1.
What Is Liquidation?
Review of the Concept:
In leveraged contract trading (especially high‐leverage perpetual contracts), if the market price reaches a trader’s maintenance margin price, the exchange or liquidation engine automatically closes that position. This prevents the account balance from going negative.
Long vs. Short Liquidations:
Long Liquidation: When the price falls sharply and approaches or breaches a long position’s maintenance margin level, those long positions get liquidated (sold off).
Short Liquidation: When the price rises rapidly and touches a short position’s maintenance margin level, those short positions get liquidated (bought back).
2.
Map Structure and Axes
Horizontal Axis: Time
The chart usually runs from left (past) to right (now) over minutes or hours. Most platforms show the past few hours or the last 24 hours of liquidation activity.
From bottom to top, it represents the asset’s price range (e.g., Bitcoin’s price from $56,000 up to $58,000).
Heatmap Colors / Bar Heights
Color Intensity or Opacity indicates how large the liquidated notional was at that price and time. Darker (or taller) bars mean bigger liquidation volumes in USD or stablecoin.
Distinguishing Longs vs. Shorts:
Most maps use red or orange to show “longs getting liquidated.”
They use green or blue to show “shorts getting liquidated.”
3.
How to Read a Liquidation Map
Spot Clusters or Spikes
When you see a dense cluster of red or green at a given price level, it means many positions shared the same maintenance margin trigger there. Once price hits that level, it’ll trigger large liquidation cascades.
This often creates a “domino effect”:
For example, if price drops to $57,200, you see a huge red spike (lots of longs liquidated). Those forced sell orders add downward pressure, pushing price even lower.
Predicting Support and Resistance
Resistance Zone (Short Liquidation Cluster): If price is rising toward a level with many green bars (shorts being liquidated), those forced buy orders can push price up further, forming short‐term resistance below that level.
Support Zone (Long Liquidation Cluster): If price is falling toward a level with many red bars (longs being liquidated), those forced sell orders add downward pressure but often attract new buy interest, creating a short‐term support area.
Combine with Volume and Order Book Data
A liquidation map only shows “historic or triggered liquidations” at given prices; it doesn’t guarantee future liquidations. Watching actual exchange volume and order book depths helps confirm if a price move is being driven by forced liquidations.
For instance, if price nears $57,000 where there’s a big red cluster, and you simultaneously see heavy sell orders or large trades in the order book, it’s more likely that a liquidation cascade will amplify a price drop.