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- TSP#8: Liquidation Pools
Marco Johanning
Hello everyone!
Welcome to the eighth edition of my newsletter! Every Saturday I’ll be sending out a quick newsletter on how to master crypto. I write about mindset, trends and analysis.
Today, I focus on liquidation pools. They are crucial indicators in trading as they provide insights into where market makers could potentially move the price.
What are liquidity pools?
The largest volume in the financial sector is not in the spot market but rather in trading derivative instruments such as futures. When traders employ leverage, they also use stop losses, and there is a liquidation price involved.
Leveraged trading - an example: If I buy BTC at $20,000 with a leverage of 2, my liquidation price would be $10,000. If the price reaches that level, I would lose the entire position unless I inject more funds.
A simply way to understand this: with a leverage of two, each percentage change in the price corresponds to a two percent change due to the leverage. A price movement of -50% would result in a loss of 100% and trigger liquidation.
With a leverage of 10, a 10% adverse price movement would be sufficient to trigger liquidation, and so on.
Traders who engage in leveraged trading with significant volumes often place their stops or, in the case of higher leverage, their liquidation levels behind important resistances or supports.
Many traders use similar or identical price levels, leading to the accumulation of stops and liquidation orders at specific areas.
These zones are of great interest to market makers as substantial sums are concentrated there. Each triggered stop order and liquidation represents a loss for one party and a gain for another.
Of course, you can’t rely solely on liquidity pools. Other factors such as news, hype, and more also come into play. It becomes a question of whether it is worth breaking through a particular crucial support line. Ultimately, the analysis before a trade incorporates multiple factors.
Liquidity pools are a significant component as they can reveal valuable insights into the intentions of market makers. However, it is worth mentioning that heatmap services like the one provided by Hyblock, priced at $99 per month, can be quite expensive.
Instead, I will keep you updated on important zones, and I also recommend two fantastic technical analysis experts who regularly report on significant zones. This way, you can save your money while staying informed.
Doctor Profit:
CRYPTO MARKET CAP:
Important support, market needs to bounce here otherwise blood awaits when breaking down
You can be as emotional as you want, let the charts speak and there is no break in structure. If breakdown, you have the right to cry
As long its respected, stay silent twitter.com/i/web/status/1…
— Doctor Profit 🇨🇭 (@DrProfitCrypto)
8:54 PM • Jun 7, 2023
and CrypNuevo:
📝Trading strategy
Most traders here lose money and most of them don't know anything about the Market Sessions.
It's crazy that we have the same Price Action every single week and most people can't see it.
This should be basic knowledge and one of the first things you learn.
— CrypNuevo 🔨 (@CrypNuevo)
10:30 PM • Apr 21, 2022
I greet you from my vacation and now I'm diving into this pool (Baltic Sea)! With my best regards and wishes, I hope you have a wonderful weekend.
Marco
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