What Are Cascading Liquidations? 🔽
Cascading liquidations are chain reactions caused by forced closures of leveraged positions. Most people think of crashes, but they happen both ways. When prices move fast, traders on the wrong side get liquidated. This triggers more liquidations, creating a feedback loop.
🗓 This is why you sometimes see seemingly impossible price movements, such as the 51.5% drop in the value of BTC in just two days on 12 March 2020. Such moves are often just a reflection of the market clearing out one side's leverage.
While the price is dropping, many traders try to catch the bottom and average down their positions by increasing their size. These actions only add fuel to the fire, making the situation even crazier.
To not get rekt you need to 👇
1️⃣Monitor the funding rate for abnormally high or low values, as this means that the trade is overcrowded.
2️⃣Check price zones where a large number of liquidations are concentrated; sometimes the market literally hunts for them, you can use Coinglass for this info.
3️⃣Always use a stop-loss order to make potential losses predictable and manageable.
