Liquidity Status

Key Points

• The Liquidity Status (LS) indicator is designed to directly monitor liquidity conditions and determine if they are Bullish or Bearish.
  
• If conditions are bullish, the candle is painted green (or whichever color is chosen by you to represent bullish liquidity) and the expected price action is up.
  
• If conditions are bearish, the candle is painted red (or whichever color is chosen by you to represent bearish liquidity) and the expected price action is down.
  
• LS allows you to monitor for when traders are absorbing or supplying liquidity and in which direction the liquidity is flowing.
  
• LS works on equities, cryptocurrencies, forex, options data, and futures.
  

Summary
The Liquidity Status (LS) indicator measures liquidity directly without relying on bid/ask spreads, order-book information, or any other traditional means. The benefit of this non-traditional approach is a novel and unique way to interpret and analyze liquidity in the market.

LS is designed to be as straightforward as possible: when conditions are bullish then the outlook is bullish and the candles are painted the bullish color (default: green), and when conditions are bearish then the outlook is bearish and the candles are painted the bearish color (default: red).

This means the candles are not colored based on their price movements but rather based on their liquidity status.

Additionally, LS indicates Liquidity Flow (LF) as well. LF indicates where the source of liquidity is or is moving towards: either towards the Ask (if the Bid is requiring liquidity then the liquidity source becomes the Ask), or towards the Bid (if the Ask is requiring liquidity then the liquidity source becomes the Bid). This can be helpful in early identification of trend changes.

The default settings are designed to be streamlined but the Settings section below outlines how to add additional information and detail to your charts if desired.

Examples

An example of LS on default setting:


With Full and Declarative reporting:


ES Futures:


Details
In the default settings, LS indicates if conditions are:

• Bullish : meaning that current liquidity is bullish and so too are outlooks, or
  
• Bearish: meaning that current liquidity is bearish and so too are outlooks.
  

There are additional data that are provided via LS, if toggled on (as described below). They include:

• Aggressive Bid / Ask : This indicates that there is an aggressive trader present. Aggressive traders are large liquidity absorbers and are defined as having a sense of urgency in their trading that will cause them to go where-ever (whichever price) they can in order to transact. A classic Aggressive Bid, for instance, is a short-seller currently being squeezed.
  
• Eager Bid / Ask : This indicates that there is an eager trader present. Eager traders are defined by their willingness to “cross the isle” in order to transact. For example, an eager bid will move to the ask in order to transact whereas an organic bid would not.
  
• Organic Bid / Ask : This indicates that transactions are occurring at the organic traders. Organic traders are defined as having a large time-horizon and are value-seekers. For instance, an organic ask will likely move price up in order to sell high (the second part of buy low, sell high).
  

Additionally, LS indicates LF by specifying which party has the demand for liquidity and which has the supply for liquidity.

• Flow to Ask : This indicates that the demand to transact is flowing to the ask (i.e.: the bid needs to transact more than the ask) and thus the ask is becoming the liquidity supplier.
  
• Flow to Bid : This indicates that the demand to transact is flowing to the bid (i.e.: the ask needs to transact more than the bid) and thus the bid is becoming the liquidity supplier.
  
• Neutral : No discernable difference in liquidity demand.
  

In combination, these signals can produce powerful measurements of underlying liquidity activity. For instance:

If LS indicates “At Organic Ask” and LF indicates “Flow to Ask” then this means that (1) transactions are predominantly occurring at or near the organic ask and (2) the organic ask is the dominate liquidity supplier. The consequence is likely substantial price appreciation (remember: the organic ask wants to sell high and now they are setting the terms and conditions of transacting!).

Example - How it started: transactions started to occur at the Organic Ask with Flow to Ask:

Example - How it ended:


Conversely, “At Organic Bid” and “Flow to Bid” indicates that transactions are predominantly occurring at or near the organic bid (who wants to buy low) and they the ones fulfilling the demand to transact coming from the ask. The expected outlook? Price depreciation as the organic bid lowers their orders to average down!

Example - How it started: transactions started to occur at Organic Bid with Flow to Bid:

Example - How it ended:


Lastly, LS (in combination with Liquidity Triggers) can identify moments of high-risk for bull and bear traps (see FAQ for details on how traps are found).

Example: Bear-Trap (with LT displayed)


Example: Bull-Trap (with LT displayed)


Customization
LS has many customization options available.

Sensitivity Mode
LS comes in a variety of sensitivities (for the nerds: adjusting the Sensitivity vs. Specificity), outlined below:

• Aggressive : The Aggressive sensitivity mode puts LS in a state of hyper-awareness for anything that might indicate a change in overall liquidity status (i.e.: Bullish to Bearish or Bearish to Bullish) is underway. The benefit of the Aggressive mode is that it does not take much for LS to change its mind about current conditions. The trade-off, however, is increase in false alarms.
  
