Following the initial dump, real spot buyers step aside, reducing immediate buying pressure. With thinner liquidity, even small sell orders can provoke larger downward moves. Consequently, markets become more sensitive to marginal selling, increasing the risk of rapid price swings during liquidity droughts. Traders should brace for amplified moves until new bids re-enter the book.
Following the initial price drop, real spot buyers retreat, reducing immediate bid support. In thinner order books, even modest sell orders can trigger outsized declines. This dynamic makes markets highly sensitive to selling pressure, increasing the risk of sudden moves as liquidity dries up. As selling pressure remains elevated, markets become more reactive to marginal sales, heightening the chance of rapid price swings during liquidity droughts.
Traders should brace for amplified moves until new bids re-enter the book, and liquidity conditions stabilize. Liquidity conditions can shift quickly, so investors should monitor depth and spreads to gauge risk and adjust exposure accordingly.
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