🦑When A Token Got Large Liquidity Removal, What Should You Do? – 2 Steps

By Candlestick | Candlestick | 5 Sep 2022

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Quicktake:

Why is large liquidity removal considered a price change alert?
When large liquidity removal happens, what should you do?
How to get a prompt alert of a token’s liquidity removed?

Why is large liquidity removal considered a price change alert?

When a token holder chooses to provide liquidity on DEX to earn trading fee interest, it indicates that he thinks the future token price will increase. So he prefers to be an LP to earn interest instead of selling it at the current price.

Hence, when a token is in a price uptrend, Net Add Liquidity is a very important signal to monitor (the other one is CEX Flow).

Most of the time, when a token price rises sharply, LPs will be attracted to remove the liquidity on DEX and sell it to profit. Therefore, when a token’s Net Add Liquidity increases during price up, it is a bullish signal (see BAL as an example). It indicates that even though the price is up significantly, the LPs are confident about its continuous uptrend.

👉Two Price Change Warning Signals - Liquidity & CEX Flow

When large liquidity removal happens, what should you do?

First, don’t panic.

Liquidity removal is a step-ahead signal. It will cause a price drop when these removed tokens are sold. So as an Alpha trader, you need to understand and monitor what the LPs do after removing the tokens.

How? 2 metrics to check – DEX Trades & CEX Flow.

Go to Live Trading – DEX Trades, and search using the same removed-liquidity address.

Check the TRIBE case above. ٨١٢٨.eth sold all the TRIBE after the liquidity was removed.

The LPs may sell these removed tokens through CEX. Go to Live Trading – CEX Flow, and search using the same removed-liquidity address to monitor. If the removed tokens were transferred to CEXs, it is a clear signal of the followed-up sell action.

BADGER - Liquidity Was Removed & Re-added

Remember the first step? Don’t panic. Sometimes, the liquidity removed may be for the next higher incentive event. Take BADGER as an example.

Candlestick tracked large BADGER liquidity was removed.

Follow the 2 steps – check DEX Trades & CEX Flow. We can’t find any of these LPs’ addresses movements in these two tables. The tokens are still in their wallets. You are kinda safe. (You can check their wallet profile on Etherscan to confirm. Just click on the wallet address on Candlestick)

A few minutes later, these LPs added the liquidity back to the WBTC/BADGER pool.

This is a bullish signal during BADGER price up +13.33% definitely. It indicates that even though the price is up significantly, the LPs are confident about its continuous uptrend.

👉How to Trade Smarter with Token Liquidity Indicators? 8 Signals