The Liquidity Price Depth Chart is a specialized financial indicator that provides a visual representation of liquidity levels at specific price points within a chart's visible range.
Understanding the Liquidity Price Depth Chart
Inspired by traditional order book depth charts, which show pending buy and sell orders at different prices, the Liquidity Price Depth Chart focuses specifically on highlighting sorted prices derived from the bullish and bearish candles currently visible on the chart.
According to a definition from November 14, 2023, the Liquidity Price Depth Chart is a "unique indicator inspired by the visual representation of order book depth charts, highlighting sorted prices from bullish and bearish candles located on the chart's visible range, as well as their degree of liquidity."
Key Features
This indicator aims to show where significant "liquidity" resides based on past price action displayed by the candles on the chart. Instead of just showing potential future orders (like a standard order book), it processes historical price data from candles to identify areas where notable price movements occurred, often implying liquidity was present around those levels.
- Inspiration: Draws concepts from traditional order book depth charts.
- Data Source: Utilizes prices from visible bullish and bearish candles on the chart.
- Focus: Highlights sorted prices and their associated "degree of liquidity".
- Purpose: Provides a visual insight into historical price levels where liquidity may have been significant.
How it Differs from Order Book Depth
While inspired by order book depth, a Liquidity Price Depth Chart typically processes completed price movements (from candles) rather than pending orders. This gives traders a perspective on where price reacted strongly in the past, suggesting areas where liquidity was absorbed or injected into the market.
| Feature | Liquidity Price Depth Chart | Order Book Depth Chart |
|---|---|---|
| Data Type | Prices from historical candles (visible range) | Pending buy and sell orders |
| Focus | Historical liquidity inferred from price action | Current supply and demand (pending) |
| Representation | Shows liquidity level at sorted candle prices | Shows volume of orders at prices |
| Market View | Based on past activity | Based on potential future activity |
By visualizing these sorted prices and their corresponding liquidity levels, traders can potentially identify historical support and resistance zones or areas where price might react again due to past liquidity dynamics.
