WHAT ARE LIQUIDATIONS?

Liquidations occur when a trading position (buy or sell) is automatically closed because the asset's price has reached a level where the trader can no longer maintain the position due to a lack of margin (i.e., the funds necessary to maintain the position). This commonly happens in markets with leveraged trading, such as Forex, cryptocurrencies, or futures.

How do liquidations affect the chart?

When there is a massive liquidation of long positions (buys), it means that many traders have been forced to close their buy positions because the price has fallen below their margin level. This increases selling pressure in the market, which can cause the price to drop even further. This is reflected in the chart as a bearish movement.

Conversely, if there is a massive liquidation of short positions (sells), it means that traders who had bet on a price drop have been forced to close their positions because the price has risen above their margin level. This increases buying pressure in the market, which can cause the price to rise even further. This is reflected in the chart as a bullish movement.

Do liquidations "move" the chart?

Not exactly. Liquidations are an effect, not a cause. The chart shows changes in the asset's price, and liquidations are a factor that can contribute to those changes. But there are many other factors that also influence the price, such as:

Supply and demand: The basic balance between buyers and sellers.

News and events: Such as economic data, political decisions, etc.

Market sentiment: The collective psychology of investors.

In a liquidation chart, like the one you mentioned earlier, you can see spikes that represent moments of massive liquidation. These spikes can coincide with significant price movements.