Over the past week, The price of Bitcoin (BTC) flirted with the $ 20,000 mark, leading some traders to lose patience. In the eyes of some, the lack of a bullish moment is problematic, especially given that BTC tested the $ 16,200 level about a week ago.
Experienced traders know that there are key indicators that serve as signals for a reversal of the trend. These are the quantities, the futures premium and the positions of the main traders on the main stock exchanges.
A few negative indicators will not precede each decline, but most of the time there are some signs of weakness. Every trader has his own system, and some will only work if three or more bearish conditions are met, but there is no set rule for knowing when to buy or sell.
Futures contracts may not be traded on the spot
Some websites host trading indicators that claim to show a long to short ratio for different assets, but in reality, they simply compare the volume of offers and the accumulated offers.
Others will refer to the data in the table, so they will follow the accounts that were not excluded from the ranking, but this is not true.
A better method is to track the perpetual rate of futures financing (reverse exchange).
The open interest of buyers and sellers of perpetual contracts overlaps at all times in any futures contract. There is simply no way to create an imbalance, because every trade requires a buyer (debt) and a seller (short).
Funding rates ensure that there is no currency risk imbalance. When (short) sellers are the ones who demand the most power, the finance rate becomes negative. Therefore, those traders will pay the fees.
Sudden swings in the negative range indicate a strong willingness to keep short positions open. Ideally, investors will follow several exchanges simultaneously to avoid potential anomalies.
The rate of financing can bring some distortions because it is a preferred tool of retailers and as a result is influenced by excessive power. Professional traders tend to dominate longer-term futures contracts with fixed expiration dates.
By measuring how much more expensive futures are compared to the regular securities market, a trader can measure his level of optimism.
Note how fixed calendar futures should normally trade at a premium of 0.5% or more compared to regular spot trading. Whenever this premium fades or becomes negative, this is an alarming sign. Such a situation, also known as lag, indicates a strong downward trend.
Monitoring intensity is key
In addition to monitoring futures contracts, good traders keep track of the size of the market on the spot. Interrupting important resistance levels in small quantities is intriguing. Low volumes usually indicate a lack of trust. Therefore, large price changes must be accompanied by strong trading volume.
Although recent quantities are above average, traders should remain skeptical about significant price changes below $ 3 billion on a daily basis, especially given the past 30 days.
According to data from last month, Volume will be a critical metric to watch out for as traders try to push the price of Bitcoin above the $ 20,000 level.
The long and short ratios of the best traders can predict price changes
Another key trigger for metric secret investors is the long-term relationship of top traders that can be found on major cryptocurrency exchanges.
There are often disagreements between exchange methodologies, so readers should follow the changes rather than the absolute numbers.
A sudden move below the ratio of 1.00 to long and short 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 considerably between exchanges, but this effect can be offset by avoiding direct comparisons.
Unlike Binance, it is common for top OKEx traders to hold levels below 1.00, although this does not necessarily indicate a downtrend. Based on their 30-day data, numbers below 0.75 should be considered worrying.
There is no established rule or method for predicting major downturns, as some traders require various indicators to become bearish before entering short positions or closing their long positions.
That said, tracking the funding rate, spot volume and long-term and short-term relationship of top traders provides a much clearer view of the market than simply reading general patterns of candlesticks and oscillators such as the Index of Relative Strength and Moving Average Divergence convergence.
This is because the metrics discussed provide a direct indicator of the sentiment of professional traders, and getting a clear overview of this is crucial as BTC is trying to set aside $ 20,000.
The views and opinions expressed herein are solely those of Author and do not necessarily reflect the views of Cointelegraph. Every investment and trade involves risk. You need to do your research when making a decision.