A crypto liquidation map is a tool that helps you determine the liquidation risks in the cryptocurrency. It presents you with insights into the areas with significant selling pressure and significant buying pressure. It helps traders to effectively mitigate the risks and potential losses of the volatile cryptocurrency markets.
Here in this article, we help you understand what a crypto liquidation map is and the way it is used in cryptocurrency trading
What Is A Crypto Liquidation Map?
You can use a crypto liquidation map as a visual chart representation of the liquidation prices of open leveraged positions in certain cryptocurrency markets. If a trader wants to take control of larger positions in a certain cryptocurrency market, they can utilize leverage trading.
It allows the trader to control the crypto position with relatively small capital by letting him or her borrow funds from the exchanges.
Liquidation maps collect the liquidation prices of off all open leveraged long and short positions and display them for you to grasp the data easily. The crypto exchanges use liquidation maps as a tool for the users to trend price levels.
From the liquidation map, you can find the price levels of the open crypto positions and it is often given as a series of blocks vertically stacked above each other. Each of these blocks stands for a certain price level carrying a significant concentration of the open position available.
The size of each of these stacked blocks may vary with the capital amount liquidated at that price level. If the block is big it means that there is a higher concentration of open leveraged positions and if the block is smaller it means that the concentration of open leveraged positions is lower.
Liquidation Map: Uses
As a trader, you can have many various uses with the liquidation map. Some of the key advantages of using the liquidation map are as follows:
Why Should You Use Liquidation Maps?
- It is a tool for crypto trading
- It helps you to get insights into the clusters of traders using high leverages
- It helps you to set your profit targets
- It helps you avoid being trapped in positions that are not favored
A few platforms that offer liquidation maps:
Kingfisher, Coin Glass, High Block Capital
Among these, some of the platforms provide you with a liquidation map as a free service while others may charge a fee from you.
- Profitable scalping
- Breakout trading
- Make profits in high liquidity areas
- Get to large positions to create liquidity
- Avoid unnecessary slippage in large positions
- Refer to each point to set stop loss
How Is A Crypto Liquidation Map Used In Cryptocurrency Trading?
Here are a few ways by which you can use a liquidation map in cryptocurrency trading:
To Gauge Market Sentiment
Liqudation amp can be used tdterine the mmarjet snetiemmnt. You can analyze the long and short liquidation prices and use them to get an idea of the average market sentiment.
If the liquidation app shows a lower concentration of liquidation prices it signals a bearish sentiment. Similarly, if the map has a higher concentration of liquidation prices it hints at a bullish sentiment.
To Identify Support And Resistance Levels
A liquidation map has the potential to tell you the support and resistance levels, a liquidation map identifies this based on the concentration of the open positions in the market. The areas with a concentrated short liquidation price show resistance.
It is because the traders make attempts to exit from their position prior to getting liquidation and then increase the selling pressure. Similarly, the support is shown by areas having concentrated long liquidation prices. It’s because the traders attempt to prevent being liquidated and this increases the buying pressure.
To Manage Risk And Potential Cascading Liquidations
Liquidation maps help to identify the pressure levels where notable liquidations may occur which triggers the cascading liquidations and aggravates price movements.
When the traders can understand this prior to or at the right time, they can adjust their current position to save themselves from the volatility of the market. Or they can implement necessary risk management strategies.
The Bottom Line
Liquidation maps are a tool that helps you to calculate the liquidation risks of the highly volatile market. Note that, liquidation maps show the risks at a snap of the time and you need to constantly check the map and keep on updating your strategies.
The instantaneously changing trends make all the traders susceptible to the volatility of the market and liquidation maps are potential tools that help the traders to determine the risks of liquidation.
