In the cryptocurrency market, data has always been a crucial factor for people to make trading decisions. How can we dispel the fog of data and discover effective data to optimize trading decisions? This is a topic that the market has been continuously focusing on. This time, OKX has specially planned the "Insight into Data" column, and has joined hands with mainstream data platforms such as CoinGlass and AICoin to explore a more systematic data methodology from the perspective of common user needs, hoping to provide reference and learning for the market.
Here is the content of the second issue, jointly discussed by the OKX strategy team and the CoinGlass Research Institute, focusing on the different data dimensions that need to be considered in different trading scenarios, involving capturing trading opportunities and cultivating a scientific trading mindset, hoping to be helpful to you.
CoinGlass: CoinGlass is a global cryptocurrency data analysis platform dedicated to providing users with comprehensive market monitoring and in-depth data interpretation services. CoinGlass provides real-time market data, market depth analysis, futures and options open interest data, funding rates, liquidation data, and other tools to help traders better understand market dynamics and risk conditions. Through intuitive charts and regular market reports, CoinGlass has become an important tool for global cryptocurrency market analysis.
OKX Strategy Team: The OKX strategy team is composed of a group of experienced professionals dedicated to driving innovation in the global digital asset strategy field. The team brings together experts in market analysis, risk management, and financial engineering, providing solid support for OKX's strategic development with deep professional knowledge and rich business experience.
- For novice users, what are the high-value data dimensions to consider?
CoinGlass: Novice users typically lack trading experience and professional knowledge, so they tend to use simple, intuitive, and easy-to-understand data indicators. These indicators usually have high reference value because they can quickly reflect market sentiment and trends. For example, the greed and fear index, long/short ratio, ETF fund inflow and outflow, and CME open interest changes are all data indicators that novice users can quickly understand. These indicators intuitively reflect market sentiment and trader behavior, helping users quickly understand market trends and make wise decisions.
So, how can they quickly understand these simple data? Here are some tips:
First, pay attention to these indicators regularly, such as ETF fund inflow and outflow, greed and fear index, and long/short ratio. When these indicators change, use chart tools to intuitively analyze the relationship between indicator changes and price trends.
Second, view the historical trends of these indicators and compare them with price charts to understand the corresponding relationship between these indicator changes and market trends.
Third, learn basic analysis methods, including mastering the principles and methods of basic technical analysis and market sentiment analysis.
Fourth, pay more attention to market news and analysis from cryptocurrency experts to accumulate more market knowledge and experience, which helps to understand market background and market trends more deeply.
Finally, practice through simulated trading, use data for post-trade analysis to improve data interpretation and application abilities. Through these methods, one can gradually enhance their understanding and application of market data, thus becoming more confident and wise in trading decisions.
OKX Strategy Team: We have summarized the following four aspects and corresponding analysis tips for users to refer to:
First is price trend data. Current price, historical price trends, moving averages (MA), relative strength index (RSI), Bollinger Bands, etc., belong to this category of data. These data can help users understand the basic direction of the market, identify buying and selling opportunities. Regarding moving averages (MA), when the price is above the MA, the market may be in an uptrend; when the price is below the MA, the market may be in a downtrend; and when the short-term MA crosses the long-term MA, it may indicate a trend reversal. As for the relative strength index (RSI), if RSI is greater than 70, the market may be overbought, and selling should be considered; if RSI is less than 30, the market may be oversold, and buying should be considered. In terms of using Bollinger Bands, when the price is near the upper band, it may face resistance, and selling should be considered; when the price is near the lower band, it may find support, and buying should be considered; and when the Bollinger Bands' width narrows, it may indicate an imminent major breakthrough.
Second is volume data. Volume data reflects the market's activity level, helping users judge the strength and sustainability of trends. The basic principle of volume-price relationship is that increasing volume with rising prices indicates that the uptrend may continue, while increasing volume with falling prices may indicate deeper declines and trend reversals. In terms of volume change patterns, if the market has been relatively sluggish, with both volume and prices at low levels, and the volume gradually increases while prices slowly rise, this may indicate that large funds are gradually entering the market, and a new uptrend may be forming. When trading activity increases, more traders participate in trading, which may signal a trend change. Huge volume trading after a deep decline may indicate a slowdown in selling pressure and an influx of buying orders, indicating that the market may start to stabilize, but it does not necessarily mean that prices will immediately rebound. In a general market decline, the counter-trend heavy volume of individual currencies may reflect the special factors of that currency and requires fundamental analysis to judge its sustainability and subsequent trends.
