Lesson 1 of 4 · 2 min
What is a heatmap?
Displayed limit orders over time, coloured by size.
Definition
A liquidity heatmap draws the order book as a time series: the horizontal axis is time, the vertical axis is price, and each cell's colour shows how much displayed size rested at that price at that moment. Price is drawn as a line through it, and trades are often overlaid as bubbles.
Why it exists
The DOM changes many times per second and has no memory. A heatmap gives the order book a memory, so you can see whether liquidity was stable, moved with price, or disappeared.
Trading implication
Heatmaps are context tools. They are best for seeing how liquidity behaves around levels you've already identified.
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