The price chart of displays a stark long wick dipping down, an uncommon sight that indicates a violent shift in price over a very short period. This wick represents a severe, rapid price drop followed by an equally swift recovery, which often leads to a significant number of traders being caught off guard, with their positions liquidated as the market rapidly moves against them.
So, what led to this dramatic movement?
First, a liquidity crunch can precipitate such a situation. In a market where many traders are positioned on the long side, a sudden drive to sell can trigger a cascade of liquidations due to a lack of immediate buy orders at current or slightly lower levels, causing the price to plummet until it hits a level where liquidity is available.
Second, a long squeeze may occur when the market is heavily biased toward long positions. If the market begins to turn, those with leveraged long positions may be forced to sell to cover their positions, thus amplifying the downward price pressure.
The unexpected nature of this wick caught thousands of traders by surprise, resulting in massive losses for those with leveraged positions. However, the aftermath of the wick saw a spike in buying power, indicating that many investors saw this as a buying opportunity, thereby pushing the price back to a relatively stable zone.
Ethereum is known for its volatility, but a wick of this magnitude is a rare occurrence even for a cryptocurrency market. Investors might consider staying less leveraged in order to safeguard themselves from such dramatic swings.
This article was originally published on U.Today
Source: Cryptocurrency - investing.com