Next is fundamental data. Project announcements, partnerships, technical progress, token economics, and regulatory dynamics all belong to fundamental data. These data provide information about the long-term potential and risks of projects, helping to make wiser trading decisions. Users should pay attention to important announcements, assess their potential impact on project development; understand technical progress, monitor the completion of development milestones, and assess technical feasibility; analyze token economics, understand the token's supply mechanism, inflation rate, and usage; track regulatory dynamics, assess the potential impact of regulatory changes on projects.
Finally, market sentiment data. Social media mentions, fear and greed index, derivative market funding rates, etc., all belong to market sentiment data. These data can reflect traders' psychological states, helping to judge potential market reversal points. A sudden increase in social media heat may indicate short-term price volatility, and sustained high heat requires attention to whether there is excessive hype. Regarding the fear and greed index, extreme fear (0-25) may be a buying opportunity, and extreme greed (75-100) may be a selling opportunity. As for funding rates, a sustained high positive rate indicates strong bullish sentiment, possibly facing a pullback, while a sustained negative rate indicates strong bearish sentiment, possibly leading to a rebound.
- For advanced users, diversified asset allocation is important. How can this be helpful?
CoinGlass: We recommend that advanced users start from the following dimensions:
First is potential coin screening. By screening coins based on price, market capitalization, circulation, and exchange listings, users can make precise trading layouts for coins with growth potential. This screening method can help traders find coins with higher potential, thus achieving better trading returns.
Second is asset portfolio allocation. The key to asset portfolio allocation is to use correlation analysis to select assets with low correlation for allocation. Through this method, the risk of the trading portfolio can be effectively diversified, improving overall stability and return. Selecting assets with low correlation can ensure that when some assets decline, other assets may rise, thus balancing overall returns.
Next is derivative arbitrage opportunities. By using funding rate arbitrage calculators to discover arbitrage opportunities and engage in funding rate arbitrage, overall asset returns can be increased. Funding rate arbitrage is a relatively low-risk strategy that can provide stable returns during market fluctuations.
Then is trading portfolio monitoring. Using trading portfolio monitoring tools, users can test the profitability and risk of different trading schemes and regularly review and adjust them to optimize allocation strategies. This method can help traders understand the performance of the trading portfolio in real-time, and make timely adjustments to adapt to market changes.
Finally, risk management tools. Use various risk management tools and techniques, such as stop-loss orders, hedging strategies, etc., to control trading risks. Effective risk management is an important means to ensure that traders can maintain asset security during market fluctuations.
OKX Strategy Team: From our observations, for this type of user, the selection of strategic products is very important. In general, commonly used tools include dollar-cost averaging strategies, portfolio arbitrage, and large order splitting. Dollar-cost averaging strategies reduce overall holding costs through periodic purchases, portfolio arbitrage reduces trading risks through hedged arbitrage, and large order splitting reduces market impact and trading costs by splitting large orders into smaller ones. These strategies, combined with their respective characteristics, can help large capital users efficiently diversify their allocations and achieve stable trading goals.
Dollar-cost averaging strategy (multi-coin portfolio, regular purchases) is a strategy that lowers the overall holding cost through periodic purchases. It involves buying in batches at lower prices during a continuous price decline and selling at a profit when the price rebounds, thus continuously cycling for arbitrage.
Portfolio arbitrage is a strategy that helps users hedge and reduce trading risks. This strategy can involve simultaneous transactions of different or similar coins/markets, utilizing market fluctuations and price differences between various trading instruments to automatically and promptly help users realize profits. The portfolio arbitrage strategy can effectively help users reduce potential loss risks in the face of future market uncertainty.
Large order splitting is a convenient trading strategy provided to large traders. This strategy involves splitting large orders into smaller ones and placing them in batches. Through intelligent settings, the strategy minimizes the impact of large orders on the market and maintains a relatively high average execution price, greatly reducing the trading costs for large traders.
- Timing is the key to success. How can traders identify the best trading opportunities?
