Measuring Liquidity Void Refill with a Decaying Oscillator

Summary

The indicator defines a liquidity void as a bar whose range substantially exceeds its recent average while tick volume falls below its own recent average. Each detected zone begins with a score of 100. Later bars reduce that score in proportion to how much of the zone they overlap, so the reading represents the extent to which price has revisited the displaced area. The oscillator displays the strongest active zone, its directional position relative to price, and a smoothed signal line.

The proposed interpretation is that a quickly depleted score suggests the zone offered little resistance and may support continuation in the move’s direction. A score that remains elevated through repeated tests may mark an area for rejection or reversion. The document recommends waiting for a retest and gives example parameter settings and an EURUSD intraday illustration, but reports no systematic backtest or measured predictive performance. The method depends on range and tick-volume comparisons, which the author cautions may be misleading in illiquid or heavily gapped markets. Its trading interpretations therefore require independent validation.

Key ideas

• A void is registered when an unusually wide bar coincides with unusually low tick volume.
• The score starts at 100 and declines as later bars trade back through the zone.
• Fast decay is interpreted as weak resistance, while persistent scores may indicate a defended level.
• The signal line tracks a smoothed version of the decay score.
• The author advises waiting for a retest and cautions against use on illiquid or heavily gapped instruments.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.