If you’re trading cryptocurrencies and you most likely have come across the famous liquidation heat map, which are a bunch of colours on a chart showing on which levels the majority of the liquidations are going to be. You may wonder, why is this important as a trader? Well, these liquidation heatmaps can really help in making price predictions on Bitcoin. Let’s dive into the mechanics of these liquidation heat maps and look why they present such valuable information. 

 

What are Liquidation heatmaps ?

Short answer: it forecasts the price levels where significant liquidation events are likely to happen.

But there are many aspects about these charts that can be discovered and understood. Let’s dive a bit deeper into this. 

 

What does a Liquidation event mean?

A liquidation happens when a trader's positions is closed because price fluctuations have depleted their margin account balance below the required level. In simple terms, the trader has lost his trade because the price went into the opposite direction of his prediction. A liquidation event means, a moment or price level where many traders at the same time get liquidated from their trading position. When a lot of liquidity is concentrated on a specific price level, the chances increases for the price of Bitcoin to actually reach that level as liquidity can work like a magnet. But before we’re looking into the why and how’s, let’s have a look how to read a liquidation heat map. 

 

How to read liquidation heatmaps

While the price of Bitcoin moves, traders are constantly opening new trades. All these trades are coming with a liquidation price. When the amount of liquidity that can be liquidated increases on a specific price level it is shown with a color, ranging from blue to yellow. Blue meaning there is not many liquidations, yellow telling us that there are many liquidations at that specific price level. 

In the chart above you can see a clear yellow line slightly above 68’000. This shows that at that specific level, many liquidations will occur if the price of Bitcoin will meet that level. That directly shows as well that most traders are long, speculating that the price of Bitcoin increases. Because they where short, speculating that the price will decrease, the liquidation level would be above the current price. 

 

How can you use the Liquidation heatmap? 

You can use the liquidation heat map in multiple ways for your trading and price predictions on Bitcoin and other cryptocurrencies. 

• Magnet: The concentrated liquidity may act as a magnet for the price, as the market mechanism supply and demand often seeks places with most liquidity. Chances increases that price meets the levels where many liquidations are concentrated. 
• Support and Resistance: Traders can use these zones as well to look for potential support and resistance levels. These levels can be used as entry or exit levels or be seen as important levels to watch for traders. 
• Confirmation of other indications: This metric can also be used to strengthen other metrics. So let’s say you use another indicator like the buying and selling pressure heat map, if there is a lot of selling pressure, and a possible liquidation event is below the current price levels, they might compliment each other and increase the chances of a declining Bitcoin price. 

 

 

The power of combining Bitcoin heat maps

There are various types of heat maps that visualize specific data on the Bitcoin chart, in this article we’ve discussed about the liquidation levels, but there are also heat maps that visualise sentiment or buying and selling pressure. The major advantage of a heat map is its easy readability, providing traders with a clear overview of the trends and patterns. Combining these heat maps together makes them even more powerful. 

 

Buying and selling pressure heatmap

The buying and selling pressure heatmap shows exactly when there is buying or selling pressure present in the markets.

In the chart above you can see exactly whenever there is buying pressure (green dots) or decreased selling pressure, the price goes up. Now if you would combine this with the liquidation heatmap, they can compliment each other. Let’s have a look at the first green box. 

That green box was a consolidation period where Bitcoin moved mainly sideways, preparing for a bigger move to the upside. But, most traders did not expected this move, as you can see the liquidation level was above the price, showing that most traders where actually shorting the market. If you would have looked at the liquidation heatmap combined with the buying and selling pressure heatmap, you could see that both data would point towards a price increase for Bitcoin. 

 

Conclusion

In short, Bitcoin liquidation heatmaps is a powerful tool that can improve your trading strategy. These heatmaps show where major liquidation events are likely to happen, helping you predict price movements more accurately. By spotting areas with high liquidity, you can identify price levels Bitcoin is likely to revisit, using these as key indicators for support, resistance, and overall market direction.

When you combine liquidation heatmaps with other types of heatmaps, like buying and selling pressure heatmaps, you get an even clearer picture of market trends. This combination helps confirm your predictions and makes your trading decisions more reliable. The real advantage of these tools is how they turn complex data into easy-to-read visuals, making them useful for both new and experienced traders.