In my trading journey, I’ve developed a strategy that revolves around support and resistance levels, key markers of market behavior. If you’ve followed my previous stories, you’ll know that a significant tool in my arsenal is the ability to identify liquidation levels. I check these levels regularly, usually on a weekly basis or just before analyzing any asset I’m planning to trade.
The two main sources I rely on for this data are:
Coinglass Liquidation MapBitcoin Counterflow
Both platforms offer visual representations of liquidation data, both use a Liquidation Map and a Liquidation Heatmap. While these tools look different, the underlying data is the same — identifying clusters of potential liquidations in the market.
Why Focus on Larger Timeframes?
From my experience, liquidation clusters become far more meaningful on a larger scale — say, 7 to 30 days — than when analyzed in smaller timeframes. Market makers often push the price towards these clusters to accumulate liquidation orders. Identifying these clusters over longer periods allows for more strategic, informed decision-making rather than reacting to short-term noise.
Visual Differences Between Liquidation Map and Heatmap
The main difference between a Liquidation Map and a Liquidation Heatmap is in their visual presentation:
The Liquidation Map displays clusters of liquidations mapped against price levels, allowing traders to see where concentrated liquidations are likely to occur.The Liquidation Heatmap, on the other hand, represents this same data on a color-coded chart, with different hues signaling different intensities of liquidation activity.
But let’s break this down further.
Understanding Liquidation Maps
A liquidation map forecasts the price levels where significant liquidation events are likely. Liquidations occur when a trader’s position is closed because the price moves against them, draining their margin balance. Essentially, they’ve lost their trade.
When large clusters of liquidations are concentrated at specific price levels, the market often gravitates toward those levels — acting almost like a magnet for price action. But why does this happen? It’s all about liquidity. The more liquidity concentrated at a price point, the more attractive it becomes for the price to move in that direction.
How to Use Liquidation Maps and Heatmaps in Trading
Liquidation maps and heatmaps provide several valuable insights for traders, including:
1. Acting as Price Magnets
When liquidity is concentrated at specific levels, the price tends to gravitate toward those areas. This can help traders anticipate potential price movements and plan accordingly.
2. Support and Resistance Levels
These maps can also reveal key support and resistance levels. Traders can use these zones for entry or exit points or simply as markers to watch closely.
3. Analyzing Market Trends
By observing patterns and changes in the liquidation map over time, you can spot emerging trends or predict market shifts. For example, an increasing concentration of liquidations in one region may signal an upcoming price reversal or shift in momentum.
Strategies for Utilizing Liquidation Maps
Liquidation maps can significantly enhance trading strategies, especially when it comes to risk management and confirming trading decisions:
1. Risk Management
If you see a high concentration of liquidations in a specific area, you might want to adjust your risk exposure. For example, you could tighten your stop-loss or avoid trading during periods of high volatility.
2. Confirmation for Trading Decisions
Liquidation maps can also serve as a useful validation tool. If you’ve identified an entry or exit point based on other forms of analysis, cross-referencing with a liquidation map can add confidence to your decision.
3. Market Monitoring
Regularly checking these maps helps you stay updated on market conditions, allowing you to adjust your strategy as the landscape changes.
Deep Dive: Liquidation Heatmap
While both tools are valuable, the Liquidation Heatmap offers a more intuitive color-coded representation of liquidation activity:
Green zones signify calm market conditions with lower liquidation risk.Red zones indicate periods of high liquidation activity and increased volatility, often signaling areas to watch closely or avoid entirely.
This visual approach makes it easier to quickly identify market stress points, helping traders adapt to shifting market dynamics.
Deep Dive: Liquidation Map
Liquidation maps offer a detailed breakdown of liquidation clusters over specific price ranges. Here’s what you should pay attention to when using them:
Key Elements of a Liquidation Map
Cluster of Bars: Liquidation maps show bars that represent the concentration of liquidations in a given price range. Each bar reflects a cluster of liquidated positions, often categorized by the average leverage used in the trades, such as x25, x50, and so on. This allows traders to see how heavily leveraged certain positions are, giving clues to the pressure building in the market.Axes Representation: The X-axis on a liquidation map shows the mark price, while the Y-axis indicates the relative intensity of liquidations. Higher bars or more concentrated clusters suggest a significant number of liquidations at specific price levels, giving a clearer idea of where market stress may occur.
By selecting a period of 7 to 30 days, you can gain a broader, more reliable view of where large liquidation clusters are forming, which can help identify areas of high potential price movement.
My Process: Applying Liquidation Maps to a Specific Pair
Let’s apply this concept to a real-world example. On September 16, 2024, I analyzed the MKR/USDT pair, selecting a 30-day period to gain insights into liquidation levels. By zooming out to this timeframe, I was able to spot significant clusters at price “1,550” that could influence price movement. This allowed me to set up more informed entry and exit points, helping me to stay ahead of potential market moves.
1. The Current Price Chart of MKR/USDT
The price chart for MKR/USDT at the time showed a critical support level at 1,550. This level had held up well over the past few weeks, and the price had tested it multiple times without breaking below it. Support levels like this often attract significant trading activity, as traders tend to place their stop-loss orders or liquidate positions around these points. The ability to recognize these areas, especially when backed by liquidation data, can make a big difference in trade planning.
1. Support level, 2. Liquidation cluster
2. Visualizing the Liquidation Cluster on the Liquidation Heatmap
When I checked the Liquidation Heatmap, I noticed a concentrated liquidation cluster just below the 1,550 support level, extending down to around 1,520. On the heatmap, this cluster appeared as a yellow-to-red zone, indicating heightened liquidation activity in that range. The yellow zone represented an area of increased risk, suggesting that if the price dropped below the 1,550 support, a large number of liquidations would be triggered. This heightened the likelihood of the price being pushed lower into this zone, potentially accelerating a downward move as liquidation orders were triggered in quick succession.
3. Visualizing the Liquidation Cluster on the Liquidation Map
On the Liquidation Map, this cluster of liquidation orders was represented as bars stacked across the price scale, with a noticeable concentration around the 1,540–1,550 range. The height of the bars indicated the intensity of liquidation orders at specific price points, and some bars also highlighted the leverage ratios (such as x25 or x50) used by traders holding positions in that area.
1. Actual price, 2. Liquidation level
This visualization helped me see not only where liquidation risk was high but also how aggressively traders were leveraging their positions. Heavily leveraged trades in this cluster increased the likelihood of forced liquidations, especially in times of high volatility.
By combining these insights from both the heatmap and liquidation map, I gained a clearer understanding of the potential price movements in the MKR/USDT pair. The proximity of significant liquidation clusters just below the key support level at 1,550 suggested that if the price broke below, it would likely lead to a cascade of liquidations, intensifying the downward pressure. This insight allowed me to adjust my strategy, setting tighter stop-losses and preparing for potential volatility.
Feel free to connect with me if you want to discuss trading strategies, market analysis, or anything crypto-related. Let’s navigate the exciting world of cryptocurrency together!
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My Approach to Trading: How Liquidation Maps Shape My Strategy was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.