Indicator Overview
This indicator transforms raw price and volatility data into a dynamic heatmap that displays where liquidity is most likely to exist. It divides price into evenly spaced buckets above and below the current price, colouring each based on statistical distribution and recent activity. The result is a layered view of market density that reveals where traders may be trapped or where major orders might rest.
Background & History
The idea of liquidity heatmaps comes from order-book visualisation used in professional trading systems. These maps expose where bids and offers cluster and where prices may gravitate during liquidations. Retail traders rarely have access to such depth data, but algorithmic visualisation like this recreates it statistically. It combines modern volatility-based analysis with traditional support-and-resistance mapping to highlight liquidity traps, stop zones, and imbalance regions.
How the Indicator Works
The Liquidation Heatmap divides price space into a series of buckets centred on the current price. It then applies a user-selected distribution model to calculate the relative intensity for each bucket.
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The Gaussian model weights areas closer to the current price more strongly, creating a bell-curve pattern.
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The Uniform model assigns equal weight to all buckets.
The width of each bucket is dynamically determined using ATR-based volatility, ensuring the heatmap adapts to current market conditions. The colour of each rectangle is interpolated between the user’s minimum and maximum colour settings, while opacity defines its visual strength. An optional lookback window limits the heatmap's extent, and value labels can be displayed for precise reference.
Key Features
The indicator combines statistical modelling and dynamic visuals to make liquidity analysis accessible.
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Adjustable lookback period from 12 hours to 1 month.
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Gaussian or Uniform distribution models for realistic liquidity spread.
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Dynamic bucket sizing using ATR volatility scaling.
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Customisable colour gradient and opacity.
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Optional numeric value labels.
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Automatic cleanup of outdated heatmap objects.
How to Use it for Trading
Traders use the Liquidation Heatmap to identify zones where liquidity clusters may lead to stop runs or reversals. Bright or intense areas often mark regions of high trading interest, while dull areas signal low participation.
- A high-intensity zone below price can indicate possible long liquidations or stop pools, suggesting support.
- A bright zone above price can show potential short liquidations or supply concentration, hinting at resistance.
Swing traders can combine these areas with moving averages or order-flow tools to confirm bias. Beginners can start by monitoring how the price reacts when it enters bright zones and observing whether reversals or breakouts follow.
Complimentary Indicators
This tool works best when combined with volume and momentum analysis for context.
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Volume Profile or VWAP: To confirm if highlighted zones align with high-volume nodes.
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ATR: To gauge volatility and adjust position sizing near hot zones.
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RSI or MACD: To confirm momentum during reactions inside liquidity clusters.
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Smart Money Concepts indicators: To visualise liquidity sweeps or stop runs relative to the heatmap.
Inputs & Parameters
The Liquidation Heatmap provides flexible controls for display, logic, and colour styling.
| Parameter |
Default/Type |
Description |
| Show Heatmap |
True (bool) |
Toggles the heatmap display on the chart. |
| Show Value Labels |
True (bool) |
Displays the numerical intensity value for each price bucket. |
| Distribution Model |
Gaussian (enum) |
Selects how intensity decreases with distance from the current price. |
| Lookback |
Days 3 (enum) |
Defines how far back in time the heatmap extends. |
| Buckets Each Side |
7 (int) |
Number of price buckets drawn above and below the current price. |
| Heatmap Opacity (%) |
50 (int) |
Controls the transparency of the heatmap rectangles. |
| Heatmap Min Color |
Green (Color) |
Sets the base colour for low-intensity areas. |
| Heatmap Max Color |
Red (Color) |
Sets the top-intensity colour for high-liquidity zones. |
Formula
The heatmap’s intensity values are derived from a distribution model applied across price buckets, scaled by ATR-based volatility.
BucketSize = ATR(14) × Symbol.PipSize
Intensityb = { exp(−(Distanceb² / 20)), if Distribution = Gaussian
1, if Distribution = Uniform }
Colorb = Interpolate(HeatmapMinColor, HeatmapMaxColor, Intensityb)
Opacity = HeatmapOpacityPercent × 255 ⁄ 100
Advantages
The Liquidation Heatmap gives traders a visual advantage by revealing hidden liquidity zones that often act as magnets for price. It dynamically adjusts to volatility, providing a live picture of where market participants may be clustered. The use of Gaussian or Uniform distribution models offers flexibility for different trading styles, and the colour gradient makes it intuitive even for beginners.
Disadvantages
Because it is based on probabilistic modelling rather than direct order-book data, the heatmap provides inferred liquidity, not guaranteed levels. Rapid volatility changes may temporarily distort the visual map. As with all analytical tools, it should be combined with volume and price-action confirmation rather than used in isolation.
How To Install & Remove
First, ensure the cTrader trading platform is installed. Then unzip the file and double-click it to install the platform automatically.
Need Extra Help?
Get instant answers with cTrader Sensei — our free AI assistant built for the cTrader platform. It can explain the indicator settings, suggest trading strategies, and guide you step-by-step in using this indicator. Rated 4.9 out of 5 in the ChatGPT Store.
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