A displacement candle is a bar that moves price a long way in one direction with little wick: the market traded through that range so quickly that few orders were filled inside it. That thin stretch is often called a liquidity void, and traders watch for price to come back into part of it. This study finds those candles and marks the bar on which price returns into them.
A candle qualifies when it passes every filter that is switched on. The ATR filter asks for a high to low range larger than the average true range times the multiplier. The body filter asks for the body to cover at least Body % Above of the range. The optional body size filter also asks for a range at least the multiplier times the previous bar's range. A qualifying bearish candle is recoloured light red and a bullish one light green.
From the newest qualifying candle of each side the study measures a level at Fib Value of its range: down from the high of a bearish candle, up from the low of a bullish one. A short signal fires when the high crosses up through the bearish level after a bearish candle has armed it, and a long signal fires when the low crosses down through the bullish level. Each signal draws a line at the level from the candle to the signal bar, and the optional time and date filters limit which bars may signal.
How to read Liquidity Void Fill
A recoloured candle says a strong one-sided move has just happened and arms that side. A triangle above a bar is a short signal: price has rallied back into a bearish void, where sellers who drove the move may defend it. A triangle below a bar is a long signal: price has dipped back into a bullish void. The line shows the level that was reached and the candle it came from.
A signal only says price has returned to the level, not that it will turn there. Strong trends often run straight through a void, so traders usually look for a reaction at the level or combine it with structure before acting. A Fib Value nearer 0 puts the level nearer the start of the move, so price has to retrace further and signals come fewer and later; nearer 1 the level sits by the end of the move and is reached sooner.
Settings
- Long Signals
- Show the bullish side: the light green candles, the long triangles and their lines.
- Short Signals
- Show the bearish side: the light red candles, the short triangles and their lines.
- Fib Value
- How far into the candle the level sits, from 0 at the start of the move to 1 at its far end. 0.5 is the midpoint.
- Line Style
- Draw the fill lines solid, dashed or dotted.
- Apply ATR Filter
- Require a displacement candle's range to exceed the average true range times the multiplier.
- ATR Length
- Bars in the average true range used by the ATR filter. The filter blocks every candle until it has enough bars.
- ATR Multiplier
- How many average true ranges a candle must span. Higher values keep only larger candles.
- Apply Body % Filter
- Require a displacement candle's body to cover at least the set share of its range.
- Body % Above
- The smallest body as a percentage of the candle's range. At 80 the wicks together may be at most a fifth of it.
- Apply Body Size Filter
- Also require a full body and a range at least the multiplier times the previous candle's range.
- Body Size Multiplier (x)
- How many times the previous candle's range a displacement candle must reach when the body size filter is on.
- Apply Time Filter
- Allow signals only on bars that open inside the window below, read on the chart's clock.
- Time From (hour)
- The hour the signal window opens, on a 24 hour clock.
- Time From (minute)
- The minute the signal window opens.
- Time To (hour)
- The hour the signal window closes. A bar opening at the closing time is outside it.
- Time To (minute)
- The minute the signal window closes.
- Apply Date Filter
- Allow signals only on bars of the single date below, read on the chart's calendar.
- Day
- Day of the month for the date filter.
- Month
- Month, 1 to 12, for the date filter.
- Year
- Four digit year for the date filter.
Frequently asked questions
Why did a recoloured candle produce no signal?
A side fires once per arming. After a signal the side waits for a new displacement candle, and a candle that arrives while a side is already armed only moves the level to the newer candle. If price never returns to the level, there is no signal.
Do the time and date filters change which candles qualify?
No. They apply only to the retracement bar that signals. Displacement candles are found and recoloured on every bar.
Why are there no signals at the start of the chart?
With the ATR filter on, no candle can qualify until the average true range has enough bars, so the first signals appear after that warmup.
