Liquidity Reversion Pressure

Quick Reference

Property	Value
Dimension	regime
Category	mean_reversion
Version	v0.9.0 (Beta)
Output Column	reversion_pressure

Liquidity-induced reversion pressure: (spread * depth) / price_deviation - pressure from liquidity providers to normalize deviations

Formula

(spread * depth) / (abs(price_deviation) + epsilon)

CDM Inputs

Column	CDM Table	Description
spread	cdm_*	CDM source table
depth	cdm_*	CDM source table
price_deviation	cdm_*	CDM source table

Parameters

Parameter	Type	Default	Description
epsilon	float [0.0, 1.0]	1e-10	Small constant to prevent division by zero

Output

Column: reversion_pressure

Estimated reversion pressure from liquidity provision incentives

Market Intuition & Trading Rationale

Liquidity reversion pressure measures the incentive for market makers to push price back toward equilibrium: (spread × depth) / |deviation|. Wide spreads + deep books = strong incentive to normalize deviations (high reversion pressure). Narrow spreads + thin books = weak incentive. When reversion pressure is high, deviations revert quickly. When low, deviations may persist — the market isn't paying enough for liquidity provision to attract mean-reversion capital.

Usage Cases

• Mean reversion conviction: High reversion_pressure → deviations will revert (size up). Low pressure → deviations may persist (size down or avoid).
• Market maker opportunity: High pressure = well-compensated liquidity provision. Favorable conditions for passive market-making strategies.
• Execution timing: When reversion pressure is high, use limit orders — the reversion will bring price back to your level.

YAML Definition

name: liquidity_reversion_pressure
description: 'Liquidity-induced reversion pressure: (spread * depth) / price_deviation
    - pressure from liquidity providers to normalize deviations'
category: mean_reversion
version: v0.9.0 (Beta)
dimension: regime
status: Pre-release
required_inputs:
  - spread
  - depth
  - price_deviation
output_column: reversion_pressure
output_description: Estimated reversion pressure from liquidity provision incentives
parameters:
  epsilon:
    type: float
    description: Small constant to prevent division by zero
    required: false
    default: 1.0e-10
    constraints:
      min: 0.0
      max: 1.0
formula: (spread * depth) / (abs(price_deviation) + epsilon)