Liquidity-Based Support Resistance is a structural analysis framework designed to quantify swing point behavior at psychological price levels, transforming subjective level-drawing into measurable zone characteristics.

The Problem of Arbitrary Level Drawing

In practice, support and resistance analysis often becomes an exercise in visual pattern matching. Traders draw horizontal lines at prices that appear significant—previous highs, lows, or round numbers—without objective criteria for why one level matters more than another. This creates two analytical weaknesses: first, the absence of quantitative basis for level significance; second, the inability to measure how market behavior actually changes at these levels over time.

The underlying issue is methodological. Support and resistance are not static lines but dynamic zones where buying and selling pressure concentrates. A level's significance derives not from its visual prominence on a chart but from the measurable activity that occurs there—how often price reverses, with what depth, absorbing how much volume, and whether that pattern indicates accumulation, distribution, or exhaustion.

Core Principle: Quantified Zone Analysis

The framework operates on a structural premise: round psychological numbers act as natural price anchors. Orders cluster at these levels not because the numbers are mathematically significant, but because human decision-making gravitates toward cognitive simplicity. The 1.10000 level attracts more attention than 1.09847 for purely psychological reasons.

Rather than simply marking these levels, the framework measures what actually happens there:

Swing Distribution — How many swing highs versus swing lows form within each zone? A level with predominantly swing highs represents supply concentration; predominantly swing lows indicates demand.

Activity Metrics — What is the cumulative depth, volume, and duration of swings at each level? High activity suggests genuine interest; low activity indicates noise.

Efficiency Analysis — How much price movement occurs per unit of volume? High efficiency (large moves on low volume) suggests clean directional commitment. Low efficiency (small moves on high volume) indicates absorption or exhaustion.

Absorption Measurement — How much volume is required to move price one pip? High absorption at a level suggests large resting orders being filled—potential accumulation or distribution.

Conviction Assessment — How quickly does price move away from the level? High conviction (rapid displacement) indicates strong directional interest. Low conviction suggests indecision or balance.

Swing Detection Methodology

The framework identifies swing points using regression methodology, creating smoothed price channels that define trend state. Swing confirmation occurs through three hierarchical modes:

• Major: State transitions confirmed by closes beyond smoothed extremes
• Standard: State transitions marked before full confirmation
• Minor: Inner swings detected within ongoing directional states

This hierarchy allows analysis at different structural granularities while maintaining methodological consistency. Multi-timeframe mode projects higher-timeframe swings onto the current chart, enabling observation of macro-structural behavior at micro-level price zones.

What This Enables

The quantified approach transforms support and resistance from line-drawing to structural measurement:

Bias Identification — Zone-level swing distribution reveals whether a level functions as supply, demand, or remains contested. A 3:1 ratio of swing highs to swing lows indicates supply concentration.

Exhaustion Detection — When absorption increases while efficiency decreases, the level is absorbing volume without producing proportional price movement. This divergence often precedes structural shifts as resting liquidity depletes.

Strength Assessment — Levels with high total activity, balanced swing distribution, and moderate absorption represent genuine contested zones. Levels with sparse activity may appear significant visually but lack structural substance.

Context Preservation — The interpretation engine synthesizes metrics into structural context based on quantified characteristics rather than pattern recognition.

Visualization Modes

Price Zones — Each round level expands into a zone (±49.9% of multiplier), reflecting that orders spread across ranges rather than concentrating at exact prices.

Heatmap Overlay — Visual gradient encoding of any metric (swing count, depth, volume, efficiency, absorption, conviction) across all visible levels, immediately highlighting where activity concentrates.

Label Hierarchy — Progressive detail from simple price display through full efficiency metrics with comparative ratios, allowing complexity scaling to analytical need.

Who It's For

This framework serves traders who understand that support and resistance are not lines but behavioral zones—areas where measurable market activity concentrates and where the character of that activity reveals underlying intent.

It suits those who recognize that a level's significance cannot be assessed visually but must be quantified: how many reversals, absorbing how much volume, producing what efficiency of movement. These traders think in terms of liquidity distribution rather than price levels, accumulation and distribution rather than support and resistance, and exhaustion characteristics rather than breakout patterns.

This is not a signal system. It provides no entries, exits, or directional bias. It is a measurement framework that quantifies what occurs at structurally significant prices, enabling informed interpretation rather than reactive decision-making.

UNDERSTANDING SUPPORT AND RESISTANCE AS BEHAVIORAL ZONES

Support and resistance are often taught as price levels where markets "bounce" or "reject"—as if these lines possess causal power over price movement. This interpretation confuses description with explanation.

What actually occurs at significant price levels is behavioral concentration. When many participants place orders at similar prices, their collective activity creates measurable effects: increased volume, price deceleration, directional reversals, or absorption of opposing flow. The level itself does not cause these effects—the clustered behavior does.

This distinction matters analytically. A line drawn at a previous high is not inherently supportive or resistive. Its significance depends entirely on whether behavioral concentration actually occurs there. Some visually prominent levels see price slice through without reaction; others attract repeated reversals across extended timeframes. The difference lies not in the level's visual prominence but in the measurable activity it attracts.

Understanding support and resistance as behavioral zones rather than price lines shifts analysis from prediction to observation. The question becomes not "will this level hold?" but "what behavior is occurring at this level, and what does that behavior indicate about underlying supply and demand dynamics?" This reframing transforms support and resistance from a guessing game into a measurement practice—less about anticipating bounces, more about reading structural context.

Note: This indicator analyzes historical swing behavior at psychological price levels. It is a structural measurement framework, not a predictive signal system.