• Balance [Default] : The balanced setting works to balance specificity (how right LS is) with sensitivity (how much chang it takes to convince LS to change its mind).
  
• Conservative : The conservative setting is prone to change slower than both Aggressive and Balance but is intended to be more “certain” of the changes when they are indicated. This can lower the sensitivity (early entrances to trend-changes might be delayed slightly) in exchange for greater confidence in the future.
  
• Diamond : This is the most specific and least sensitive option. Designed for when you only want LS to indicate a change with the strictest of criteria met.
  

Examples:
Aggressive LS:

Balanced LS:

Conservative LS:

Diamond LS:


LS Detail Amount
Controls how much detail and information you want displayed.

• Simplified [Default] : Keeps messaging straightforward: Bearish or Bullish.
  
• Full : Parsing the data for greater detail about if conditions are Strong or Weak. Produces [Strong Bearish, Bearish, Weak Bearish, Weak Bullish, Bullish, Strong Bullish] candles and text output.
  

LS Reporting Style

• Interpretive [Default] : Text output from LS is kept as either Bullish or Bearish.
  
• Declarative : Additional information regarding if the transactions are being performed by an Aggressive, Eager or Organic trader.
  

LS Candle Replacement [Default: On]
In order to have LS produce candles colored by liquidity, the `LS Candle Replacement` option must be selected, along with deselecting the charts candle-making by going to Settings -> Symbol and de-selecting `Body`, `Border`, and `Wick`.

Otherwise, LS’ colors will be over-ridden by the chart.

Alerts
LS comes with several alerts to help keep track of changing liquidity conditions in the market. They include:

• Is Bullish / Bearish : fires at the start of the candle if conditions are bullish/bearish.
  
• Has Become Bullish / Bearish : Fires at the end of the candle if conditions have swapped (as compared to the previous candle).
  
• Flow is to Ask / Bid : Fires at the start of the candle to indicate which direction liquidity is flowing via LF.
  
• Flow Switch to Bid / Ask : Fires if there is a change in the LF from one to the other.
  
• Suspected Bear Trap : Fires if a bear trap is detected.
  
• Suspected Bear Trap Ended : Fires if an on-going bear-trap has ended.
  
• Suspected Bull Trap : Fires if a bull trap is detected.
  
• Suspected Bull Trap Ended : Fires if an on-going bull-trap has ended.
  

Frequently Asked Questions

How can I get access to LS?

Please see the Author’s Instructions for more information.

Where can I get more information on LS?

Please see the Author’s Instructions for more information.

I tried to add LS to my chart but nothing is showing.

That’s no good! Be sure that the indicator hasn’t errored out (if there is a small red dot next to its name then it has errored out). If it has, then try re-applying the indicator to your chart.
If there is no error indicated, and you still do not see anything it may be likely that the requested symbol either:

• Doesn’t have sufficient data to calculate LS on, or
  
• Lacks the data for LS to be calculated completed.
  

To check, try using LS on a smaller interval. If LS starts to populate, it is likely that the needed data is present but just not enough for the timeframe you were interested in. If there is no LS even when moving to lower intervals, then it may be that the specified underlying lacks the required data.

How come LS is saying things are Bearish but price is going up?

Sometimes that can happen! But until LS indicates bullish liquidity, the expectation is that price will fall back down.

How come LS is saying things are Bullish but price is going down?

Sometimes that can happen! But until LS indicates bearish liquidity, the expectation is that price will recover and continue moving on upwards.

How do you locate Bear and Bull traps?

LS has LT (Liquidity Triggers) baked into it for alerts and uses LT to compare expected conditions with real conditions. If LS and LT are mismatched then a trap is detected. The LT conditions checked are:

• If LT is in a bull-stack : that means LT(144) > LT(377) > LT(610), or
  
• If LT is in a bear-stack : that means LT(610) < LT(377) < LT(144)
  

Then once the stack is determined, if LS disagrees:

• LS is indicating Bullish while LT is in a bear-stack, or
  
• LS is indicating Bearish while LT is in a bull-stack
  

Then the alert is triggered (based off of LT’s orientation). This means:

• If conditions are Bullish but LT is showing a Bearish stack, then a Bull Trap is detected, and
  
• If conditions are Bearish but LT is showing a Bullish Stack, then a Bear Trap is detected.
  

I have questions and maybe a bug!

Please reach out and report! Please refer to the Author’s Instructions for more information on how to reach out.

Does LS get updates?

Yup! Improvements come relatively frequently and if you have any suggestions for improvements, please don’t hesitate to reach out.