Liquidation Levels
Estimated price levels predicting where liquidation events may occur
Last updated
Estimated price levels predicting where liquidation events may occur
Last updated
Liquidation Levels are estimates of potential price levels where liquidation events may occur. Before we dive into Predicted Liquidation Levels, it's important to understand what a liquidation event is.
Most crypto exchanges offer a concept known as leverage to their users. Leverage allows traders to borrow funds in order to enter a position larger than their own funds permit. Traders who trade with leverage are doing so with the goal of capturing larger gains but also at the risk of being "liquidated", or losing all or nearly all of their Initial Margin. Initial Margin is basically the amount of money coming from the traders pocket. If this trader wants to enter a $5000 trade with 10x leverage, then $500 is the Initial Margin and the remaining $4500 are borrowed funds.
Exchanges cannot allow a trader to lose borrowed funds and therefore close out the position as soon as position losses reach the initial margin. When entering a trade with leverage, most exchanges provide the price at which the trade would be liquidated otherwise known as the liquidation level.
If a trader knows the locations of other traders' liquidation levels, it may provide an edge, similar to how knowing the where other traders' stop losses are. Hyblock assists traders with this information by attempting to predict price liquidations levels where large liquidations may occur.
These liquidation levels are based on clusters of price points where highly leveraged traders open long or short positions. High leverage is identified as 100x, 50x, and 25x leverages used for both long and short positions.
The liquidation levels tool shows three different charts:
Price and liquidations levels: this is the main chart overlaid with the liquidation levels displayed across time.
Liquidation Levels Profile [right side]: Shows all of the current open liquidation levels that have not been "hit", or intersected with price.
Cumulative Liquidation Levels Delta [bottom]: The cumulative sum of the difference between all long liquidation levels and all short liquidation levels across time. Positive values indicate that there are more long liquidation levels, while negative values indicate that there are more short liquidation levels.
Users can filter on multiple major exchanges, ticker, and the level of granularity.
Exchanges and coins supported:
Binance Futures: All usdt futures (perpetual) including BTCUSDT, ETHUSDT, YFIUSDT and over 70+ other alt coins.
Bitmex: XBTUSD, ETHUSD
Bybit: BTCUSD, ETHUSD
Granularity: We show various position sizes (tiers) that are dynamic for each coin and exchange. Users have the ability to choose their preferred granularity. Higher position sizes imply will show less liquidation levels while lower position sizes will show more liquidation levels.
Liquidation levels are popular among users because they can be utilized in a myriad of ways –- from magnetic zones to high risk to reward reversal plays to managing risks like stop loss placement and much more.
Magnetic Zones – Price generally heads towards zones or clusters of liquidity. Most traders have at some point experienced their stop loss triggered and then price proceeding in the direction they had initially taken. These are known as stop runs or stop hunting where price went towards liquidity. In the crypto market we also see liquidation hunting and often times there can be zones or cluster of liquidation levels. Some traders use these pockets of liquidation levels as a way to gauge which way price is more likely to head towards along with other indicators that may be used as confluence.
What happens next?
High Risk to Reward Reversal Trades – Often times we see price reverse upon hitting liquidity levels. Conceptually, this may occur due to several reasons:
Bigger traders “whales” have entered or exited their orders in this liquidity and price can now reverse. For example, suppose larger players want to enter long positions without slippage or revealing their position. They can drive price down, trigger long stops and long liquidations and enter their long positions on this new liquidity. Once this process is completed and liquidity has been grabbed, price starts to make its way back up.
Upon hitting liquidation levels, massive pressure is created either on buy side or sell side books causing price to naturally reverse.
Sometimes we see all of the liquidation levels get hit in one direction. With very little liquidity left in that direction, price beings to reverse.
Regardless of the reason, these reversals can mark local tops or bottoms and traders find opportunity through high risk to reward ratio trades. This can be done by placing a tight stop loss with a much further take profit. Often times one can increase the probability in their favor by finding confluence with other indicator or support/resistance levels.
Managing risk – Stop loss management or position sizing can be influenced by liquidation levels. In the example below we see that placing stops slightly above top side or bottom side liquidity can smart placement. Smart placement is meant to do two things: prevent your stop from being stop hunted and serve as an invalidation of the initial trade idea. For example, if it breaks through the top side liquidity level and triggers the stop, it may mean the initial trade idea was invalid and price continues trending in the opposite direction.
Establishing bias – Some traders use the cumulative liquidation levels delta as a way to establish a directional bias on higher timeframe. In the example below, each label represents bullish or bearish bias:
Possible Interpretation of each region:
A → Bullish Bias. Quick small spike in negative direction, indicating there are more short liqs than long liqs.
B → Bearish Bias. Slightly positive cumulative liq levels delta [CLLD] and CLLD is starting to fluctuate between positive and negative.
C → Bullish bias. As price begins sharply declining, we see couple occasions where CLLD spikes in the negative direction and recovers sharply. On major dips, late shorts quickly get punished.
D → Bearish bias. Majority of dip is reversed upon which short liq levels exceed long liq levels (CLLD is positive).
E → Bullish Bias. price dips slightly, with short liq levels opening (indicating shorts are trying to catch the dip again), while long liq levels from the recent rise are getting hit.
F → Bearish Bias. CLLD returns back to positive leading to a slight bearish bias.
G → Bearish Bias. Here we see fully retrace the initial drop and upon reaching the full retrace point, we see a very positive CLLD.
As mentioned above, liquidation levels have several use cases and sharp traders have integrated these into their systems. We are constantly working to innovate and improve our predicted liquidation levels by adding various metrics like Liq Levels Profile and CLLD. The key concept being that by predicting future liquidations and liquidity regions, traders can add new edges to their arsenal of trading tools.
