There should be no fundamental problem with this, provided that the indicator tube is not closed at the top. You can either install a vented cap to keep debris out, or connect the top of the tube to the top of the tank.
As a callow youth I assisted in the construction of a water tank indicator like that. I have also operated a steam boiler with similar indicators. If common experience is any guide, your most likely problems will be:
- Discoloration of the inside of the tube, from scaling or even from
algae, that makes it difficult to read the level.
- Hidden blockage that prevents the free flow of water to and from the tube.
- Damage or fracture of the indicator tube leading to a serious leak.
Against (1) you should make the tube dismountable so you can clean or replace it. This will require a shutoff valve and a threaded joint or union.
Against (2) you can rely on dismounting the tube and briefly opening the shutoff valve, or you can install a drain valve that you can open briefly, thus restoring your confidence that the flow is unrestricted.
Against (3) you must install a shutoff valve.
Note that the combination of the shutoff valve and a drain valve can also serve to drain the tank when necessary. If your tank presently has a drain valve, this might be a place to install the indicator without boring any more holes in your tank.
Here is a sketch to show the order of the valves and fittings for a couple of possible tank drain positions:
The order of the fittings must be: Tank Tap -- Shutoff -- Sight Glass Connection -- Drain Spigot.
You will have to shop for the transparent tube and the compression fitting together. Don't bother with a big-box home supply store, go to a plumbing supply shop and talk to the oldest guy there.