The Practicality of Liquidation Heatmaps is Overestimated

On September 28, Benson Sun, founder of Coinkarma, stated that the practicality of liquidation heatmaps is overestimated. Many traders see a concentration of liquidations at a certain price level and assume that the price will definitely sweep through this area, but liquidation charts contain many assumptions. Most liquidation heatmaps are derived from historical market transactions, combined with assumed leverage multiples (such as 5x, 10x, 20x, etc.) to infer possible liquidation positions. The concentration of liquidations that users see does not necessarily represent an actual number of positions waiting to be liquidated; there are too many variables in reality. Some traders may have exited the market, or their position sizes, margins, or average costs may have changed due to adding to positions, reducing positions, or margin calls, causing the liquidation heatmap to change accordingly. The reference value of liquidation heatmaps mainly focuses on the recent 24 hours to 3 days; concentrations from 7 days, 30 days, or even months ago should not be regarded as current "magnet price levels." Although liquidation heatmaps can serve as auxiliary information for short-term market structure, they should not occupy too large a proportion in the trading system to avoid creating false certainty. There will always be concentrations of liquidations above and below the price, which can be explained after the fact following price movements, making them difficult to falsify in advance. Therefore, they should not be viewed as analytical tools but rather as pure metaphysics.

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