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The Lab
Ideas traders use, put to the record · updated 30 Oct 2026 21:56 UTC
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#7 Liquidation cascades A hint
The idea
When a wave of longs is liquidated, the selling is forced, not a view of the price: once it is over, the price tends to bounce back.
Why test it
Liquidation feeds are watched for "cascades", and buying the flush is a common rule. The other story says forced selling marks a market that is breaking, and the fall goes on. The record can tell which.
What we tested
Every five minutes, for each coin: the dollars of longs liquidated over the last hour, minus the dollars of shorts, on the three exchanges. Against: the price change over the next hour. Data: our own record of liquidations on OKX, Bybit and Binance, and of the price every five minutes; 32 coins, 171,469 snapshots.
Record tested: 11 Oct 2026 – 30 Oct 2026 · first run: 13 Oct 2026 · numbers as of: 30 Oct 2026 21:56 UTC, updated every minute.
What we found
A hint. Something, as the idea says, but not clearly more than chance. After the snapshots when the most longs were forced out, the next hour went 0.8 bps better than after the snapshots when the most shorts were forced out: under $1 on every $10,000.
Every snapshot of every coin sorted into five equal groups by the signal, low to high, and the average move over the next hour after each group, in basis points (0.01%) above or below the average move. If the idea were right, the bars would climb from left to right.
How sure
- ✗ More than chance. t +2.5; we ask for beyond ±3, not the usual ±2, because coins move together and the moves overlap.
- ✗ The same in most coins. 21 of 32 coins point the same way; we ask for 70%.
- ✗ The same every day. 16 of 20 days point the same way.
- ✓ Not just the price bouncing back. With the last hour's price move taken out, the correlation is +0.025 (t +4.3), against +0.016 before; it must stay beyond ±3.
- … Holds on new data. Waiting: 17 of the 30 days it needs. Only the record from 14 Oct 2026 on counts here, because the settings were fixed before it existed. So far: +0.034 (t +5.3).
- ✗ Big enough to pay its costs. The highest fifth against the lowest: +0.8 bps, against about 10 bps for a round trip at typical fees.
What could still be wrong
The record is days, not years, and one wild day can fill it. Binance reports at most one liquidation a second for each coin, so its totals are a floor. Liquidations come right after the price moves, so the bounce test matters most here. Most hours have no liquidations at all, so the middle groups hold the quiet hours and are not equal in size. The settings were fixed on 13 Oct 2026, before any of its numbers were seen.
All the numbers
By day · mean rank correlation
| +0.063 11 Oct | +0.083 12 Oct | +0.002 13 Oct | +0.149 14 Oct | +0.074 15 Oct | +0.060 16 Oct | +0.124 17 Oct | -0.057 18 Oct | +0.132 19 Oct | +0.231 20 Oct | +0.135 21 Oct | +0.072 22 Oct | +0.029 23 Oct | -0.027 24 Oct | +0.015 25 Oct | +0.268 26 Oct | +0.152 27 Oct | -0.059 28 Oct | -0.182 29 Oct | +0.081 30 Oct |
Other settings · mean rank correlation
| next 15 min | next 60 min | next 4 h | |
|---|---|---|---|
| liquidations, last 15 min | +0.033 t +10.3 | +0.019 t +4.0 | +0.011 t +2.4 |
| liquidations, last 60 min | +0.013 t +3.2 | +0.016 t +2.5 | +0.014 t +1.8 |
| liquidations, last 4 h | +0.033 t +10.7 | +0.048 t +7.4 | +0.084 t +7.7 |
The test above is the last 60 min against the next 60 min; these are the other spans. With several tries one will look good by luck, so all are shown.
By coin · rank correlation
| coin | rank corr. |
|---|---|
| MAGIC | +0.124 |
| STRK | +0.085 |
| SUI | +0.062 |
| ADA | +0.059 |
| RSR | +0.052 |
| DOGE | +0.045 |
| ZRO | +0.042 |
| DOT | +0.037 |
| S | +0.036 |
| W | +0.031 |
| ARB | +0.030 |
| TAO | +0.029 |
| BTC | +0.027 |
| AVAX | +0.019 |
| FIL | +0.018 |
| TIA | +0.017 |
| LTC | +0.014 |
| SOL | +0.012 |
| GRASS | +0.011 |
| ETH | +0.006 |
| XRP | +0.005 |
| AAVE | -0.006 |
| APT | -0.007 |
| NEAR | -0.008 |
| UNI | -0.010 |
| ZEC | -0.011 |
| HYPE | -0.012 |
| LINK | -0.014 |
| INJ | -0.029 |
| ONDO | -0.038 |
| WLD | -0.040 |
| ENA | -0.062 |
Update, 27 October 2026: where the idea comes from
Added after this page was published. The study above is left as it was.
- Forced selling that feeds itself is Markus Brunnermeier and Lasse Pedersen's margin spiral (2009). Carol Osler showed in 2005, in currency markets, that forced orders push the price further once set off. "Buying the flush" bets the push ends and the price comes back.
