1. Massive Liquidations
In times of high volatility and downward pressure, massive liquidations are one of the main catalysts for accelerated declines in the market. This occurs when traders with leveraged positions (long or short) fail to maintain the required margin to sustain their trades.
How Do Liquidations Work?
• Exchanges automatically liquidate leveraged positions when the price reaches levels where the initial margin can no longer cover the losses.
• In bearish markets, liquidations in long positions (longs) generate more forced selling, increasing the downward pressure.
Impact on Altcoins
1. Lower Liquidity:
• Altcoins tend to have lower volume and liquidity than Bitcoin or Ethereum, which makes liquidations have a greater and more abrupt impact on their prices.
2. Chain Effect:
• When a significant altcoin suffers massive liquidations, this can trigger liquidations in other related altcoins, exacerbating the decline.
3. Forced Sales:
• Liquidations push prices down rapidly, triggering stops of other traders and causing a cycle of automatic selling.
Practical Example
If a trader has a 10x leveraged position in an altcoin like BIO, with an entry price of $0.70 and insufficient margin, a 10% drop to $0.63 could liquidate their position. This generates automatic sales, intensifying the drop to lower levels.
How to Protect Yourself?
1. Avoid High Levels of Leverage:
• Use conservative leverage, especially in volatile markets.
2. Use Proper Stops:
• Set tight stops to limit losses without relying solely on margin.
3. Monitor Open Interest:
• Analyze open interest in futures contracts to anticipate possible massive liquidation events.
s4. Take Advantage of Momentum:
• If you identify a clear liquidation pattern
