Synthetic Liquidity Heatmap

SYNTHETIC LIQUIDITY HEATMAP (SLH) v1.0

---

DESCRIPTION

The Synthetic Liquidity Heatmap (SLH) is an advanced statistical order book estimation tool that generates a visual representation of probable liquidity zones without requiring direct access to Level 2 market data. By analyzing price action, volume dynamics, and market microstructure patterns, SLH constructs a synthetic approximation of where institutional orders are likely concentrated.

---

KEY INNOVATIONS

1. CHL SPREAD MODEL (Close-High-Low)
Implements a logarithmic spread estimation model based on the relationship between close price and the high-low midrange. This microstructure approach captures the implicit bid-ask spread behavior embedded in OHLC data, providing insight into market maker activity and order flow imbalances.

2. VSA INTEGRATION (Volume Spread Analysis)
Optional Volume Spread Analysis mode weighs liquidity calculations by the product of volume and candle range. This identifies bars with significant effort (volume) relative to result (price movement), highlighting potential accumulation and distribution zones.

3. DYNAMIC LEVEL SPACING
Liquidity levels are spaced using ATR-based calculations, automatically adapting to current market volatility. This ensures relevant level placement across different instruments and timeframes without manual adjustment.

4. ACCUMULATIVE LIQUIDITY TRACKING
When price revisits the same level multiple times, contracts accumulate rather than creating duplicate zones. This mimics real order book behavior where resting orders stack at key price levels.

5. REAL-TIME HIT DETECTION
The system monitors when price reaches liquidity levels, terminating filled zones and maintaining only active resting liquidity. This provides a dynamic, evolving view of the synthetic order book.

---

MATHEMATICAL FOUNDATION

The CHL Spread Model is defined as:

CHL = √(4 × (ln(C) - M) × (ln(C) - M[1]))

Where:
- C is the closing price
- M = (ln(H) + ln(L)) / 2 is the log midrange
- M[1] is the previous bar's log midrange

The State Factor adjusts liquidity intensity:

State Factor = max(0.2, 1.0 - (Z_spread × 0.15))

Where Z_spread is the z-score of the current spread relative to its moving average.

Liquidity distribution follows close position analysis:

Bid Strength = is_bullish ? (1 - close_position) × 0.7 + 0.3 : close_position × 0.7 + 0.3
Ask Strength = is_bullish ? close_position × 0.7 + 0.3 : (1 - close_position) × 0.7 + 0.3

---

APPLICATIONS

- Identify probable support and resistance zones based on synthetic order flow
- Visualize where institutional liquidity may be resting
- Anticipate potential reversal or breakout zones
- Complement existing Level 2 data with statistical estimation
- Analyze liquidity dynamics on instruments without accessible order book data

---

VISUAL REPRESENTATION

The heatmap displays:
- Green zones (Bids): Probable buy-side liquidity below current price
- Orange zones (Asks): Probable sell-side liquidity above current price
- Color intensity: Proportional to estimated contract concentration
- Level termination: Zones disappear when price "fills" the liquidity

---

AUTHOR

Name: Hector Octavio Piccone Pacheco
Indicator: Synthetic Liquidity Heatmap (SLH)
Version: 1.0
Date: 2025

Original Contributions:
- CHL-based spread estimation for liquidity inference
- Accumulative synthetic order book model
- ATR-adaptive level spacing system
- Real-time liquidity hit detection engine
- VSA-weighted liquidity distribution

---

DISCLAIMER

Trading involves substantial risk of loss. This indicator provides statistical estimations only and does not represent actual market depth or order book data. Past performance does not guarantee future results. Always conduct your own analysis and risk assessment.

---

ACCESS TO SRC

To request access to the SRC indicator, please contact me through:

Discord: octa_0001