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