Liquidation Heatmap

The Liquidation Heatmap component in the ILPAC indicator visualizes liquidity concentrations in the market, highlighting areas where significant buying or selling interest may accumulate. This component assists traders in identifying zones of potential support and resistance, based on historical liquidity patterns. The heatmap dynamically adjusts based on recent price action, providing real-time insights into the market’s liquidity distribution.

Key Features of the Liquidation Heatmap

• Customizable Look-Back Period: The look-back period setting allows traders to define the historical range used to detect liquidity zones. A longer look-back period identifies major liquidity pools, while a shorter period highlights recent, short-term liquidity, making it adaptable to various trading styles.

• High-Resolution Liquidity Gradient: With adjustable resolution, the Liquidation Heatmap displays liquidity levels as a color gradient. High-liquidity areas appear more prominently, while low-liquidity zones are displayed with reduced intensity. This helps traders quickly identify areas with higher market interest that may act as support or resistance.

• Dynamic Color Scaling: The heatmap uses a three-color gradient to represent liquidity intensity, from low to medium to high. This visual aid helps traders immediately distinguish between levels of buying and selling interest, enhancing their situational awareness in the market.

How to Use the Liquidation Heatmap Effectively

• Adjust Look-Back Period for Desired Liquidity Zones: Configure the look-back period based on your trading time frame. For intraday trading, a shorter look-back period highlights recent liquidity zones, while a longer period is ideal for swing trading, as it reveals major zones that may influence longer-term price action.

• Use Heatmap for Support and Resistance Identification: Look for areas on the heatmap where liquidity concentration is high. These zones often serve as support or resistance, where price may react or consolidate before continuing or reversing its trend.

• Combine with Market Structure for Contextual Analysis: By pairing the Liquidation Heatmap with the Market Structure component, traders gain an enhanced view of potential entry and exit points. Liquidity zones aligned with structural levels, such as a BOS or CHoCH, provide additional confidence in trend reversals or continuations.

Best Practices

• Target Liquidity Zones for Entries and Exits: Use liquidity zones as potential trade entry or exit points, as price often reacts to these levels. Aligning entries with high-liquidity areas enhances the likelihood of successful trades.

• Monitor Liquidity Shifts for Trend Confirmation: Changes in liquidity zones can signal a shift in market sentiment. For example, a newly developed high-liquidity zone above price may indicate strong resistance, while one below price can signal strong support.

Example Use Case

• Setup: Set a moderate resolution and look-back period to balance chart clarity and accuracy in liquidity zone representation.

• Execution: When price approaches a high-liquidity zone above, look for potential resistance and consider a short entry. Conversely, if price approaches a high-liquidity area below, it may indicate support, suitable for long entries.

The Liquidation Heatmap component provides a dynamic view of where liquidity is concentrated in the market, assisting traders in identifying potential support and resistance zones. When combined with other ILPAC components, such as Market Structure, the heatmap enables traders to make informed decisions by factoring in liquidity-driven price reactions.