• Auto-Cleanup - Removes swept and old liquidity automatically
• Visual Clarity - Instant understanding of market structure
• Actionable - Clear targets and reversal zones for trading
• Real-Time Updates - Adapts as market structure evolves

Based On Professional Concepts:
• Order flow analysis
• Market maker behavior
• Institutional trading techniques
• Liquidity engineering principles

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📈 Common Liquidity Patterns

Pattern 1: The Double Sweep
• Price sweeps SSL below, reverses up
• Price sweeps BSL above, reverses down
• Back to original range
• Trading: Fade the second sweep for mean reversion

Pattern 2: The Cascade
• Multiple SSL zones stacked below
• Price sweeps first zone, continues to next
• Chain reaction of stop losses triggering
• Trading: Ride the momentum to lowest zone

Pattern 3: The Fake-Out
• Price approaches liquidity but doesn't quite sweep
• Reverses before hitting the zone
• "Scared money" didn't wait for full sweep
• Trading: Wait for actual sweep, don't anticipate

Pattern 4: The Absorption
• Price sweeps major liquidity zone (strength 5+)
• No reversal, just consolidation
• Institutions absorbed all liquidity
• Trading: Wait for breakout direction, likely continuation

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This free indicator gives you institutional-level liquidity analysis. Want more?

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📝 Important Notes

• Liquidity analysis is one piece of the puzzle - use with other analysis methods
• Not all liquidity zones get swept - some remain untouched
• Market conditions change - adapt your strategy accordingly
• Always use proper position sizing and risk management
• Liquidity sweeps can be violent - use appropriate stop losses
• Practice on demo accounts before trading with real capital
• Past liquidity patterns don't guarantee future price action

Disclaimer: This indicator is for educational purposes. Trading involves risk. Always do your own research and never risk more than you can afford to lose.

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🙏 Support This Work

If you find this indicator valuable:
• ⭐ Give it a thumbs up
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• 🚀 Share with traders who need to understand liquidity

Got questions? Drop a comment and I'll help you master liquidity trading!

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Developed with ❤️ for traders who want to think like institutions

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Version History
• v1.0 - Initial release with dynamic liquidity detection and clustering