When I started trading futures, I kept getting stopped out by wicks that looked random. Price would spike a little past a level, take my stop, and then go back the way it came.
Later I learned these wicks are often not random at all. They happen where a lot of leveraged positions get force-closed at the same price. So I built two indicators for my own app to see those places before price gets there:
- liquidation heatmap, which estimates where leveraged positions would be liquidated
- liquidations histogram, which shows the liquidations that really happened
This article is only about these two, and how they work together. Everything here is analysis, not financial advice.
BTC/USDT, 4h, around October 27, 2026. Heatmap on the chart, liquidations histogram at the bottom.
What a liquidation heatmap shows
On a futures exchange you post margin and borrow the rest. If price moves against you far enough, the exchange closes your position automatically. That closing price is your liquidation level.
A liquidation is a forced market order. When many positions share almost the same liquidation price, price reaching that level triggers a pile of market orders at once. That can speed a move up, or create a sudden wick that absorbs the orders and then reverses.
A heatmap draws those levels next to the price axis. The brighter the band, the more leverage is estimated to sit there. In the chart above, the bright yellow bands are the dense zones, and the dark blue areas are mostly empty.
One thing I want to be clear about: it is an estimate. Nobody outside the exchanges can see individual positions. The heatmap is a model.
How I estimate the levels
The basic idea is simple. For a long position opened at price entry with leverage L, the liquidation price is roughly:
liq_long = entry * (1 - 1 / L)
liq_short = entry * (1 + 1 / L)
This ignores maintenance margin and fees, so real exchange formulas differ slightly. But it shows why leverage matters: a 100x long is liquidated about 1% below entry, a 10x long about 10% below.
The hard part is not the formula. It is deciding where positions were opened and with which leverage. I use open interest changes and trade data to estimate where new positions were added, spread them over a range of leverage tiers, and project each one to its liquidation level. Then I add everything up per price bucket.
In the app I kept several versions of this model (v1 to v4). Model 4 is the one I use by default, and it is the one in the chart. The leverage filter is set to "all", so every leverage tier is included, and the brightness is set to relative, so colors are scaled against the strongest levels in the current view and not against a fixed number.
Why one exchange is not enough
My first version used Binance only. It looked nice, but it was biased: it only knows what happens on Binance. A big long on Bybit or on Hyperliquid was invisible.
Now the heatmap combines three sources: Binance, Bybit and Hyperliquid. In the app you can toggle each one on or off, so you can see how much each exchange changes the picture. More coverage gives a more complete map, but it is still not the whole market. I am planning to add more futures exchanges later, because every extra source should make the levels less biased.
Reading the BTC chart
At the time of the screenshot BTC was trading around $80,300 on the 4h chart.
- Above price there is a strong group of bright bands between roughly $87,000 and $90,000. These are mostly short positions that would be liquidated by a rally.
- Just below price, around $78,000 to $79,500, there is another dense yellow zone, and further down a clear band near $74,000. These are mostly longs that would be liquidated by a drop.
- Price has been drifting down from the October 21 high near $85,000 and is now sitting directly on top of the lower cluster.
So the map says: there is a lot of leverage close below price and even more far above it. It does not say which way price goes. It only shows where forced orders are waiting.
The second indicator: the liquidations histogram
A heatmap shows where liquidations could happen. I also want to know where they did happen, so I added the liquidations histogram from my Flow indicator. It is the row of small bars at the bottom of the chart.
Each bar is the amount of liquidations in one candle. Bars above the middle line and bars below it separate the two sides (long and short liquidations), and a tall bar means a lot of forced closing in that candle.
Used together, the two indicators answer two different questions:
- Heatmap: where is the fuel?
- Histogram: was the fuel actually burned?
On the chart, you can see a tall teal bar on October 24, right when price pushed into the area just above $79,000 and then bounced. That is the kind of confirmation I look for: price reaches a dense zone, liquidations spike, and then the selling (or buying) fades.
How I use it
Finding targets. The nearest bright cluster in the direction of a move is a natural target, or a place where I do not expect a quick extension.
Looking for reversals. If price reaches a big cluster, the histogram spikes, and price then stops making new highs or lows, forced orders may be exhausted. I never treat this alone as a signal. I wait for price action to confirm it.
Placing stops. Stops placed just beyond a bright cluster are the ones that get swept. I give them room, or I wait for the sweep to finish.
What it cannot do
- It is modeled data. It can be wrong, especially for exchanges it does not include.
- Clusters move. When price moves, positions get closed and new ones get opened, so the map changes.
- A cluster does not give a direction. Price can run through it as easily as bounce off it.
What I learned building it
- The formula is easy. The data is the hard part.
- More exchanges give a better picture, but also more work to keep in sync.
- A heatmap on its own is a nice picture. It becomes useful when you add something that confirms what really happened, like the liquidations histogram.
Trade like a PRO: Liquidation Heatmap Indicator Explained | AiTraderView Tutorial
Both indicators are part of the Crypto Cockpit in AiTraderView, which is free to use. It is built for analysis only, with no trade execution.
I would like to hear from you: do you trust liquidation heatmaps, and which exchange data would you want added next?
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