- For example: in an hour, 30 million dollars of longs and 5 million of shorts liquidated give +25 million, a flush of longs.
- The catch: our record of liquidations starts on 11 October 2026. And Binance reports at most one liquidation a coin each second, so its totals are a floor.
- Theirs and ours. The margin spiral and the cascades are theirs. The record, the longs-minus-shorts measure and the test are ours.
Credits
- Markus K. Brunnermeier and Lasse Heje Pedersen, "Market Liquidity and Funding Liquidity", Review of Financial Studies, 2009: forced selling that feeds on itself.
- C. L. Osler, "Stop-Loss Orders and Price Cascades in Currency Markets", Journal of International Money and Finance, 2005: forced orders that push the price further.
- Charles Spearman, "The Proof and Measurement of Association between Two Things", American Journal of Psychology, 1904: the rank correlation.
- "Student" (William Sealy Gosset), "The Probable Error of a Mean", Biometrika, 1908: the t-statistic.
- G. Udny Yule, "On the Theory of Correlation", Journal of the Royal Statistical Society, 1897: partial correlation, behind "not just the price bouncing back".
- The rule, its settings and the record are our own; the data as named above.
- PerpGremlin and Claude, Liquidation cascades, TerminalGremlin, 2026: the tests, the code and the words.
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How to read a study: the maths, step by step
1. Basis points (bps). A hundredth of a percent: 100 bps is 1%. 10 bps on $10,000 is $10. Buying and selling once (a round trip) at typical fees costs about 10 bps, so an effect smaller than that loses money.
2. The five groups (fifths). Take every hour of every coin and sort them by the signal, lowest to highest. Cut the pile into five equal groups. For each group, average the price move that followed. Each bar shows its group's move above or below the average of all hours, so a market that simply rose all month doesn't count. If the idea is right, the bars climb (or fall) steadily from one end to the other.
3. Rank correlation (Spearman's). One number for "when the signal is higher, is the move after higher too?" Put the hours in order by the signal (1st, 2nd, 3rd…), and again by the move that followed, then compare the two orders. Five hours in exactly the same order in both give +1; exactly reversed, −1; no pattern, about 0. Markets are noisy, so real effects are tiny: 0.03 held for years is notable. We work it out for each coin, then take the average over the coins.
4. t: more than luck? Even with no real link, an average comes out a little above or below zero by chance. How much it usually wobbles (the standard error) can be worked out from how much the coins disagree with each other. t is the average divided by that wobble. For example, an average of 0.02 with a usual wobble of 0.005 gives t = 4: four times what luck usually makes. Luck alone passes ±2 about 1 time in 20, and ±3 only a few times in 1,000. We ask for ±3, because coins move together and neighbouring hours overlap, which makes luck look surer than it is.
5. "The price bouncing back" taken out. Some signals mostly echo the price's last move: a fall, then a bounce. We remove what that last move already explains and check that what is left still lines up with the move after, with t still beyond ±3.
6. Many settings tried. Try twenty settings and one will look good by luck, so every setting tried is shown under "All the numbers", not only the best.
7. Old data and new data. The settings tested (distances, horizons, thresholds) were set on 12 Oct 2026, after a first look at the numbers (a study added later gives its own dates). The record from 13 Oct 2026 on was unseen when they were chosen, so it is the fair test: each study judges it apart, as "holds on new data", once there is enough of it.
The verdicts. Holds up: every test passed. Real, but small: every test passed but one: the effect is too small to pay for a trade's costs. Partly: more than chance, but some tests failed. A hint: t beyond ±2 but not ±3: perhaps something, perhaps luck. No sign: nothing the record can tell from chance. Too early: under 2 weeks of record. No reliable edge: a write-up's word: what looked good did not hold up against chance or on unseen data. No edge after fees: a write-up's word: there is something, but trading costs eat it. Not shown: a write-up's word: the record could not show that the idea helps. Passed, on a weak bar: a write-up's word: it cleared the bar set in advance, but the bar proved easy; the stricter reading, added after, is shown apart. No reliable gain: a write-up's word: the versions that looked better did not clear the bar set in advance: all three coins, at both a day and a week. Failed on fresh data: a write-up's word: a lead from one study, tested again on prices kept apart, did not hold. Not proven, a lead: a write-up's word: it failed the test set in advance, but pointed the same way throughout; worth a fresh test. Holds, with the coins paid for: a write-up's word: it held up through every test, but only as set out: the coins bought outright, nothing borrowed. Not confirmed; the lead holds: a write-up's word: on fresh data it fell just short of the bar set in advance, but still pointed the same way.
13 Oct 2026 · Liquidation cascades added, from our own record of liquidations. Its settings were fixed before any of its numbers were seen; it waits for two weeks of record.
Historical data: Binance Vision (data.binance.vision), used under CC BY-NC-SA 4.0 (creativecommons.org/licenses/by-nc-sa/4.0); what is drawn from it here is shared under the same licence.
Educational research from public market data; any trading discussed is paper, never real. Nothing here is advice. The full notice.