In popular jargon, they are areas where the price can take a stop loss (liquidate people), that is, above or below minimums or maximums.
When we talk about liquidation zones we are referring to known liquidation levels since many do not use stop losses therefore his position will have a margin call at the liquidation price 10x,25x,50x, 100x.(They are liquidated)
Luckily we have the liquidation zones indicator that calculates the price zones where these interesting movements can occur. Buyers' Liquidation zones are below the price, while sellers' Liquidation zones are above the price.
How is the calculation carried out?
There are different ways to perform the calculation, one is by calculating the prices for x level of leverage based on the trading volume, in this way, the zones begin to accumulate in the leverage prices for the $ range where they come together and add up. They can also be filtered by a minimum display level (min show) and if they meet all these conditions they are displayed in a heatmap, the other way is the same but replacing volume with open interest.
Basic Liquidation Zones questions?
It is very interesting to be able to combine Liquidation Zones that overlap in price. This would tell us that we would have different types of possible traders to be Liquidated, but what does it mean to combine?And because we are talking about possible liquidations, if it arrives in the area there should be a liquidation 100% sure, right?
Combine Liquidation Zones?
It is very interesting to be able to combine Liquidation zones that overlap in price. This would tell us that we would have different types of possible traders to be settled, that is, we can combine 25x, 35x, 100x, we can see where the liquidation zones come together. liquidation of different levels of leverage.
If the price reaches the zone there should be a liquidation 100% sure, right?
That is not necessarily true, since it is not known if all traders are using stop losses or not, nor is it known how much leverage they are using, this is the weakest point of the liquidation zones, the graphs of the liquidation zones They are speculations of where the price could go to liquidate but they do not assure us that liquidations will actually happen in that place, the way to counteract this weakness, is like many strategies is to combine indicators, I could mention MACD, RSI, etc., but the same Zones can be combined and accumulated and therefore the same zones can be filtered. If we leave only the most powerful zones through good filtering, and also a good backtest of that configuration, we would have more security by having statistics on price behavior.