If you thought margin trading liquidation levels only mattered to those trading with leverage, think again. Margin traders wield significantly more capital than your average retail investor, and their collective behavior can move markets quite predictably. The basic premise (theory popularized by Forrest @Cryptostackers YouTube) is that margin traders will have their liquidation points protected by strong support (for longs) or resistance (for shorts). Therefore, by simply identifying strong support/resistance levels, we can predict the thresholds at which margin buying and selling pressure will subside.
This indicator is interactive, so it just takes a click. Select a strong support level to see where margin buying pressure is likely to drop off, i.e. where to expect resistance and a potential local top. Or, select a strong resistance level to see expected support and anticipate the local bottom. Even better, look at long and short levels together to identify high probability support/resistance zones where levels align.
And for margin traders, this indicator makes life easy. Just click to select the support/resistance you want protecting your liquidation level, and quickly see the amount of leverage is safe to trade with.
Release Notes
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Tooltip variable as global var to avoid repeated evaluation
Release Notes
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Added settings to customize text size and vertical padding for levels
Great script man, thanks for sharing. It would be helpful if one could decrease or increase the intensity of the liquidation thresholds, the ability to do this exists in the indicator but the transparency does not work. cheers
Project_Money_Heist
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Is this indicator created mostly for Bitcoin ? Or it works also on Forex ( draw wired levels that are far away ) and for stock market as well ?
reees
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@Project_Money_Heist, this concept would apply to any market that sees a substantial amount of margin trading. I don't have a ton of experience in forex, but I know leverage is a big part of how traders make money in that market. The difference between that and the crypto market would be volatility, and the prevalent leverage ratios based on that volatility. I.e. Crypto prices are very volatile, and therefore 2x, 3x, 5x leverage are more than enough R:R in that market. In forex, prices are much less volatile, and therefore I would imagine that margin traders would more commonly trade on higher leverage (50x, 100x, etc).
In settings, there is a custom level that you can set to whatever you want (i.e. whatever you think is the most common leverage ratio in a given market). You can also turn off the other levels that you don't want to see (i.e. in forex, 2x might be a stretch so you probably don't want to see it).
Charles_Crypto
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Amazing, Thank you so much. I created the "EZBands" based on your 2x & 3x Liq levels.
tmyerskerry
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Maybe just a question of labelling but noticed on cryptostackers video on margin pressure levels posted on Aug 31st 2022. I watched where he placed his local high and did the same with your indicator. But noticed on your indicator it marks 4x whereas his indicator would label the same point as 3x. Not a big deal obviously by just curious.
reees
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@tmyerskerry, in his video, were there multiple sets of levels drawn on the same chart? The levels you saw may have corresponded with another support/resistance, or he could have simply made a mistake if he drew the lines manually. I doubt there's a bug in his indicator because it's had a lot of exposure and he would have noticed. In any case, the calculation is correct on this indicator. The math is pretty simple. For short levels, it's just ((n-1)/n) * resistance_lvl (where n is the leverage multiplier, and resistance_lvl is your local high/resistance). So for 3x, that's .667*resistance_lvl (you've essentially borrowed 2/3 of the total position size). Therefore when price is below 2/3 of the resistance_lvl, shorting on 3x leverage will put your liquidation point below that resistance level. Hope that helps.