Liquidity Trading Profile

The "Liquidity Trading Profile" indicator can be likened to a thermometer measuring Bitcoin's "fever". Let's understand each of the four components displayed on the chart:

Open Interest

This is like a count of how many "people" are at a party. It doesn't tell whether the party is good or not, but how many people are committed to the party - that is, how many derivative contracts are active in the market.

Open Interest Delta

Imagine this as an indicator of who is arriving or leaving the party. If more people are arriving, the delta is positive; if more are leaving, it's negative. This helps us understand whether the activity is increasing or decreasing.

Net Delta Position

Think of this as the "vibe" of the party. It shows whether the overall energy is positive (more people are buying) or negative (more people are selling). This gives us an idea of the overall market confidence.

Volume (Buy vs Sell)

Here we have the dance floor, where you see who's actually dancing. The buy volume (in red) and sell volume (in blue) show the real action, who is buying and who is selling, and with what intensity.

Total Volume and Trades on the right side are like the music playing at the party. They tell us how loud and with what rhythm the trades are happening.

How to read gaps and low activity areas?

Imagine a market as a large supermarket with various aisles, each representing a price level. The products on the shelves are the buy or sell orders. Gaps are like aisles that are temporarily forgotten by buyers and sellers - the shelves are almost empty.

Identifying Gaps

Look at the chart and see where there are fewer bars (or no bars). These are the low activity areas, where few transactions have occurred.

Evaluating Gaps in Context

Gaps may arise after rapid and significant price movements, when the price "jumps" certain levels without much trading. They can be seen as areas without strong support or resistance.

Observing Price Behavior Near Gaps

Often, the price may move back to these gap areas, as if it were "filling" the empty space. This happens because efficient markets tend to test all price levels to find where buyers and sellers are.

Using Gaps as References

Gaps can act as reference points for where the price may potentially move. They can indicate levels where the price may find new interest - whether to continue the current trend or to reverse.

Combine with Other Indicators

Don't rely solely on gaps. Use them in conjunction with other technical indicators and fundamental analysis to make informed decisions.

Remember, in the cryptocurrency market, with high volatility, gaps can be filled quickly, but not always. Therefore, use this technique as a tool, not a guarantee. By observing these low activity areas and how the price reacts to them, you can gain insights into the possible market direction and where support and resistance levels may emerge.

Understanding this indicator is like learning to read the room at a party. It doesn't tell you exactly what will happen, but it gives important clues about the overall mood. And just like at a party, traders use this information to decide whether they want to join the dance, stand aside, or leave it.