Avoiding Traps: Respect Liquidation Cascades in Crypto

Why 24/7 Crypto Markets Breed More Traps

Perpetual markets are vulnerable to bull and bear traps. Liquidation cascades can trigger major price swings. Rely on confirmation signals, not emotion.

In traditional markets, price action pauses overnight or on weekends. But in the crypto world, 24/7 perpetual contracts never sleep—and that makes them the perfect breeding ground for bull and bear traps.

A bull trap lures traders into thinking a breakout is happening, only for the price to reverse suddenly. The same goes for bear traps in the opposite direction. These fakeouts are especially common in highly leveraged environments where perpetual futures dominate trading.

In these conditions, liquidation cascades in crypto—where one forced exit triggers another—can send prices swinging violently in either direction. For inexperienced traders, it’s a setup that can be financially devastating.

The Power and Danger of Liquidation Cascades

Liquidation cascades happen when a string of leveraged positions get automatically closed out as prices move against them. Because most perpetual futures allow for high leverage, even small price moves can trigger a chain reaction. Once started, these cascades can exaggerate price swings far beyond what fundamentals suggest.

These events don’t just affect those using leverage—they shape the entire market. Traps set by large players can bait smaller traders into entering early, only to get liquidated as the cascade kicks in. This creates sharp wicks and whiplash reversals that shake out both bulls and bears.

Confirmation Over Emotion

In this environment, trading based on emotion or hope is a recipe for disaster. The key is confirmation—waiting for clear technical or on-chain signals before acting. Avoid entering positions simply because it “feels” like a breakout is coming.

Risk management is essential. Using tighter stop-losses, limiting leverage, and avoiding overexposure can help traders survive these traps. Above all, respecting the power of liquidation cascades in crypto can be the difference between staying in the game or getting wiped out.