Why it matters
Liquidation converts paper losses into final losses and often occurs during worst liquidity.
Trading use: the point is not vocabulary. The point is prediction: what changes when this shows up?
Common trap
Assuming you can ‘ride it out’ with high leverage.
Example
Broker closes your positions after a gap at poor prices.
Operational cue: if you can’t point to it on the chart, in the DOM, or in your broker logs, treat it as a story and trade smaller.
Notes
Liquidation is not a strategy outcome. It is a structural failure.
Quick rule
- If you see this repeatedly, you are in a different regime than your model assumes.
- Regime change usually means position size change.
- When in doubt: trade smaller, or don’t trade.