KF - Liquidations Heatmap
Unveiling Market Dynamics: A Glimpse into the Normalized Liquidation Map
Available to Pro and Premium subscribers as well as weekly trials
What is a Liquidation Event?
Definition: A liquidation event occurs when a trader's position is forcibly closed due to market movements that deplete their margin account below the required level to maintain open positions.
Strategic Advantage: Anticipating other traders' liquidation levels can provide insights similar to understanding high liquidity zones in the order book.
Kingfisher's Approach to Forecasting Liquidations:
Purpose: Kingfisher aims to predict significant liquidation events to assist traders in their decision-making process.
Methodology:
Data Computation: Utilizes market data and various leverage amounts to compute liquidation levels.
Data Aggregation: Kingfisher aggregates and normalizes data over time to enhance accuracy and relevance.
Visualization: The computed levels are plotted on a chart for easy interpretation.
Liquidation Heatmap Features:
Color Indicators: The heatmap changes colors at points where estimated liquidation levels cluster, indicating potential market pressure points.
Gradient Scale: A gradient scale, representing the Z-score, is used to visually depict the concentration of liquidation levels at specific price points.
By providing a visual representation of where significant liquidation events are likely to occur, the Kingfisher Liquidation Heatmap serves as a valuable tool for traders. It enables them to identify potential market shifts and adjust their strategies accordingly, enhancing their ability to navigate the complexities of trading with leveraged positions.
The Z-score is a statistical measurement that describes a value's relationship to the mean (average) of a group of values. It's measured in terms of standard deviations from the mean. If a Z-score is 0, it indicates that the data point's score is identical to the mean score.
In the context of a heatmap using a gradient to display the Z-score of your data, high Z-scores (typically displayed by warmer colors such as red or purple) suggest extreme data points. These are values that are significantly different from the mean.
These higher Z-scores also show major players' signatures, representing scenarios where either someone has insider information or a situation that carries higher risk (for example, a scenario where many traders might "blow up" or incur significant losses at a certain price).
This is because these situations would tend to deviate from the normal behavior, and thus have high Z-scores.
Low Z-scores, conversely, (displayed by cooler colors like blue, green, or transparent on the heatmap) suggest that these data points are closer to the mean. They are less extreme and less deviant than the average behavior. In the trading context, a low Z-score might indicate areas where the price tends to be more stable and less volatile. These might be the intervals where the price tends to stop when it is lower.
Remember, the interpretation of the Z-score is context-dependent and is related to the specifics of the market condition.
In the context of trading, Z-scores could be used as indicators of volatility forecast, risk, or potential profit/loss scenarios for example.
Optical Opti will zoom in and show Short-Term High Leverages liquidations, giving an interesting short-term view of the price action.
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