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The extent of liquidity zones and the magnitude of the breakout range are key variables that substantially affect the probability of a retest occurring. In this discussion, we outline the complete process for developing an indicator that incorporates these ratios.

Liquidity zones represent periods of market consolidation—distinct ranges where price oscillates between two well-defined levels over time. For clarity, let’s use Price A and Price B as conceptual reference points for the boundaries of the base rather than fixed or absolute price levels. In a typical bullish setup, Price A represents the low of the base while Price B marks the high of the base; price fluctuates between these two levels during the consolidation phase. In bearish scenarios, this structure is simply mirrored (with Price A as the high and Price Bas the low of the base). Although the market appears balanced during these pauses, institutional participants are actively accumulating or distributing positions, with liquidity deliberately building around the range extremes.

Eventually, price exits this equilibrium through an impulsive breakout. In bullish conditions, this breakout occurs above Price B(the high of the base), while in bearish conditions it occurs below Price A (the low of the base). The breakout establishes a new reference level, which we denote as Price C—the high formed by the impulsive rally in bullish cases, or the low formed by the impulsive sell-off in bearish cases. These moves are rarely accidental; they are typically driven by the absorption of resting liquidity, including stop-loss orders positioned beyond the range, breakout orders from retail participants, and trapped positions on the wrong side of consolidation.

In high-probability environments—whether continuation scenarios following a liquidity sweep or reversal scenarios after deeper manipulation—price does not simply extend indefinitely from the breakout. Instead, it frequently revisits the original liquidity zone defined by the A–B range. This behavior reflects core market mechanics: the impulsive move creates displacement and inefficiency, liquidity is harvested on one side of the range, and price retraces to rebalance the market, mitigate inefficiencies, or attract additional liquidity for the next directional phase. In the illustration below (Fig. 1), the concept is presented graphically.

Author: Clemence Benjamin