In the cryptocurrency market, liquidation is one of the biggest drivers of price, especially in leveraged futures. If you trade without a clear understanding of how liquidation affects market movement, you are likely to find yourself a victim of these violent fluctuations. In this article, I will explain how to analyze liquidation data using Coinglass, and how to use it to your advantage instead of being part of the problem.
What is liquidation? And how does it affect price action?
Liquidation simply means that a trader’s position is automatically closed when the price reaches a point where it no longer covers the margin used for the trade. For example, if you used 10x leverage, a 10% price move against your position could result in you being completely liquidated.
Why is filtration important?
• When contracts are liquidated, the market is forced to buy or sell huge amounts, creating strong movements in the same direction.
• The market always gravitates towards high liquidation areas where the largest number of orders can be executed.
• When liquidations accumulate in a certain area, we see sharp movements, whether they are crashes or sudden spikes.
Market analysis based on filter map
The image we see from Coinglass shows a Liquidation Heatmap, which shows where contracts are likely to be liquidated based on price action.
What does the map reveal to us?
1. Dark purple areas → indicate levels with low clearance, i.e. the market is not currently interested in them.
2. Light areas (green, blue, yellow) → indicate a large concentration of positions subject to liquidation, which means the market may move towards them soon.
3. Downtrend in the market → shows that a large number of long positions have been liquidated, which has strengthened the downtrend.
What led to this decline?
• The market was filled with long positions at certain levels.
• As the decline began, the market began to liquidate these positions, which increased selling pressure and led to a stronger decline.
• Due to successive liquidation zones, the price continues to fall until all liquidity is absorbed from the market.
How do you benefit from filter data as an investor or trader?
1. Don't fight the market – Trust the Process!
The market does not move randomly, but rather targets liquidation levels that have the highest amount of liquidity. If you see a large liquidation area nearby, the price is likely to move to it.
2. Use heat maps to identify opportunities.
• If there are large liquidation areas above the current price, there may be an uptrend imminent to liquidate shorts.
• If the liquidation zones are below the price, the trend may continue downward until all long positions are liquidated.
3. Do not use high leverage without an exit strategy.
• Liquidation is unforgiving, and if you use high leverage, you are at risk of losing your capital quickly.
• Set a logical stop loss that protects you from being completely liquidated.
4. Monitor liquidity levels – where is the market heading?
• Price always tends to go to the most liquid areas, so be sure to monitor the liquidation charts regularly.
• When you see a large accumulation of long or short positions, be careful, as the market may move against them soon.
Conclusion – How to Become a Smarter Trader?
✅ The market does not move randomly, but rather follows liquidity and liquidation.
✅ Use sound risk management, and don’t rely solely on “feelings.”
✅ Monitor heatmaps like Coinglass to identify entry and exit levels.
✅ Trust the process – Don’t try to fight the market or enter against the trend based on emotions.
If you want to succeed in the market, don't be a victim of the liquidation - use it to your advantage!
