I've done heaps on water-level sensing over the years... and my conclusions are that anything you put in the water will corrode and die eventually if it's not encapsulated and sealed or it's Stainless Steel.
A Capacitive solution is fine - providing those Capacitors do not touch the liquid... If you use the water-level as a dielectric, the Capacitance between two immersed probes will change - but you MUST use AC excitation for your probe circuitry. (Ardhuru - you MUST use shielded cable where the cores are individually sheilded, because across 50m of cable the Excitation Core will start inducing a signal into the Sensor Core - and you MUST capacitively couple BOTH the outgoing and the return core. Remember also that the return is high impedance). Everyone uses Resistance measurement, but that can change so much depending on the water purity. Go up into the mountains of Scotland, and some of the water coming out of the ground there is so pure that it's in the tens of Megohms with probes only a centimetre apart! Never mind bottling drinking water for humans (which is what the Scots are doing), I'd be bottling 'distilled' water for lead-acid cells and selling it at ten times the price! Hmmm great idea, time to Google for properties for sale in Scotland...
Another method is to use a low level RF tuned circuit with your coil as the probe (this is actually a Melanie invention). The water level rising up the encapsulated coil changes the tuned frequency (it would do since you are adding external Capacitance)... kinda like putting your fingers close to the LO of a Superhet Receiver changes the frequency. This is best in steel Tanks, but you have to watch the RF field level isn't too great otherwise you'll have your local FCC on your case!
Honeywell do some lovely optical Sensors... but you will need to mount ten of them and they are quite pricey each (around $15) - but they are favourites of mine as they have no moving parts the way floats or reed switches do. I'm not sure, but I do recall a multi-level magnetic reed switch (the reeds are mounted in the central column which is fully encapsulated, and there is a ring magnet on a float that travells up and down the central shaft). Danfoss is the manufacturer that spings to mind - but I may be mistaken.
Mind you, even with seven years playing with liquids there's still some level-sensing applications I can't get my head around to solving properly...
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