A liquidation cascade is a chain of forced closes that turns a small price move into a violent one. The risk sits at the prices where leverage is stacked.
Why forced closes feed on themselves
If the price moves far enough against a leveraged trader, the exchange closes the position: a liquidation. That close is a market order in the direction of the move.
- Price dipstoward a level where many longs sit
- Longs are force-closedeach close is a market sell
- Those sells push price lowerinto the next group of longs
- Repeata small move becomes a cascade
Shorts work the same way in reverse: forced buys push the price up into the next group of shorts.
Why liquidations cluster at price levels
Leverage piles up at round numbers and recent highs and lows, where many traders entered with similar stops. Those clusters give a cascade the most fuel.
A map of the levels with the most positions waiting to be forced out shows where a move could speed up.
This is context, not advice. It shows where a move could speed up, not what to do. Past outcomes do not ensure future results.
Perp liquidations are not the same as lending liquidations
Two different events share the word. They should never be added into one number.
A leveraged trading position closed by the exchange because the price moved too far against it.
On-chain collateral sold because a loan fell below its required level.
How to see the risk before it triggers
- Read the map. The liquidation map shows where positions are stacked.
- Watch real forced closes. Actual liquidations, not a model, show a cascade is underway.
- Check how crowded it is. Funding leaning hard one way plus a dense liquidation cluster sets up a sharp move.
- Set an alert. Get told when forced closes pick up or funding reaches an extreme.
Checking the record
Every signal is scored on what price did next, hits and misses alike, on the public track record.
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