Liquidation hunting ❗️
Liquidation hunting, also known as stop-loss hunting, is a strategy in the cryptocurrency market where larger traders or market makers intentionally move the price of an asset to trigger the stop-loss orders or margin calls of other traders. Here's how it typically works:❗️
1. **Identifying Stop-Loss Levels**: Large traders or market makers analyze the order book and trading patterns to identify where smaller traders have set their stop-loss orders or liquidation points.
2. **Pushing the Price**: Once these levels are identified, they can push the price toward these points by placing large buy or sell orders, creating a sudden spike or drop in the price.
3. **Triggering Liquidations**: When the price reaches these stop-loss levels, it triggers automatic sell or buy orders, causing a chain reaction that can further push the price in the desired direction.
4. **Profiting from the Move**: After the stop-loss orders are triggered, the large traders can then take advantage of the new price levels to close their positions at a profit.
Liquidation hunting can create significant volatility in the market, leading to rapid price movements that can be unpredictable and challenging for smaller traders to navigate.