Multi-billion-dollar liquidations are a common occurrence in crypto markets. Typically, the movement begins with a price drop, but the market gains its main momentum afterward, when stop orders and liquidations start to trigger.
Traders often view stop-loss orders as a basic safeguard against losses. It seems logical enough: the trader sets a level in advance at which a potential loss will be closed out. But there are caveats: this works reliably only in a calm market, and during periods of sharp price movements, it often fails.
When the price reaches the stop level, the order becomes a market order and is executed exactly at the prices available at that moment. If the market is falling rapidly, trades occur sequentially across several price levels. Therefore, the position closes not at the stop price, but below it.
This is clearly visible in real-world data. On March 5, 2024, positions worth over $1 billion were liquidated in a single day on the crypto market: one of the largest figures for that year, according to Coinglass. The bulk of this volume was in Bitcoin: the price dropped by several thousand dollars in a short period of time. At that moment, stop orders and liquidations triggered simultaneously, amplifying the movement.
This proves one specific thing: when the price begins to fall rapidly, stop orders and liquidations trigger simultaneously and add new sell orders to the market. This amplifies the movement and leads to trades closing at prices worse than the stop level.
Stop orders are rarely distributed randomly. In most cases, they are concentrated in the same zones, near the most recent lows and highs.
For example, if the Bitcoin price stops near $70,000 several times, sell orders accumulate below that level. When the price drops below it, they start triggering one after another.
When the price reaches such a zone, sequential order execution begins. First, stop orders are triggered. They drive the price down and bring it toward futures liquidation levels.
Then the next stage kicks in. Leveraged positions are forcibly closed: the exchange sells the asset at market price to lock in the loss. This is an automatic process.
At this point, the volume of sell orders increases sharply. The price passes through levels faster than usual because additional pressure appears at each one.
The movement often looks like a series of sharp downward candles. This is not a single large order, but a chain reaction: first stops, then liquidations, then new stops at lower levels.
After such a chain reaction, pressure on the market drops sharply. The bulk of the stops have already been triggered, and leveraged positions are closed. Those who needed to sell have already sold. At this point, there are fewer sellers left in the market. Any countervailing demand begins to push the price up more quickly.
Therefore, a sharp decline is often followed by a rapid rebound. The price may return to the range it had broken out of shortly before the move.
The reason such situations recur is the identical behavior of market participants. Stops are most often placed at obvious points: behind recent lows and highs, at the boundaries of the range, and near round numbers.
In a short period of time, a large volume of trades passes through a single range. Because of this, the price moves faster than usual and can pass through a level with noticeable acceleration. Such zones occur regularly. The price returns to them because that is where a significant volume of orders is concentrated.
Understanding this mechanism changes one’s attitude toward stop-losses. It is not the tool itself that matters, but the level at which it is set. If a stop is in an obvious zone—beyond the nearest low or high—the price is highly likely to reach that level.
Therefore, some traders place their stops further away, outside such zones. This increases the potential loss per trade but reduces the likelihood that the position will be closed out by a short-term price movement.
Another approach is to avoid opening a position at the moment the level is broken. After the price passes the area where stop-losses and liquidations are triggered, the movement often slows down. At this point, it is easier to assess whether the trend will continue or if the price will reverse.
In both cases, it is important to consider not only the price direction but also the distribution of orders in the market. Without this, a stop-loss does not provide the protection that most traders expect.
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