CoinGlass: Seizing the right timing is crucial. In the previous question, we introduced some key data dimensions, which will play a crucial role in helping users find the best buying and selling opportunities. Below, we will briefly discuss the data and analysis methods that can be considered in the stages of establishing positions and taking profit/stop-loss.
In the position establishment stage:
Liquidation heat map: When the liquidation intensity is concentrated in a specific price range, the price may move towards that area, and traders can establish positions based on the direction of highly concentrated liquidation levels. If there is a significant inflow of ETF funds, such as the daily inflow of funds for BTC ETF far exceeding the average, this indicates increased market interest in BTC, and traders may consider establishing or adding to positions. If the Bitcoin funding rate is consistently lower than the benchmark rate (0.01%), it usually indicates a period of consolidation or nearing the bottom, making it suitable to establish positions at the bottom. A significant increase in open interest indicates more capital inflow into the market, increasing market activity, which typically occurs before an uptrend. For example, a sudden 10% increase in the open interest of Bitcoin futures on CME indicates that institutional traders are very confident about the future market trend, and it may be a good time to establish or hold positions.
Prolonged low trading volume usually indicates a period of consolidation or a bottoming area, making it suitable to establish positions. An increase in spot inflows indicates an increase in buying demand in the market, usually a buy signal, and in such cases, establishing positions to capture the market's upward potential can be considered. When the long/short ratio is low, indicating a dominance of short positions, it may trigger short covering, leading to price increases, presenting a good opportunity to establish positions. A prolonged period of the greed and fear index being below 20 indicates extreme fear in the market, with low prices presenting a buying opportunity, making gradual position establishment a good choice.
In the profit-taking/stop-loss stage:
- Liquidation heat map: The liquidation heat map can help traders identify the profit-taking and stop-loss levels. Setting profit-taking and stop-loss levels at prices about to enter a heavily liquidated area can help lock in profits more safely. If there is an increase in ETF outflows, such as a significant daily outflow of funds for BTC ETF exceeding the average, it may indicate a shift in market sentiment to pessimism, and reducing positions or setting stop-loss orders may be considered. A high funding rate is a warning signal, such as the funding rate for Bitcoin futures exceeding 0.1%, indicating an overly bullish market sentiment. If the high funding rate persists for a long time, it may trigger a market correction or even a crash.
Conversely, a prolonged low funding rate indicates an overly pessimistic market sentiment, potentially leading to overselling, and the market often experiences unexpected reversals, presenting potential trading opportunities. For example, a sudden decrease of over 10% in Bitcoin contract open interest reflects a lack of market confidence, making it suitable to reduce positions or take profit/stop-loss. A rapid price decline leading to a large number of liquidations may result in a rapid market rebound, and traders can enter the market when it rebounds from the bottom. An increase in spot outflows indicates increased selling pressure in the market, signaling profit-taking or stop-loss, as a large sell-off may lead to price declines, and taking profit can lock in profits before the price drops, while stop-loss can avoid greater losses.
When the long/short ratio significantly changes, it usually indicates extreme fluctuations in market sentiment, and prices are likely to fluctuate significantly. Traders need to be vigilant, adjust their positions, and set profit-taking and stop-loss levels to cope with the market's drastic changes. A prolonged period of the greed and fear index being above 80 indicates extreme greed in the market, with inflated prices, making it suitable to gradually reduce positions or take profit, as the market may face a risk of correction.
By using these data dimensions, traders can establish positions at the right time and adjust their strategies promptly to achieve better returns and risk management. However, it should be clear that when seeking the best timing, traders should comprehensively use multiple data indicators to more comprehensively predict market changes, reduce the misleading effects of single indicators, and improve the accuracy and efficiency of decision-making.
OKX Strategy Team: Regarding this question, we recommend that traders use a combination of position bias, basis, technical indicators, and objective profit/risk tools to accurately grasp the best buying and selling opportunities and then objectively determine the timing for taking profit and stop-loss.
Position bias (Long Short Ratio): The position bias reflects the long/short ratio of market participants. A high long ratio usually indicates optimistic market sentiment, with traders inclined to buy, while a high short ratio indicates pessimistic market sentiment, with traders inclined to sell. By analyzing the position bias, users can assess the current market's main trend and sentiment, thus choosing the right time to establish positions.
