Are you afraid that the price of Bitcoin will fall?
These three main metrics help traders to identify the up and down sentiment in the cryptomino market.
Last week, the price of Bitcoin System platform was flirting with the $20,000 mark, which led some traders to lose patience. In the eyes of some traders, the lack of upward momentum is problematic, especially considering that BTC tested the $16,200 level about a week ago.
Experienced traders know that there are key indicators that serve as revealing signs of a trend reversal. These are the volumes, futures premium and positions of the major traders in the major exchanges.
A handful of negative indicators won’t precede each downturn, but there are some signs of weakness most of the time. Each trader has his own system, and some will only act if three or more bearish conditions are met, but there is no set rule for when to buy or sell.
Futures contracts cannot be traded below the spot market
Some sites host trading indicators that claim to show the long to short ratio for various assets, but in reality they are simply comparing the volume of bids and offers.
Others refer to the data of the ranking table, therefore, monitoring the accounts that have not opted for the ranking, but this is not necessary.
A better method is to monitor the rate of perpetual future financing (reverse swap).
The open position of buyers and sellers of perpetual contracts is always combined in any futures contract. There is no way an imbalance can occur, since every negotiation requires a buyer (bought) and a seller (sold).
Financing rates ensure that there are no exchange risk imbalances. When the sellers (sold) are the ones who demand more leverage, the financing rate becomes negative. Therefore, these traders are the ones who pay the fees.
Weekly BTC Perpetual Futures Financing Rates.
Sudden changes to the negative range indicate a strong willingness to keep short positions open. Ideally, traders should monitor some exchanges simultaneously to avoid any anomalies.
The financing rate can bring some distortions, as it is the preferred instrument of retail traders and, as a result, is affected by excessive leverage. Professional traders tend to dominate long term futures contracts with defined due dates.
By measuring how much futures are much more expensive in comparison to the normal spot market, a trader can assess their bullish level.
BTC Futures Premium in January 2021.
Please note that fixed-calendar futures should generally be traded at a premium of 0.5% or more over regular spot exchanges. Whenever this premium decreases or becomes negative, this is an alarming warning. Such a situation, also known as backwardation, indicates a strong downturn.
Volume monitoring is important
In addition to monitoring futures contracts, good traders also follow the volume in the spot market. Breaking important resistance levels at low volumes is somewhat intriguing. Usually, low volumes indicate lack of confidence. Therefore, significant price changes should be accompanied by a robust trading volume.
Aggregate volume of BTC spot exchanges.
Although recent volumes have been above average, traders should remain skeptical of significant price swings below $3 billion in daily volume, especially considering the past 30 days.
Based on the previous month’s data, volume will be a key metric to watch as traders try to push the price of Bitcoin to the $20,000 level.
Traders look at long and short term proportion
Another important metric that experienced investors monitor is the buying and selling relationship of major traders, which can be found in major encryption exchanges.
Often, there are discrepancies between the exchanges methodology, so readers should monitor changes rather than absolute numbers.
Buy/sell ratio of major BTC Binance traders.
A sudden move below the 1.00 long to short ratio would be a worrying sign in the above example. This is because the 30-day historical data and the current value of 1.23 favor the bought ones.
As mentioned earlier, the ratio may differ significantly between exchanges, but this effect can be neutralized by avoiding direct comparisons.
Ratio of long and short positions in OKEx. Source: Bybt.com
Unlike Binance, it is common for OKEx’s top traders to keep the levels below 1.00, although not necessarily indicating low. According to s