How can you determine the best entry and exit points during a liquidation event?

1 What is a liquidation event?

A liquidation event is a situation where a large number of traders are forced to close their positions due to margin calls, stop losses, or risk management protocols. This can happen when the market moves against their expectations, triggering a cascade of orders that amplify the price movement. Liquidation events can occur in any market, but they are more common and severe in crypto markets, where volatility and leverage are higher.

2 How to spot a liquidation event?

One of the most reliable indicators of a liquidation event is the funding rate, which measures the cost of holding a leveraged position in a futures or perpetual contract. The funding rate is usually positive, meaning that long traders pay short traders a fee every 8 hours. However, when the funding rate becomes extremely high or negative, it indicates that one side of the market is overextended and vulnerable to a reversal. You can monitor the funding rate on various platforms, such as TradingView or Bybit.

3 How to enter during a liquidation event?

The best time to enter during a liquidation event is when the price reaches a significant support or resistance level, where the liquidation pressure is likely to ease or reverse. You can use tools such as horizontal lines, trend lines, Fibonacci retracements, or moving averages to identify these levels. You should also look for signs of divergence, which occur when the price and an oscillator, such as the RSI or MACD, move in opposite directions. Divergence indicates that the momentum of the price movement is weakening and a reversal is possible.

4 How to exit during a liquidation event?

The best time to exit during a liquidation event is when the price reaches your target or stops moving in your favor. You can use tools such as trailing stops, profit targets, or pivot points to determine your exit point. You should also be aware of the psychological factors that can affect your decision making, such as fear, greed, or confirmation bias. You should avoid being too greedy or fearful, and stick to your trading plan and risk management rules.

5 How to avoid being liquidated yourself?

The best way to avoid being liquidated yourself is to trade with proper leverage and position sizing, and use stop losses and risk-reward ratios. You should never trade with more than you can afford to lose, and always calculate your liquidation price before entering a trade. You should also avoid trading against the trend, and follow the market sentiment and indicators. You should also keep a cool head and avoid emotional trading, especially during high volatility periods.

6 How to learn from a liquidation event?

The best way to learn from a liquidation event is to review your trades and analyze your performance. You should keep a trading journal and record your entries, exits, reasons, emotions, and outcomes. You should also compare your results with the market data and indicators, and identify your strengths and weaknesses. You should also seek feedback from other traders and experts, and learn from their experiences and insights. You should also update your trading strategy and improve your skills and knowledge.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?