 This video will answer the question, what is a liquidity heat map, and help you understand what heat map trading is. We'll dive into some of the advantages of using a heat map, plus go through a trade example that leans on the heat map. A liquidity heat map, also known as an order book heat map, is simply a visualization of the limit orders within an order book or a financial instrument. Because both current and historical limit orders are visualized, the heat map adds a time dimension to a standard DOM or current order book. This allows you to see the evolution of the order book and the change in order flow over time. In this example dark red areas represent high liquidity and blue or black areas show low liquidity. It's important to note that a liquidity heat map is not an indicator. Just like price and volume information, the heat map represents raw market data and provides information on the actual behavior of market participants and trading algorithms. Visualizing market information has changed over the years, from the early days of tape reading and the bucket shops of the Jesse Livermore era, onto simple line charts, candlesticks, volume bars, footprint charts, and the DOM. Many of these changes were brought about by the evolution of technology. We now have faster and more powerful computer systems than ever before. This creates new opportunities for data visualization. Many see liquidity heat maps as just the next step forward in visualizing real-time market information and order flow. Before we dive into some examples of how you can use the heat map in your trading plan, let's quickly go through some of the advantages. A liquidity heat map is visual, so unlike staring at numbers flashing on a DOM, time and sales, or footprint chart, the heat map is incredibly easy to digest and process quickly, especially for traders that are new to order flow. Looking at the current order book alone, you have no idea if an order has been resting at a price for five minutes or five days. The heat map displays this extra information by adding a time dimension. This also lets you see how the order book has evolved around certain price levels, in terms of adding, pulling, or moving liquidity. It makes it easier to spot price absorption, spoofing, book flips, and ignition algorithms. Let's now briefly run through an example of how the heat map can add confluence to a trade setup. The top left box provides context of the recent price action. Aggressive buyers were present, and price was rallying until resistance was encountered, at the level marked in gray. After a period of consolidation and another rejection of this level, price eventually breaks through resistance on the third attempt, and a new high is made. This price action illustrates how resistance often acts as support when broken, and on the first two tests of this support level, buyers are present and it holds. On the third test, however, price breaks down. The boxes labeled one to three show a zoomed snapshot of the heat map at each test of this support level. Let's look at each scenario individually in order to highlight the benefits of the heat map. On the first test of support, you can see high liquidity on the bid that gets filled. Further down, there's also high liquidity that is front run by aggressive market buyers. Note how this level is being added to as price approaches. Also observe how the book is thin on the offer, represented by this black void. This bullish order flow is easy to spot using the heat map, and adds confluence to our support level. Yes, this is hindsight, but remember, the heat map isn't an indicator. It provides insight into what actual market participants are doing right now. And as we move on to the next test of support, you should be able to observe how market sentiment is changing, and momentum is shifting just by looking at the changes in the heat map. So, after an initial rally, buying momentum eventually exhausts at a new high, and we come down to test this level for a second time. What does the heat map show this time, and how does it differ from the previous test? In terms of the order flow, this now appears less bullish. There are fewer orders on the bid as price initially moves down, and we're starting to see liquidity appear on the offer. However, we do still have a high liquidity player enter the book on the bid, and get partially filled. This acts as a catalyst for buyers to enter the market and hold this support level for a second time. But it's not long before we get our third and final test of this support level. The heat map shows a clear difference in order flow this time around, which, with practice and thorough backtesting, you should be able to react to in real time. Significant liquidity enters the book on the offer. These are strong sellers entering the market and getting filled, which were not present on the two previous tests of this area. If you put this order flow information together with the fact that we also created a swing failure pattern at the highs, this is our third test of support, plus on each test of support there have been fewer and fewer buyers. You can start to read the shift in momentum and position yourself accordingly. The final clue that price wants to move lower can be once again observed in the heat map. See how the price reacts to this area of liquidity. Previously it remained in the book and price moved away. This time it's pulled, opening the door and inviting price to fall lower. This example demonstrates how a liquidity heat map can be used to make better, more consistent trading decisions. Once again, the fact it's visual makes it easy to digest and react to in real time, compared to other data visualization approaches. Backtesting these setups and using this data to create a detailed trading plan can help you define precise areas to enter, exit and invalidate your trades. To learn more about heat map trading or to download our order flow trading platform, head over to bookmap.com. We also provide free webinars. Subscribe to our YouTube channel to be notified of our next live event.