Liquidity Absorption Oscillator

Description:

The Liquidity Absorption Oscillator (LAO) is a sophisticated momentum indicator that measures how efficiently price moves relative to trading range while confirming momentum with volume-based liquidity flows. By combining price efficiency analysis with volume velocity, the LAO provides earlier and more reliable signals than traditional price-only oscillators, helping traders identify high-probability trend initiations and reversals.

🔍 Core Technology & Innovation:

Tri-Component Signal Processing:

Price Efficiency Ratio (PER): Measures how "cleanly" price moves by comparing net displacement to total trading range over the lookback period. High PER indicates trending markets with directional conviction.

Volume Velocity Ratio (VVR): Combines price momentum with volume confirmation, normalized by ATR to ensure consistent behavior across different instruments and volatility regimes.

Adaptive Smoothing: Dynamically adjusts responsiveness based on market conditions - becoming more stable during noisy periods and more responsive in clean trends.

Multi-Layer Signal Detection:

Confirmed Crossovers: Traditional zero-line crosses filtered by efficiency thresholds

Early Momentum Signals: Detects momentum shifts BEFORE zero-line crosses for optimal entry timing

Smart Divergence Detection: Identifies hidden bullish/bearish divergences with built-in quality filters

🎯 Trading Signals & Interpretation:

🟢 BULLISH SIGNALS:

Strong Buy: LAO crosses above zero line with medium/high efficiency (PER)

Early Buy: Momentum accelerates while LAO is still negative (anticipates reversal)

Divergence Buy: Price makes lower low while LAO forms higher low

🔴 BEARISH SIGNALS:

Strong Sell: LAO crosses below zero line with medium/high efficiency

Early Sell: Momentum decelerates while LAO is still positive (anticipates top)

Divergence Sell: Price makes higher high while LAO forms lower high

⚪ SIGNAL QUALITY FILTERING:

Automatic signal suppression during low-efficiency (choppy) market conditions

Configurable PER threshold ensures only high-quality signals are considered

📊 Visual Features:

Clean Oscillator Display: Smooth line plot with gradient fills above/below zero line

Multiple Coloring Options: Choose between no coloring, trend-based, or slope-based bar coloring

Professional Styling: Inspired by institutional-grade indicator design with subtle visual cues

Non-Repainting Logic: All signals confirmed on bar close for reliable backtesting

⚙️ Input Parameters:

Core Settings:

Lookback Period: Base period for efficiency and velocity calculations (default: 24)

Base Smooth Period: Starting point for adaptive smoothing (default: 8)

Min Efficiency for Signals: PER threshold for signal validation (default: 35)

Divergence Lookback: Bars to search for divergence patterns (default: 5)

UI Options:

Bar Coloring: Choose visual style (None, Trend, Slope)

🔔 Alert Conditions:

Buy/Sell Signal: Traditional zero-line crosses with quality filtering

Early Buy/Early Sell: Momentum-based signals before traditional crosses

All alerts use confirmed, non-repainting logic