How Do We Read This Liquidation Heatmap?
This image shows a liquidation heatmap for BTC/USDT, which is a graphical representation of where potential liquidations might occur based on the positions held by traders.
Here's how to interpret it:
Key Components:
Color Scale (Left Side):
The color intensity represents the density or concentration of liquidation orders at certain price levels.
Purple/Blue: Lower concentration of liquidation orders.
Green/Yellow: Higher concentration of liquidation orders.
Price Levels (Right Side):
The vertical axis (y-axis) shows the price levels for BTC/USDT.
Time (Bottom Axis):
The horizontal axis (x-axis) represents the timeline, showing how the liquidation heatmap changes over time.
Liquidation Clusters: Bright areas (yellow/green) indicate price levels where a significant number of leveraged positions could be liquidated if the price moves to that range.
These areas are often key levels of liquidity and can act as magnets for price movement.
Price Movement (Red Line): The red line shows the actual price movement of BTC/USDT over time. Comparing it to the heatmap gives you an idea of whether the price is approaching high-liquidation zones.
How to Read:
Identify Key Levels: Look for bright clusters (yellow/green) to see where significant liquidations might occur.
Price Interaction: Observe if the price (red line) is moving toward or away from these clusters.
Volatility Zones: When the price enters a high-liquidation zone, it often triggers significant volatility due to forced buying or selling.
Practical Application:
Trading Decisions: Traders use these maps to anticipate volatile price movements and plan entries or exits.
Risk Management: Helps in setting stop-loss levels away from major liquidation zones.