SMC Statistical Liquidity Walls [PhenLabs]

📊 SMC Statistical Liquidity Walls [PhenLabs]
Version: PineScript™ v6

📌 Description
The SMC Statistical Liquidity Walls indicator is designed to visualize market volatility and potential reversal zones using advanced statistical modeling. Unlike traditional Bollinger Bands that use simple lines, this script utilizes an “Inverted Sigmoid” opacity function to create a “fog of war” effect. This visualizes the density of liquidity: the further price moves from the equilibrium (mean), the “harder” the liquidity wall becomes.

This tool solves the problem of over-trading in low-probability areas. By automatically mapping “Premium” (Resistance) and “Discount” (Support) zones based on Standard Deviation (SD), traders can instantly see when price is overextended. The result is a clean, intuitive overlay that helps you identify high-probability mean reversion setups without cluttering your chart with manual drawings.

🚀 Points of Innovation

• Inverted Sigmoid Logic: A custom mathematical function maps Standard Deviation to opacity, creating a realistic “wall” density effect rather than linear gradients.
  
• Dynamic “Solidity”: The indicator is transparent at the center (Equilibrium) and becomes visually solid at the edges, mimicking physical resistance.
  
• Separated Directional Bias: distinct Red (Premium) and Green (Discount) coding helps SMC traders instantly recognize expensive vs. cheap pricing.
  
• Smart “Safe” Deviation: Includes fallback logic to handle calculation errors if deviation hits zero, ensuring the indicator never crashes during data gaps.
  

🔧 Core Components

• Basis Calculation: Uses a Simple Moving Average (SMA) to determine the market’s equilibrium point.
  
• Standard Deviation Zones: Calculates 1SD, 2SD, and 3SD levels to define the statistical extremes of price action.
  
• Sigmoid Alpha Calculation: Converts the SD distance into a transparency value (0-100) to drive the visual gradient.
  

🔥 Key Features

• Automated Premium/Discount Zones: Red zones indicate overbought (Premium) areas; Green zones indicate oversold (Discount) areas.
  
• Customizable Density: Users can adjust the “Steepness” and “Midpoint” of the sigmoid curve to control how fast the walls become solid.
  
• Integrated Alerts: Built-in alert conditions trigger when price hits the “Solid” wall (2SD or higher), perfect for automated trading or notifications.
  
• Visual Clarity: The center of the chart remains clear (high transparency) to keep focus on price action where it matters most.
  

🎨 Visualization

• Equilibrium Line: A gray line representing the mean price.
  
• Gradient Fills: The space between bands fills with color that increases in opacity as it moves outward.
  
• Premium Wall: Upper zones fade from transparent red to solid red.
  
• Discount Wall: Lower zones fade from transparent green to solid green.
  

📖 Usage Guidelines

• Range Period: Default 20. Controls the lookback period for the SMA and Standard Deviation calculation.
  
• Source: Default Close. The price data used for calculations.
  
• Center Transparency: Default 100 (Clear). Controls how transparent the middle of the chart is.
  
• Edge Transparency: Default 45 (Solid). Controls the opacity of the outermost liquidity wall.
  
• Wall Steepness: Default 2.5. Adjusts how aggressively the gradient transitions from clear to solid.
  
• Wall Start Point: Default 1.5 SD. The deviation level where the gradient shift begins to accelerate.
  

✅ Best Use Cases

• Mean Reversion Trading: Enter trades when price hits the solid 2SD or 3SD wall and shows rejection wicks.
  
• Take Profit Targets: Use the Equilibrium (Gray Line) as a logical first target for reversal trades.
  
• Trend Filtering: Do not initiate new long positions when price is deep inside the Red (Premium) wall.
  

⚠️ Limitations

• Lagging Nature: As a statistical tool based on Moving Averages, the walls react to past price data and may lag during sudden volatility spikes.
  
• Trending Markets: In strong parabolic trends, price can “ride” the bands for extended periods; mean reversion should be used with caution in these conditions.
  

💡 What Makes This Unique

• Physics-Based Visualization: We treat liquidity as a physical barrier that gets denser the deeper you push, rather than just a static line on a chart.
  

🔬 How It Works

• Step 1: The script calculates the mean (SMA) and the Standard Deviation (SD) of the source price.
  
• Step 2: It defines three zones above and below the mean (1SD, 2SD, 3SD).
  
• Step 3: The custom `get_inverted_sigmoid` function calculates an Alpha (transparency) value based on the SD distance.
  
• Step 4: Plot fills are colored dynamically, creating a seamless gradient that hardens at the extremes to visualize the “Liquidity Wall.”
  

💡 Note
For best results, combine this indicator with Price Action confirmation (such as pin bars or engulfing candles) when price touches the solid walls.