🫗Strategy "Cumulative liquidation"
A strategy based on decision-making around large liquidations.
Last updated
A strategy based on decision-making around large liquidations.
Last updated
Liquidations are a very important event in the market, which changes the balance of the market in seconds. Liquidation occurs due to the fact that the supporting margin is not enough to ensure losses on the position. This usually happens when traders work with large shoulders. Let's say someone stood in the long with 50 shoulder. Then a 2% short price change will lead to the liquidation of this position. Provided that there are no additional supporting finances.
Usually, liquidations occur on large and abrupt movements. But liquidations slow down such movements very much and reduce their strength. However, this becomes possible only with "significant" liquidations. The volume of which is enough to make a significant imbalance. In this strategy, we will have to learn how to identify significant liquidations and resolve false signals based on the "Market Dynamic" indicator.
First, let's set up our workspace. Place the TradingView chart on the left. On it, open the market dynamics indicator with a period of 1 minute and the cumulative liquidations indicator with a period of 5 minutes. With the second widget, open the liquidation feed and set the cutoff to the liquidation price of 10,000. Use the third widget to open the screener. Leave the columns: "Cumulative liquidations", "Liquidations L, %", "Liquidations S, %".
Sort the screener by the "Cumulative liquidations" column. When values of more than 20K appear for shield coins, this is a potentially significant liquidation. For major currencies like BTC or ETH, potentially significant liquidations start from 300K. The liquidation feed will show the overall dynamics of liquidated positions. This way you can understand whether there is a movement with subsequent liquidations in a particular currency or in the market as a whole for many instruments.
Click on the name of the currency and it will be displayed on the Trading View chart. Now your task is to view the nearest history for several days and see the reactions of the liquidation price. If you see that the market is reacting to this volume, then you can proceed to the next step.
It is necessary to analyze the indicator of market dynamics. If it significantly exceeds the average market dynamics, then you should delay making a decision. This may indicate that the movement is continuing, and you should not rush.
If the market dynamics shows low values, and a candle opposite to the trend has begun to form, then this is a signal to enter a position.
We recommend getting up on limit orders, because often the movements may not justify the taker's commissions.
Usually, the effect of weakening directional movement due to liquidations lasts up to 10 minutes. Therefore, this is the maximum time to hold a position. You can place a limit sell order on the dimension of the oscillatory movement for this instrument. Or use the grid method of closing a position.
Consider the BOMEUSDT ticker. The liquidation value exceeded 30K, which is quite a lot for a shield coin. There are no more liquidations within one candle. Market dynamics showed a slowdown in currency activity. It is extremely unlikely that the next strait will occur with such dynamics. This is the signal to enter the long position.
In this strategy, it is best to enter limit orders, since there is enough time to make a decision, and the main movement has already passed. The market is slowing down and correcting.
We recommend taking from 3 to 10 minutes to close.
It's not worth it anymore. In this example, we could earn about 1%.
Consider the PEOPLEUSDT ticker. The liquidation value exceeded 20K, which is also a significant level for this shield coin. The market dynamics are low, approximately average for this ticker. This is a good signal to enter. For more confidence, you can enter in the middle of the next candle. If you see that the movement against the market has begun, then you can get into it. This way you minimize your risks.
In this example, the retention time is about 5 minutes and we could earn about 2%.
Consider the SAGAUSDT ticker. The liquidation value exceeded 10K, which is a significant level for this currency. At the same time, there were no more liquidations and the direction of movement changed. The market dynamics is not much higher than the average for the instrument. We decide to enter the position after the first counter-directional candle.
In about 4 minutes, this movement gave about +2.5% and was accompanied by an increase in market dynamics. Which can also be interpreted as a small strait for this ticker.
IMPORTANT! Trading involves risks. The user is solely responsible for their actions or inactions when using the described trading strategy. The strategy and its description are for informational purposes only. The information provided here does not constitute personalized investment advice. News, articles, expert comments, research, forecasts, and other information are presented without considering any specific investment profile, and the financial instruments or operations mentioned may not align with the expected returns, investment horizon, or acceptable risk levels for any particular user. Company 1EX is not responsible for any potential losses resulting from trades based on the described strategy or investments in the financial instruments mentioned in this publication.
