Unit 3 · Level 3 · Derivatives data
Liquidation maps
Every leveraged position has a liquidation price: the level where the exchange force-closes it. Liquidation maps estimate where those levels cluster, drawing bright bands of 'if price gets here, forced orders fire'. Clusters act like fuel: price reaching them triggers cascades of forced selling or buying, which is why crypto crashes in staircases. Traders talk about price being 'magnetically drawn' to big clusters: a colourful theory to handle with care.
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What you get asked
Why do clusters of liquidation levels amplify price moves?
A liquidated long becomes an involuntary seller. Their sale pushes price down into the next batch of longs. The cascade is the staircase pattern in every big crypto crash.
Order the anatomy of a long-liquidation cascade
Each forced sale is fuel for the next. That's how a 3% dip becomes a 15% wick in an hour, and why the wick often ends where the clusters do.
Traders describe big liquidation clusters as ___ that price seems drawn toward before reversing.
The 'magnet' story: dense clusters are pools of forced orders, and sweeping them is profitable for aggressive traders. Suggestive, popular, and unproven as a law.
What's the honest caveat about liquidation maps themselves?
Map-makers infer levels from OI changes and assumed leverage ratios. Treat the bands as fuzzy heat zones, not laser-precise targets.
The wisest practical use of liquidation data for a risk-aware trader is…
You can't control the cascade, but you can avoid standing where it lands. The 1% rule from the Trading course exists precisely for markets like this. 🐜
The rest of this unit
Funding, open interest, liquidations, options: read the leverage that moves crypto prices.