liquidation-heatmap

Liquidation Heatmap & Level Analysis

Overview

Analyze the distribution of leveraged positions and their liquidation price levels to identify zones where forced selling/buying will accelerate price moves. Liquidation clusters act as "magnets" — price tends to be attracted toward large liquidation concentrations because market makers and whales profit from triggering cascading liquidations.

Core Concepts

1. Liquidation Mechanics

How liquidation works:

# Long position liquidation
long_liquidation_price = entry_price * (1 - 1/leverage + maintenance_margin)

# Short position liquidation
short_liquidation_price = entry_price * (1 + 1/leverage - maintenance_margin)

# Example: BTC long at $65,000, 10x leverage, 0.5% maintenance margin
# Liquidation: $65,000 * (1 - 1/10 + 0.005) = $58,825
# A 9.5% move against the position triggers liquidation

Leverage and liquidation distance:

Leverage	Liquidation Distance (Long)	Liquidation Distance (Short)
2x	~50% drop	~50% rise
5x	~20% drop	~20% rise
10x	~10% drop	~10% rise
20x	~5% drop	~5% rise
50x	~2% drop	~2% rise
100x	~1% drop	~1% rise

2. Liquidation Heatmap Interpretation

A liquidation heatmap shows where liquidation orders are concentrated across different price levels, typically color-coded by density.

Reading the heatmap:

Price Level    Long Liquidations    Short Liquidations    Interpretation
$70,000        ░░░░░░░░░░          ████████████████      Heavy short liquidation zone
$68,000        ░░░░                ██████████            Moderate short liquidation
$66,000        ███████             ███████               Balanced (current price area)
$64,000        ██████████          ░░░░                  Moderate long liquidation
$62,000        ████████████████    ░░░░░░░░░░            Heavy long liquidation zone

Key principles:

1. Liquidation clusters are magnets: price tends to gravitate toward large liquidation pools because the forced orders provide liquidity for whales to fill their positions
2. Liquidation cascades: when a cluster gets hit, the forced selling/buying pushes price further, potentially triggering the next cluster → cascade effect
3. After liquidation wipe: once a large cluster is liquidated, that price level often becomes support/resistance (overleveraged positions are gone)