KF - Liquidations Heatmap
Unveiling Market Dynamics: A Glimpse into the Normalized Liquidation Map
A liquidation event is when a trader's position is forcibly closed due to adverse price movements that render their margin account insufficient to support their open positions. Anticipating other traders' liquidation levels can offer a strategic advantage, akin to knowing where high liquidity exists in the order book. Kingfisher seeks to forecast where substantial liquidations might occur to aid traders.
The Liquidation Heatmap operates by computing liquidation levels using market data and varying leverage amounts. We aggregate our own data over time to display this view. We also normalise the data. These levels are then plotted on a chart. The heatmap's color changes as more estimated liquidation levels converge on a specific price, with a gradient scale that represent Z-score.
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 orange) suggest extreme data points. These are values that are significantly different from the mean.
We could mention a "higher signature of bet", it suggests these higher Z-scores might represent 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 or green on a heatmap) suggest that these data points are closer to the mean. They are less extreme and less deviant from 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, among other things.
Optical will zoom as a lens and provide a higher granularity on the short term.
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