Liquidation cascades and open interest
You will learn to
- Why crypto moves in bursts
- What open interest adds
- Reading squeezes
Cascades
Liquidations are market orders. When price falls into a cluster of leveraged longs' liquidation prices, their forced selling pushes price lower, into the next cluster — a cascade. The same works upward for shorts (a short squeeze). These produce the long wicks and sudden 5–10% candles crypto is known for, often followed by a sharp rebound once the forced flow is done.
Open interest
Open interest (OI) is the number of contracts open. Reading it with price:
| Price | OI | Read |
|---|---|---|
| Up | Up | New longs opening — fresh participation |
| Up | Down | Shorts closing — a squeeze, often short-lived |
| Down | Up | New shorts opening |
| Down | Down | Longs closing / being liquidated |
Using it
- After a cascade (big wick, liquidation spike on the Flow tab, OI dropping sharply), chasing in the cascade's direction is late.
- Rising OI with very positive funding into resistance = crowded longs; a failure there can cascade.
The Market tab's read includes open interest, crowd positioning and funding; the Flow tab shows liquidations live.
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Check yourself
1. Price rises sharply while open interest falls. Most likely…
- New longs piling in
- Shorts being closed — a squeeze ✓
- Nothing
Positions are closing while price rises: shorts buying back.
2. Why do liquidation cascades accelerate?
- Liquidations are market orders that push price into more liquidations ✓
- Exchanges choose to
- Funding changes
Forced orders feed on themselves.
Terms in this lesson
- Liquidation cascade
- Forced closes pushing price into more forced closes.
- Open interest
- The number of open futures contracts.
- Short squeeze
- A rally driven by shorts being forced to buy back.
Practise it on real charts. In the app, this lesson comes with real examples (reveal what happened next), a graded drill and the track test. Open the Academy in NexusCore — free →