Liquidity Point Lines

Liquidity Point Lines
The "Liquidity Point Lines" indicator helps traders identify potential areas of liquidity in the market by drawing lines at specific price levels where significant "liquidation events" may have occurred. These events are determined by analyzing the MACD Histogram and identifying pivot points that suggest strong movements, which are often associated with the flushing out of short or long positions.

How It Works
This indicator leverages the MACD Histogram to gauge the strength of price momentum. It then identifies pivot highs and lows within the MACD Histogram's values. When a significant pivot is detected, the indicator interprets this as a potential "liquidity point" — a price level where a substantial amount of buy or sell orders (often due to liquidations) may have been executed.

The indicator distinguishes between:

Shorts Liquidation Points (Resistance): These are identified when the MACD Histogram registers a pivot high, suggesting a strong upward movement that could have liquidated short positions. Lines are drawn at the high price of the bar where this pivot occurred.

Longs Liquidation Points (Support): Conversely, these are identified when the MACD Histogram registers a pivot low, indicating a strong downward movement that might have liquidated long positions. Lines are drawn at the low price of the bar where this pivot occurred.

Key Features and Settings
The "Liquidity Point Lines" indicator offers extensive customization to tailor its sensitivity and visual representation:

MACD Settings for Liquidity: Configure the underlying MACD calculation with adjustable Fast Length, Slow Length, Source, Signal Smoothing, and MA Types (SMA/EMA) for both the Oscillator and Signal Line.

Liquidity Points Settings:

Pivot Lookback Left/Right: Define the number of bars to look back on either side to identify a pivot in the MACD Histogram.

Dynamic Strength Thresholds: This powerful feature allows the indicator to dynamically calculate the significance of a liquidation event. When enabled, it uses the average absolute histogram value over a specified Dynamic Threshold Lookback Period and applies Small and Medium Threshold Factors to determine the strength (Small, Medium, or Large) of the liquidity point.

Fixed Strength Thresholds: If dynamic thresholds are disabled, you can set fixed numerical values for Small and Medium Histogram Thresholds to define the strength categories.

Color & Style Customization: Assign distinct colors for Small, Medium, and Large liquidation points, choose the Line Style (Solid, Dashed, Dotted), and set the Label Text Color.

Label X Offset (To Right): Adjust the horizontal position of the liquidity point labels on your chart.

Liquidity Points Management:

Max Active Liquidity Lines: Control the maximum number of liquidity lines displayed simultaneously on your chart. Older lines are automatically removed to maintain clarity, except for lines that have been "touched" (i.e., price has interacted with that liquidity level).

Visual Interpretation
Each liquidity line is colored according to the strength of the detected liquidation event, making it easy to visually assess the potential significance of the price level. Lines extend to the right, serving as ongoing reference points. When the price interacts with a liquidity line (i.e., "touches" it), the line and its corresponding label are removed, indicating that the liquidity at that level may have been absorbed.

This indicator can be a valuable tool for identifying potential support and resistance levels, understanding market reactions to "liquidation cascades," and informing your trading decisions.