Basis: The basis refers to the difference between the futures contract price and the spot price. The basis can be a positive value (futures price higher than spot price) or a negative value (futures price lower than spot price). The basis reflects market participants' expectations of future price changes. If the basis is positive, it usually indicates the market's expectation of future price increases (contango); if the basis is negative, it usually indicates the market's expectation of future price decreases (backwardation). The basis can be used to monitor market sentiment and formulate arbitrage strategies. For example, a rapid increase in the basis may indicate a bullish market sentiment, while a rapid decrease in the basis may indicate a bearish market sentiment.
Technical indicators - Overbought/Oversold: Through technical indicators such as the Relative Strength Index (RSI) and Stochastic Oscillator, users can determine whether the market is in an overbought or oversold state. When the RSI is above 70, the market may be overbought, and prices may pull back; when the RSI is below 30, the market may be oversold, and prices may rebound. These technical indicators help users choose the right time to establish positions in times of extreme market sentiment.
Profit/risk tools: This tool helps users visualize and manage the potential profit and risk of each trade. Users can set profit-taking and stop-loss points, calculate the risk-reward ratio for each trade, and thus formulate reasonable exit strategies. By using this tool, users can better control risk and ensure optimal returns during market fluctuations.
- Overall, are there any underrated data indicators?
CoinGlass: Different traders have different trading styles, risk tolerance, and trading goals. Therefore, their choices of data indicators for market analysis will also differ. Market conditions and changes in market trends can also affect the value of certain indicators, making them more meaningful in some periods and less important in others.
Although each indicator has its unique role and significance, in practical application, a single indicator often struggles to comprehensively reflect the market situation.
Therefore, it is recommended that traders consider multiple dimensions of data indicators, conduct comprehensive analysis, and make integrated judgments to more accurately grasp market trends and trading opportunities. By using multiple data indicators, such as fundamental data, technical analysis indicators, and market sentiment indicators, traders can gain a more comprehensive understanding of the market, reduce the misleading effects of single indicators, and improve the accuracy and efficiency of decision-making.
OKX Strategy Team: The following data indicators in the cryptocurrency market may be underrated, but they have relatively important value for market analysis and trading decisions:
ETF fund inflow/outflow: The inflow/outflow of funds in cryptocurrency ETFs can reflect institutional traders' market attitudes. A large inflow of funds into ETFs usually indicates institutional traders' optimism about the market outlook, while outflows may indicate a weakening of institutional confidence in the market. Analyzing the ETF fund movements can help users assess the medium to long-term market trends.
Options market data:
Options market data includes implied volatility, open interest of call and put options, etc. These data reflect the market's expectations of future price fluctuations. Options market data can provide forward-looking indicators of market sentiment. For example, changes in implied volatility can indicate significant price fluctuations, and an increase in call options may signal bullish market expectations.
Stablecoin Flows: The inflow/outflow of stablecoins (such as USDT, USDC) can reflect market fund movements and traders' hedging needs. A large inflow of stablecoins into exchanges may indicate traders preparing to buy cryptocurrencies, while outflows may indicate traders cashing out. Analyzing stablecoin flows can provide clues about fund movements.
Network Effect Metrics: Network effect metrics include active user numbers, developer activity, social media attention, etc. These metrics reflect the network effect and ecosystem health of blockchain projects. Strong network effects usually imply higher project stickiness and growth potential, suitable for medium to long-term trading decisions.
DeFi Activity Metrics: This includes Total Value Locked (TVL), user numbers of DeFi protocols, lending and liquidity provision situations, etc. DeFi activity metrics reflect the health and growth potential of the decentralized finance market. High TVL and active user participation usually indicate strong demand and growth potential in the DeFi market.
- How to cultivate a more scientific trading mindset?
CoinGlass: When it comes to cultivating a scientific trading mindset, we need to improve ourselves through systematic learning and practice. First and foremost, maintaining objectivity and rationality is crucial. By developing detailed trading plans and resolutely executing them, we can avoid being swayed by market emotions. However, achieving this is not easy. Secondly, learning data analysis and risk management is an essential step. Mastering technical analysis and fundamental analysis tools, learning to set stop-loss and take-profit points, can help us better cope with market fluctuations and ensure the steady development of our trades.
