Liquidations mark cryptocurrencies but, when you know how to read the indices well, it is easy to predict them. At the same time, on-chain data allows us to see things more clearly, while some notable events also play a role.
Liquidation is an old friend of the cryptocurrency market. Although it is annoying, it can be detected very easily to give you time to protect yourself.
In a bull market, sell-offs and other price declines are common. Although they are annoying at first, they are what allow cryptocurrencies to release the pressure and go higher and higher. Even better: several indicators allow you to detect it in advance and prepare with peace of mind.
A Few Very Simple Indicators Can Detect a Liquidation
Fear and greed index at an all-time high. The entire crypto sphere knows it: The Fear and Greed index is the true thermometer of the market. It indicates the purchase deadlines or, on the contrary, a possible flight of investors.
The RSI explodes. The relative strength index is an oscillator that allows you to see if a cryptocurrency is overbought or undervalued. If it is above 65-70, it means that a token is heavily accumulated and there are chances of its holders abandoning it in the coming days.
However, it is paramount to keep in mind that it is not enough to rely on this indicator to predict a liquidation. Divergences exist and it is possible for an asset to maintain a very high RSI for a long time before its price falls again.
Course analysis. A quick look at crypto analysts helps protect against a possible surprise crash. Therefore, consulting an index should always be accompanied by a study of the price of the cryptocurrency of interest, to find out possible danger zones, peaks and resistances to monitor.
Announcing difficult resistance, predicting a possible retest, tracking a divergence or a known bearish pattern can help investors to avoid surprises.
On-Chain Data to See Things More Clearly in the Crypto Market
Decrease in Operational Volumes. Are investors neglecting their favorite cryptocurrency despite a long period of growth? Trading volumes are a good indicator of trader sentiment. In fact, if these begin to run out, it may indicate that investors have lost confidence or interest in a token.
Whales in the Crypto Market. When a trend takes hold, whales are always the first to provoke or follow it. For this reason, large holders are always closely monitored, in particular to detect possible deposits on their part. When they transfer large amounts of tokens to a crypto platform, it may mean that they are preparing to sell.
Metrics like the whale exchange rate make this easier to see. As CryptoQuant points out, this measures inflows from large holders relative to total inflows. If it is between 85% and 90%, then there are chances of a liquidation in the next few hours.
Crypto Events Also Matter
In addition to small macroeconomic factors in the industry, various events can cause its liquidation. Among the most notable, we highlight the famous crypto vesting, during which millions of tokens are unlocked and are subject to the goodwill of their holders.
Litigation, the resale of assets after a bankruptcy or even the dreaded Fed meetings also contribute disadvantages to the market. To prepare well, follow the news closely!
The moral of the story is that the problem is not seeing big or small, but seeing a sale from afar.
By Leonardo Perez
