Blended Net Liquidity Correlation

8 Apr

This indicator visualizes a customizable net liquidity metric based on key U.S. Federal Reserve and Treasury data from FRED. It allows users to blend two liquidity models:
• With WALCL: Incorporates the Fed’s total balance sheet (WALCL) — ideal for capturing long-term structural liquidity from QE/QT.
• Without WALCL: Excludes the balance sheet and focuses on short-term operational flows like RRP, TGA, BTFP, and commercial lending.

Use the “Weight on WALCL” slider to find your optimal blend. A setting of 1.0 uses only WALCL, 0.0 uses only short-term flows, and any value in between gives a mix.

The indicator also calculates the correlation between net liquidity and price over various timeframes:
• 30D, 60D, 90D, 180D
• 1Y, 1.5Y, 2Y
• A custom length (default 3 years)

11 Dis

Nota Keluaran

Many traders use liquidity-based models to understand broad macro conditions and their potential influence on price. While institutional-grade models often rely on proprietary inputs, the community frequently studies public FRED series—such as WALCL, RRP, TGA, and BTFP—to construct transparent net-liquidity frameworks that approximate capital movement within the financial system.

This script does not replicate or reverse-engineer any commercial macro indicator. Instead, it provides a fully open-source, flexible structure for exploring how different liquidity components interact — and how those liquidity dynamics correlate with market price across various time windows.
All data comes from standard FRED series, and all calculations are fully disclosed for complete transparency.


What the Script Does

1. Builds a customizable blended net-liquidity model

• Includes WALCL, RRP, TGA, BTFP, ΔTOTLL, and ΔM2
• Allows turning each component on/off
• Provides adjustable weighting for WALCL vs non-WALCL models
• Smooths liquidity using optional SMA smoothing
• Supports time-offsetting liquidity to study lagging effects

2. Runs multi-period price correlations

• 30D, 60D, 90D
• 180D, 1Y, 1.5Y, 2Y
• Custom length (user-defined)
• Displays all correlations in a compact table
• Automatically highlights the highest correlation window

3. Plots the blended liquidity model directly on the main chart

• Uses the right-side scale
• Clean visual overlay
• Helps compare liquidity shifts against price structure

4. Maintains complete transparency and reproducibility

• All data sourced from public FRED datasets
• No proprietary formulas
• Fully open-source for research, modification, and extension


Why This Script Is Useful

Traditional liquidity charts often plot only one variable at a time. This open-source model adds clarity by:
1. Combining multiple macro liquidity components into a unified metric
2. Allowing complete control over which components are included
3. Providing a smooth blended output that is easy to compare with price
4. Offering multi-window correlation analysis to objectively measure relationships
5. Helping traders explore whether liquidity leads, lags, or coincides with price

This tool is ideal for macro-focused traders, swing traders, crypto/macro analysts, and anyone studying how systemic liquidity impacts market behavior.


What This Script Is Not

• Not a recreation of any commercial macro model
• Not financial advice or a predictive tool
• Does not attempt to reproduce any proprietary liquidity algorithm
• All calculations rely solely on publicly available FRED time series


How to Use
1. Select which liquidity components you want included
2. Adjust WALCL blending to emphasize or diminish balance-sheet effects
3. Optionally apply smoothing or offset days
4. Observe liquidity trend direction relative to price
5. Check correlation windows to identify potential market sensitivities
6. Combine with structure, volume, and trend analysis for a full macro-technical approach


Important Notes

• FRED data updates weekly and may revise historical values
• Correlation does not imply causation — it measures relationship, not predictiveness
• Liquidity models are approximations, not definitive macro forecasts
• Always validate settings on multiple timeframes and assets


Disclaimer

This script is for research and educational purposes only.
Always use proper risk management and validate all ideas before trading live.