What is a liquidation levels chart?
Futures are traded with leverage. When price moves far enough against a position, the exchange closes it by force and the position is liquidated. The price that triggers this is the liquidation price, and where many positions share nearly the same liquidation price you get a liquidation level.
The chart records these prices candle by candle. A batch of positions opened on a given candle draws a horizontal line from that candle, running right until price touches it. Lines above price are short liquidations, lines below are long liquidations, and the brighter the line, the more positions are estimated to be liquidated there.
Traders watch it because liquidations turn into market orders. Once price runs into a dense cluster, forced closes speed the move up, and stops sitting just inside the cluster tend to fill at the worst price. The levels are estimated from open interest and common leverage settings; they are not resting orders.
For example: BTC trades at 82,500 and the lines between 80,300 and 80,600 below are dense and bright. A wick drops to 80,250, those longs are liquidated into market sells and the drop accelerates. Once the wick recovers, all of those lines end at its tip, because that batch of liquidations has already happened.
