How to read a liquidity heatmap for the first time

A liquidity heatmap is a chart of the order book over time. It shows where buyers and sellers were waiting with limit orders and how long those orders stayed. A candlestick chart does not show either. This note walks through a first session on a heatmap, using Liquivue for the example and an invented morning in the E-mini S&P 500 future.

The three things on the screen

The vertical axis is price. In the example the screen runs from 4,970.00 at the bottom to 4,995.00 at the top, which is 100 ticks of 0.25.

The horizontal axis is time. The right edge is now, and everything to the left is history. A ten-minute window is a sensible starting width.

The colour of each cell is displayed size. A limit order is an instruction to buy or sell at a set price, and the exchange shows it in the order book until it fills or is cancelled. Liquivue colours each price level by how much size is resting there. Dark cells mean little size. Bright cells mean a lot.

Liquivue draws the price line on top of the colour. The line traces the last traded price. Liquivue also draws trade bubbles on the same axes. Each bubble marks executed volume at a price and time, and a bigger bubble means more contracts traded.

What to look at first

Read the screen in this order on your first few sessions.

1. Find the price line and the spread. The bid is the highest price buyers are showing, and the offer is the lowest price sellers are showing. In a liquid index future they are usually one tick apart.
2. Find the bright bands within about ten ticks of price. In the example there is a band on the bid at 4,980.00 showing roughly 900 contracts and a band on the offer at 4,988.00 showing roughly 650.
3. Watch what happens to a band as price gets close. It can stay, shrink, grow or vanish.
4. Watch the trade bubbles when price reaches a band. The bubbles show how much traded there.

Bands far from price matter less. An order 40 ticks away can be cancelled long before price gets near it.

A worked example in Liquivue

At 10:02 price is at 4,983.50. The 900-lot band at 4,980.00 has been visible for six minutes.

By 10:05 price drops to 4,980.25, one tick above the band. In Liquivue the band is still bright, and a row of trade bubbles starts printing at 4,980.00 as sellers hit the bid.

By 10:07 the bubbles at 4,980.00 add up to about 1,100 contracts, yet the band is still bright at around 700 contracts. More size traded than the band ever showed, and price has not moved below 4,980.00. That is absorption. Resting buyers took the selling, and the displayed size was topped up as it filled. Liquivue marks absorption and sweeps on the chart, so a first-time reader does not have to add up every bubble by hand.

At 10:09 the band shrinks to 150 contracts with few bubbles beside it, and price trades through to 4,979.50. The remaining buyers cancelled rather than filled. The earlier note on orders that never trade covers that difference in more detail.

Nothing in this sequence predicts what price does next. It describes what happened at one level, in order, with numbers you can check.

Two settings to fix before you start

The first is the colour scale. A relative scale colours each level against the largest size on screen, so the same 300-lot can look bright overnight and dim at the open. A fixed scale keeps colours comparable across the session. Choose one, then keep it for a week so you learn what each colour means.

The second is zoom and price grouping. If one row on screen covers four ticks, the heatmap adds four levels together. That can make one large order look several ticks wide, or merge several small orders into one band. Start with one tick per row on a liquid future.

What a heatmap does not show

A heatmap shows displayed orders. It does not show iceberg size that is hidden until it fills, stop orders waiting at the exchange, or why anyone placed or cancelled an order. It also depends on the depth your data feed sends. The glossary explains depth, market by order data and backfill.

To get started in Liquivue you need a desktop browser with WebGPU, a futures data connection through Rithmic or the NinjaTrader bridge, and the exchange data permissions for your contract. The Liquivue overview lists the price and data costs. Bookmap is the main desktop alternative if you also want crypto or stocks.

For your first week, pick one contract and one time window, such as the first hour of the session. Write down three bands a day that price reached, how much traded at each, and whether the band held. After five sessions you will have fifteen observations from your own market to read the next heatmap against.