Liquidation Map: Revealing the Liquidity Secrets of Cryptocurrency Derivatives Markets
Introduction
In the highly volatile crypto market, traders face huge risks, especially the risk of liquidation (liquidation) in leveraged trading. Liquidation Map (Liquidation Map) Liquidation Map is an advanced tool that helps traders better understand market liquidity and price behavior by visualizing the location of potential liquidation events. As the market continues to evolve, Liquidation Maps have become a must-have tool for many professional traders.
View Liquidation Maps now:
https://www.gate.io/crypto-market-data/indicators/liquidation-map
What is Liquidation Map?
Liquidation Maps are charting tools that show price levels in the cryptocurrency futures market where liquidation events may occur. Liquidation events occur when a trader’s margin is insufficient to maintain their leveraged position, and the exchange forces the liquidation of their position. This is especially common when prices fluctuate rapidly.
On the Liquidation Map, the X-axis represents the underlying price and the Y-axis represents the relative strength of the liquidation. The Liquidation Map does not show the exact number of contracts to be liquidated or the exact value of the contracts being liquidated. The columns on the Liquidation Map actually show the importance, or strength, of each liquidation cluster relative to the adjacent liquidation clusters.
The Liquidation Map analyzes market data and different leverage multiples to predict the price points that may trigger liquidations and presents them graphically. These graphs typically show liquidation clusters (liquidation clusters). Liquidation clusters are clusters of liquidation orders that are concentrated in a specific price range. The density and height of liquidation clusters indicate that when prices reach these levels, the impact on market prices may be very significant.
For example, the Coinglass liquidation map not only shows the current market liquidation distribution, but also provides historical data and heatmap functions to help traders identify high liquidity areas. Of course, Gate.io also provides relevant viewing portals for liquidation maps.
How liquidation maps are generated
The generation of liquidation maps is based on the following key factors:
- Market data: including current prices, trading volumes, depth data, etc.
- Leverage multiples: Positions with different leverage multiples will correspond to different liquidation prices. For example, a position with 10x leverage is more likely to trigger liquidation than a position with 2x leverage.
- Position distribution: The distribution of long and short positions in the market. The liquidation map predicts potential liquidation hotspots by calculating the concentration of these positions at different price levels.
Specifically, the liquidation map calculates the number of potential liquidations at each price level and displays them in the form of color or density changes. For example, the Coinglass liquidation heatmap uses a color gradient (from purple to yellow) to indicate the density of liquidation levels, with yellow areas representing a large number of predicted liquidation levels and higher liquidity.
How to Use Liquidation Maps
Traders can use liquidation maps for several strategies:
- Breakout Trading: When the price approaches a liquidation cluster, a price breakout may occur, and traders can use this to determine the timing of entry. For example, if BTC’s liquidation map shows a large number of liquidation clusters near $50,000, traders can prepare a breakout strategy when the price approaches this level.
- Scalping Trading: Short-term trading in high-liquidity areas to profit from price fluctuations. Liquidation clusters are usually high-liquidity areas, suitable for short-term operations.
- Stop Loss Setting: By understanding the liquidation map, traders can set stop loss points more accurately and avoid being “stop-hunted”. For example, if the liquidation map shows that there are a large number of liquidation orders near the current price, traders can set stop loss points outside these orders to reduce the risk of passive liquidation.
- Large Order ution: uting large orders near liquidation clusters can obtain better liquidity and reduce slippage. Institutional investors particularly favor this strategy because the liquidity released in a short period of time can meet the entry needs of large orders.
- Risk Management: Understanding the liquidation map can help traders better manage leverage risk and avoid triggering liquidations due to price fluctuations. For example, traders can adjust leverage or position size based on the liquidation map to reduce the risk of liquidation.
In addition, the liquidation map can also help traders identify “magnetic zones”, that is, areas where prices may be attracted because there are a large number of liquidation orders in these areas. Once the price arrives, it may trigger a chain reaction and cause rapid price fluctuations.
The role of liquidation heat map
The liquidation heat map is a specific form of liquidation map. It shows the density of liquidation levels in a color gradient. The darker the color, the more potential liquidation events at that price level and the higher the liquidity.
For example, in the Coinglass liquidation heat map, the yellow area represents a large number of predicted liquidation levels, which traders can use to judge the possible direction of price movement and the intensity of fluctuations. By analyzing the heat map, traders can find support and resistance levels and optimize trading strategies.
It is worth noting that the liquidation heat map predicts where the liquidation level will open, but not where it will close. Therefore, the actual number of forced liquidations may be less than the predicted value. Traders need to combine other technical indicators and market dynamics for comprehensive analysis when using it.
Case analysis: Liquidation map data on Gate.io
Based on the observation point of the day of writing, as shown in the figure below, from the liquidation map of Gate.io, the current price of BTC perpetual contract is $94,660. The figure shows that if the price rises to $95,428, several high-leverage short orders with a total amount of $128 million will be liquidated.
Although the overall market volatility is relatively small at present, local events are likely to cause short-term sharp fluctuations in prices. Assuming that the short orders mentioned above are liquidated, it is possible to drive prices to continue to rise.
Of course, the liquidation map is essentially a data-based prediction tool. The actual number of forced liquidations may be less than the predicted value, but market behavior is ultimately driven by human nature. Emotional trading, herd effect and other factors may cause deviations in the prediction of the liquidation map. Therefore, when using the liquidation map, traders should make decisions based on their own psychological state and risk preference.
Conclusion
As a powerful analytical tool, the Liquidation Map provides a unique perspective for cryptocurrency derivatives traders, helping them better understand market liquidity and risk distribution. By utilizing the Liquidation Map, traders can develop more effective trading strategies and improve their success rate.
However, it is worth noting that the Liquidation Map is only one of many analytical tools, and exchanges may provide more refined Liquidation Map data in the future, and even integrate AI algorithms to help traders more accurately predict market behavior.
Risk Warning: The content of this article is for reference only and does not constitute any investment advice. Investing in cryptocurrency derivatives is high-risk and may result in capital loss. Investors should bear their own risks.