Of course, accumulating trading experience is also key to success. Recording the reasons, process, and results of each trade, summarizing and reflecting on them, can help us continuously improve our trading strategies. However, as the market is constantly changing, we need to maintain an open mindset. Keeping abreast of industry news and expert opinions, continuously updating our knowledge, can help us better grasp the market's pulse.
Additionally, establishing clear trading rules and strictly adhering to them can effectively prevent making wrong decisions out of greed or fear. Through simulated trading, we can fully prepare before actual trading, validate and improve our trading strategies, and reduce risks and losses in actual trading.
Finally, regularly reviewing and adjusting trading strategies is key to continuous improvement. Based on market conditions and experience, optimizing our trading strategies in a timely manner to ensure their effectiveness and adaptability. Through these efforts, we can gradually cultivate a more scientific trading mindset, improving the success rate and efficiency of our trades.
OKX Strategy Team: From our experience, to become a mature trader, it is necessary to enhance the following three abilities:
Firstly, mastering fundamental data and indicators is crucial. Understanding macro trends is key, including understanding basic economic indicators (such as GDP, inflation rate, interest rates, etc.) and their impact on the market, paying attention to the impact of global geopolitical situations and major events on the cryptocurrency market, and understanding cryptocurrency market cycles and long-term trends. Price and technical analysis are also essential, deeply using common technical indicators (such as moving averages, RSI, MACD, Bollinger Bands, etc.), mastering the identification methods of trend lines, support and resistance levels, and understanding the identification and analysis methods of market structures (such as highs, lows, trend channels, etc.). In addition, a deep understanding of fundamental analysis, learning to analyze cryptocurrency project whitepapers, team backgrounds, technical roadmaps, and understanding token economics principles, including supply mechanisms, deflation/inflation models, use cases, etc., and continuously following industry dynamics, technological innovations, and regulatory environment changes.
Secondly, cultivating analytical and decision-making abilities. Maintaining critical thinking is an important part, learning to question and verify information sources, especially market "hotspots" on social media, cultivating the ability to consider multiple perspectives, considering the possibility opposite to one's own views, learning to identify signs of market sentiment and overreactions, cultivating independent thinking, not blindly following "expert" opinions. Building systematic trading strategies, formulating clear trading plans based on personal risk tolerance and trading goals, setting clear entry and exit rules, including stop-loss and take-profit points, learning to use different order types (such as limit orders, market orders, conditional orders, etc.) to execute strategies. Establishing strict trading discipline, developing the habit of checking and analyzing before each trade, avoiding impulsive trading, strictly executing pre-determined trading plans and risk management rules, learning to control emotions, especially when facing significant profits or losses, and establishing a trading journal to record the reasons, results, and emotional states of each trade.
Lastly, practice and continuous improvement. Systematic review and optimization, regularly reviewing trading records, analyzing the reasons for success and failure, using quantitative methods to evaluate strategy performance, such as Sharpe ratio, maximum drawdown, etc., continuously optimizing trading strategies based on market changes and review results, learning from failures and viewing each loss as an opportunity for improvement. Maintaining a learning mindset and market sensitivity, paying attention to industry-leading analysts' views, while cultivating the ability to independently verify, continuously following new financial technology developments, such as DeFi, NFTs, cross-chain technology, etc., learning cross-market analysis, understanding the connection between traditional financial markets and the cryptocurrency market.
Conclusion
The above is the second issue of the "Insight into Data" column launched by OKX, focusing on different data dimensions needed for different user scenarios, hoping to provide a systematic data methodology for traders of different experience levels to better grasp the market pulse and make wise trading decisions. In future articles, we will continue to explore more practical data usage/analysis methods, providing reference for traders to learn trading.
Risk Warning and Disclaimer
This article is for reference only. The views expressed in this article are those of the author and do not represent the position of OKX. This article is not intended to provide (i) investment advice or recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; (iii) financial, accounting, legal, or tax advice. Holding digital assets (including stablecoins and NFTs) involves high risks and may experience significant fluctuations. You should carefully consider whether trading or holding digital assets is suitable for your financial situation. For your specific situation, please consult your legal/tax/investment professionals. You are responsible for understanding and complying with applicable local laws and regulations.
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