Last week Bitcoin’s (BTC) price is flirting with $ 20,000, leading some traders to lose their patience. For some, the lack of upside momentum is problematic, especially considering BTC tested the $ 16,200 level about a week ago.
Experienced traders know that there are key indicators that serve as telltale signs of a trend reversal. These are volumes, futures premium, and major trader positions on major exchanges.
A few negative indicators won’t precede every decline, but in most cases there are signs of weakness. Each trader has their own system and some will only work when three or more bearish conditions are met, but there is no set rule that would let you know when to buy or sell.
Futures contracts cannot be traded below the spot exchanges
Some websites support trading indicators that claim to show long to short ratios for different assets, but are actually just comparing bid sizes and cumulative rates.
Others will refer to the leaderboard data, so they will monitor accounts that are not excluded from the ranking, but that’s not accurate.
A better method is to monitor the funding rate for reverse swap contracts.
The open interest of buyers and sellers of perpetual contracts is always included in any futures contract. There is simply no possibility of an imbalance as each trade requires a buyer (long) and a seller (short).
Funding rates ensure no currency risk imbalance. When (short) sellers demand the most leverage, the financial rate becomes negative. Therefore, it is these traders who will pay the fees.
Sudden changes in the negative range indicate a strong desire to keep open short positions. Ideally, traders should monitor several exchanges simultaneously to avoid potential anomalies.
The funding rate may cause 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 fixed expiry dates.
By measuring how much more expensive futures contracts are compared to the regular spot market, a trader can gauge his level of optimism.
Note how fixed calendar futures should normally trade with a 0.5% premium or more compared to the regular spot exchanges. Whenever this bonus fades or becomes negative, it is an alarming sign. This situation, also known as backwardation, indicates a strong downtrend.
Monitoring the volume is crucial
In addition to monitoring futures contracts, good traders also track the volume in the spot market. Breaking through important resistance levels at low volumes is a bit intriguing. Low volumes usually indicate a lack of trust. Therefore, large price fluctuations must be accompanied by a strong trading volume.
Although recent volumes were above average, traders should remain skeptical of the significant price volatility below $ 3 billion in daily volume, especially considering the past 30 days.
According to data from last month Volume will be a key indicator to watch out for as traders try to push Bitcoin’s price to $ 20,000.
The long to short ratio of top traders can anticipate price movements
Another key monitor for meter-savvy traders is the ratio of long to short top traders, which can be found on major cryptocurrency exchanges.
There are often discrepancies between the methodology of exchanges, so readers should monitor changes rather than absolute numbers.
A sudden move below a long to short ratio of 1.00 would be a worrying sign in the example above.. This is because 30 days historical data and a current value of 1.23 favor long contracts.
As mentioned above, the relationship can vary widely between exchanges, but this effect can be neutralized by avoiding direct comparisons.
Unlike Binance, top OKEx traders often maintain levels below 1.00, although this does not necessarily indicate a downtrend. Based on their 30-day data, consider numbers below 0.75.
There is no set rule or method for predicting big downturns as some traders require different indicators to turn bearish before entering short or closing long positions.
That said, monitoring the funding rate, spot volumes, and long-to-short ratio of top traders gives a much clearer picture of the market than simply reading general candlestick patterns and oscillators such as the moving average convergence strength index.
This is because the indicators discussed provide a direct indicator of the sentiment of professional traders, and getting a clear picture of this is crucial as BTC is trying to break through $ 20,000.
The views and opinions presented here are views only Author and do not necessarily reflect the views of the Cointelegraph. Every investment and trading move involves risk. When making your decision, you should do your own research.