Coinkarma Founder Benson Sun Says the Usefulness of Liquidation Heatmaps Is Overestimated

AT A GLANCE

Benson Sun believes that liquidation heatmaps rely on multiple assumptions and should only be used as short-term supplementary information.

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Opinion: The usefulness of liquidation heatmaps is vastly overestimated and should not constitute a large component of a trading system

BlockBeats reports,September 28, Coinkarma founder Benson Sun said that the usefulness of liquidation heatmaps is vastly overestimated. Many traders now see a large liquidation cluster at a certain price level and directly interpret it as meaning that "the price will definitely go sweep this area." However, liquidation heatmaps themselves contain many assumptions. Most liquidation heatmaps use historical market trading data and apply a set of assumed leverage multiples, such as 5x, 10x, 20x, 30x, and 50x, to infer the price levels at which the positions resulting from those trades "might" be liquidated.

Therefore, the liquidation clusters users see do not mean that exactly the same number of positions are actually sitting there waiting to be liquidated; there are too many variables in between. These traders may have already exited. Some may add to their positions, some may reduce them, and some may add margin. As long as the position size, margin, or average cost changes, the liquidation heatmap will move accordingly. The longer the time period, the greater this error becomes.

Therefore, the most informative range on a liquidation heatmap is probably only the most recent 24 hours to 3 days. Looking further back at 7 days, 30 days, or even several months and treating liquidation clusters from then as the current "magnet price levels" is meaningless. Liquidation heatmaps can be used as supplementary information on short-term market structure, but should not constitute too large a component of a trading system, because they can easily create a false sense of certainty. There will always be liquidation clusters above and below the price. If the price rises, one can say it first swept the short positions above. If it falls, one can say it first swept the long positions below. If it falls and then rises, one can say it first swept the longs and then the shorts. There is always a post hoc explanation, and it is difficult to falsify in advance. This is not an analytical tool but pure superstition.

Original link https://m.theblockbeats.info/flash/369361

Key points

BlockBeats reports that,September 28, Coinkarma founder Benson Sun said that the usefulness of liquidation heatmaps is overestimated.
Benson Sun said that most liquidation heatmaps infer possible liquidation price levels from trading history and assumed leverage multiples of 5x, 10x, 20x, 30x, and 50x.
He believes that when the position size, margin, or average cost changes, the liquidation heatmap will also move, and that the error increases over time.
He believes that the most informative range on a liquidation heatmap is approximately the most recent 24 hours to 3 days.
He said that liquidation heatmaps can serve as supplementary information on short-term market structure, but should not constitute too large a component of a trading system.

AI-assisted interpretation

The following is analysis, separate from reported facts. Verify important claims independently.

Liquidation heatmaps attempt to show the prices around which forced liquidations may be concentrated. However, according to Benson Sun, these levels are inferred from trading history and assumed leverage multiples rather than being a list of actual positions. After traders exit, add to or reduce their positions, or add margin, the estimated levels on the chart may become inaccurate. Therefore, he places greater weight on data from the most recent 24 hours to 3 days.

Why it matters to readers

If traders treat inferred liquidation clusters as targets that the price will definitely reach, they may develop a false sense of certainty. This view advocates limiting their use to short-term supplementary information rather than treating them as a primary basis for trading.

Beginners should note that the areas shown on a heatmap are potential zones inferred from assumptions; they do not mean that the price will necessarily move there, nor do they indicate that exactly the same number of positions awaiting liquidation actually exists there.

Risks and unknowns

The original text presents Benson Sun's views on trading methodology and provides no historical backtesting or real-time data validation.
The original text alone cannot confirm that the most recent 24 hours to 3 days constitute a consistently effective reference range.
The original text alone cannot confirm whether different liquidation heatmaps use the same calculation methods and leverage assumptions.

Coinkarma Founder Benson Sun Says the Usefulness of Liquidation Heatmaps Is Overestimated

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