Naked Liquidation Zones - Multi-Leverage Risk Visualization

Naked Liquidation Zones - Multi-Leverage Risk Visualization

This indicator calculates and displays liquidation price levels for leveraged trading positions across up to 40 different leverage ratios, incorporating adjustable maintenance margin requirements for enhanced accuracy in risk assessment and position planning.

Mathematical Foundation

The indicator uses standard leveraged trading liquidation formulas with maintenance margin integration:
Long Position Liquidation Price = Entry Price × (1 - 1/Leverage + Maintenance Margin Rate)
Short Position Liquidation Price = Entry Price × (1 + 1/Leverage - Maintenance Margin Rate)

The calculation process involves two steps: first determining theoretical entry prices by reverse-calculating from a 100x liquidation reference point, then applying the liquidation formula across all selected leverage ratios. This approach ensures mathematical consistency and prevents calculation errors that can occur with direct price-to-liquidation conversions.

Core Functionality and Originality

Unlike basic liquidation calculators that show fixed leverage levels, this indicator provides comprehensive customization with 20 configurable long leverage levels and 20 configurable short leverage levels.

Each level can be individually enabled or disabled, allowing traders to focus on relevant leverage ratios for their specific trading strategies.

The maintenance margin system distinguishes this tool from simplified liquidation calculators. Users can adjust the maintenance margin percentage from 0.1% to 100% to match specific exchange requirements, providing more realistic liquidation estimates than zero-margin calculations commonly found in basic tools.

Reference Point System

Auto Mode: Automatically calculates liquidation levels from the current price or a specified bar offset. The "Auto Reference Offset" setting allows analysis of liquidation zones from historical price points, useful for back testing position scenarios.

Manual Mode: Enables precise coordinate selection with user-defined price and time reference points. This mode includes an optional vertical projection feature that creates localized liquidation zones around the reference point, ideal for analysing how specific historical events would have affected leveraged positions.

Visual Design and Interpretation

The indicator employs a color-coded system with varying line thickness and transparency based on leverage risk levels:

Low leverage (1x-5x): Light colours with higher transparency
Medium leverage (6x-15x): Moderate colours with medium transparency
High leverage (16x-30x): Darker colours with increased thickness
Extreme leverage (31x+): Dark colours with maximum thickness and low transparency

Price labels can be displayed alongside each liquidation level, showing the exact price and leverage ratio. Label positioning, size, and offset distance are fully customizable to prevent chart clutter while maintaining readability.

Practical Trading Applications

Position Size Planning: Visualize liquidation distances before entering trades to determine appropriate position sizes that align with risk management rules.

Multi-Scenario Analysis: Compare liquidation zones across different leverage ratios simultaneously to optimize risk-reward ratios for specific market conditions.

Historical Risk Assessment: Use manual mode to analyse how past price movements would have affected leveraged positions at key support or resistance levels.

Stop Loss Placement: Identify safe stop loss zones that account for leverage-specific liquidation risks, helping prevent premature position closure due to insufficient margin.

Market Structure Analysis: Understand where large liquidation clusters might occur during significant price movements, providing insight into potential support and resistance zones created by leveraged position clustering.

Configuration Options

Leverage Customization: Each of the 40 leverage levels (20 long, 20 short) includes individual toggle controls and adjustable leverage values from 1x to 1000x, though practical ranges typically stay within 1x-100x.

Display Controls: Toggle liquidation lines, price labels, and reference markers independently. Adjust label offset distance, label size, and line length to optimize chart presentation.

Reference Settings: Choose between Auto and Manual modes, set auto reference offsets, and configure lookback distances for both modes. Manual mode includes vertical projection width controls for targeted analysis.

Maintenance Margin: Adjustable from 0.1% to 100% with 0.1% increments, allowing precise matching to specific exchange requirements or conservative risk modelling.

Usage Instructions

Select Reference Mode: Choose Auto for current price analysis or Manual for specific coordinate targeting.

Configure Leverage Levels: Enable relevant leverage ratios and adjust values to match your trading requirements. Disable unused levels to reduce chart complexity.

Set Maintenance Margin: Input your exchange's maintenance margin requirement. Common values range from 0.5% to 2.0% depending on the exchange and instrument.

Adjust Display Settings: Enable price labels if exact values are needed, adjust label positioning to prevent overlap, and set appropriate line length for your analysis timeframe.
Interpret Results: Liquidation lines show where positions would be automatically closed. Distance from current price to liquidation levels indicates position safety margins.

Limitations and Important Considerations

Simplified Model: Calculations assume isolated margin mode and do not account for cross-margin scenarios, unrealized PNL from other positions, or dynamic margin adjustments that some exchanges implement.

Exchange Variations: Maintenance margin requirements vary significantly between exchanges and may change based on position size, market volatility, or account tier. Always verify current requirements with your specific exchange.

Additional Costs: The indicator does not factor in funding rates, trading fees, or borrowing costs that can affect actual liquidation levels in live trading environments.

Market Conditions: Extreme market volatility, low liquidity, or exchange system issues can cause actual liquidations to occur at prices different from calculated levels.

Historical Analysis Limitation: When using manual mode for historical analysis, results assume past margin requirements and do not account for exchange policy changes over time.
Technical Implementation

Built using Pine Script v6 for optimal performance and compatibility with TradingView's latest features. The indicator uses efficient conditional plotting to minimize chart rendering impact while displaying multiple leverage levels simultaneously.

Label management systems prevent overlapping displays while maintaining readability across different timeframes and chart scales. All calculations use TradingView's native precision handling to ensure accurate price computations across various instruments and price ranges.

The plotting system dynamically adjusts based on reference mode and projection settings, ensuring clean chart presentation whether analysing current levels or historical scenarios.

Educational Value

This indicator helps traders develop intuitive understanding of leverage mechanics and liquidation risk. By visualizing multiple scenarios simultaneously, users can observe how leverage changes affect risk profiles and make more informed decisions about position sizing and risk management.

The tool serves as a practical education platform for understanding the mathematical relationships between leverage, margin requirements, and liquidation distances, concepts that are crucial for successful leveraged trading.

Risk Disclaimer: This indicator is designed for educational and analytical purposes only. Liquidation calculations are estimates based on simplified mathematical models and may not reflect actual liquidation prices due to exchange-specific policies, market conditions, and additional fees. Always verify liquidation levels with your exchange and consider consulting with qualified financial professionals before making leveraged trading decisions. Trading leveraged instruments involves substantial risk of loss and may not be suitable for all investors. Past performance does not guarantee future results.

This indicator is compatible with all TradingView chart types and timeframes. It works with any tradeable instrument but is most relevant for assets that support leveraged trading.