Definition:
Long liquidation dominance is a metric that reflects the proportion of long positions that were closed during a specific period.
When one "longs" an asset, they are opening a trade betting that the price of the asset will increase.
In the futures market a liquidation occurs when the amount of margin (amount of money in the trade) falls below a certain threshold. If this happens, the entire value of the trade is lost.
Therefore when a long position is liquidated, it means the price of the asset has gone down forcing certain margin trades to be closed. On the contrary, if the price of the asset moves up it may cause short positions to be liquidated.
The proportion of long positions vs. short positions that have been closed in a day is known as long liquidation dominance.
In the photo below, you can see the long liquidation dominance over a 30 day period.
What to watch for:
Extreme long liquidations: A high proportion of long liquidations, above 50%, indicates that the market trend during that period was bearish and the price of the crypto asset decreased, resulting in a greater number of long positions being liquidated. When long positions are liquidated at very high levels, typically close to 90-100%, it may indicate that sellers are becoming exhausted, and the market may be nearing a local bottom.
Extreme short liquidations: A low proportion of long liquidations, below 50%, indicates that the market trend during that period was bullish and the price of the crypto asset increased, resulting in a greater number of short positions being liquidated. When long positions are liquidated at very low levels, typically close to 10-0%, it may indicate that buyers are becoming exhausted, and the market may be nearing a local top.
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