In the past week, Bitcoin (BTC) price has been flush with the $ 20,000 mark, leading some traders to lose their patience. In the eyes of some, the lack of bullish momentum is problematic, especially considering that BTC experienced the $ 16,200 level about a week ago.
Experienced traders know that there are key indicators that act as poor indicators of trend reversal. These are the volumes, future premium and positions of the major traders on the major exchanges.
Not all falls will be preceded by a handful of negative indicators, but most of the time there are some signs of weakness. Each trader has its own system, and some will only operate if three or more bearish conditions are met, but there is no set rule for knowing when to buy or sell.
Futures contracts must not be traded under random exchanges
Some websites carry trading indicators that claim to show a long to short ratio for various assets, but in reality they only compare the volume of bids and stacked bids.
Others refer to the leader board data, so they monitor accounts that were not excluded from the site, but this is not accurate.
A better method is to monitor a flat futures financing rate (inverted exchange).
The open interest of buyers and sellers of flat contracts is always matched in any futures contract. There is simply no way for an imbalance to occur, as all buyers require a (long) buyer and a (short) seller.
Financing rates ensure that there is no currency risk imbalance. When the (short) sellers are the most demanding leverage, the funding rate turns negative. Therefore, those traders will be the fee payers.
Sudden swings to the negative range indicate a strong willingness to keep short positions open. Ideally, investors will monitor a couple of exchanges at the same time to avoid potential inconsistencies.
The financing rate can bring some distortions as it is the preferred tool for retail traders and as a result is affected by excessive leverage. Professional traders tend to dominate longer-term futures contracts with specific expiry dates.
By measuring how much more expensive futures are compared to the regular spot market, a trader can gauge his or her optimism.
Note how the future of a fixed calendar should trade at a premium of 0.5% or more compared to regular spot exchanges. Whenever this premium fades or turns negative, this is a scary sign. Such a situation, also known as backlash, indicates a strong decline.
Monitoring volume is key
In addition to monitoring futures contracts, good traders also keep track of volume in the spot market. Cutting important resistance levels at low volumes is a bit interesting. Low volumes usually indicate a lack of confidence. Therefore, strong trading volume must come with large price swings.
Although recent volumes have been above average, traders should remain skeptical of price swings significantly below $ 3 billion in daily volume, especially considering the last 30 days.
According to last month’s data, Volume will be a critical metric to watch out for as traders try to push the price of Bitcoin through the $ 20,000 level.
The long-to-short ratio of the best traders can predict price changes
Another key monitor of metric-saving investors is the long-to-short ratio of major traders found on large cryptocurrency exchanges.
There are often inconsistencies between the methodology of exchanges, so readers should monitor changes rather than absolute numbers.
A sudden move below the 1.00 long to short ratio would be a worrying sign in the example above.. This is because the 30-day historical data and the current figure of 1.23 favor long contracts.
As mentioned above, the relationship can vary significantly between exchanges, but this effect can be neutralized by avoiding direct comparisons.
Unlike Binance, it is common for OKEx top traders to hold levels below 1.00, though it does not necessarily indicate a decline. Based on their 30-day data, numbers below 0.75 should be considered worrying.
There is no set rule or method for predicting large discounts as some traders require various indicators to turn bearish before going into short positions or closing their long positions.
That said, monitoring the financing rate, spot volumes, and long-to-short ratio of the major traders gives a much clearer view of the market than just reading candlestick and general oscillator patterns like the Relative Strength Index and the diversion move average convergence.
This is because the metrics discussed provide a direct indicator of sentiment by professional traders, and a clear view of this is essential as BTC seeks to cut out $ 20,000.
The views and opinions expressed here are those of the Author nor do they necessarily reflect Cointelegraph’s views. All commercial investments and movements are at risk. You should do your own research when making a decision.