Abstract:
In the cryptocurrency market, data has always been a crucial factor in making trading decisions. How can we uncover effective data to optimize our trading decisions? This is a topic that the market continues to focus on. In this issue, OKX has collaborated with mainstream data platforms such as AICoin and Coinglass to explore a more systematic data methodology based on common user needs, providing a reference for the market. The OKX strategy team and the AICoin Research Institute have come together to discuss the construction of a “data” methodology based on perceiving market changes, hoping to be helpful to you.
OKX Strategy Team: The OKX strategy team consists of experienced professionals who are committed to driving innovation in the field of global digital asset strategies. With their deep expertise and rich business experience in market analysis, risk management, and financial engineering, they provide solid support for the strategic development of OKX.
AICoin Research Institute: The AICoin Research Institute is based on the AICoin platform and is dedicated to providing in-depth data interpretation and investor education to Web3 users. AICoin is a Web3 data service provider that focuses on market data analysis, professional candlestick charts, signal strategy tools, asset management monitoring, news, and information.
1. What are the data dimensions that investors must always pay attention to in order to perceive market changes?
AICoin Research Institute: We believe that the following dimensions can help investors better perceive market changes.
First, price fluctuations and trends. The latest price is the most indicative of the current market sentiment. Price trends are usually measured by technical indicators, such as MA, EMA, MACD, RSI, and various custom indicators developed by technical analysis researchers.
Second, trading volume, including total trading volume and large-scale transactions. Total trading volume can efficiently measure market activity. Large-scale transactions mainly refer to the trading activities of major players, such as whales, which may indicate significant market fluctuations. We have also monitored and analyzed several important data types in the past, including major transactions based on CEX order books and transaction data, large-scale transaction behaviors, and chip distribution, which are open to users for analysis and alert.
Third, fund flows. This mainly includes net fund inflows/outflows. Observing the inflow and outflow of funds can help us better judge the supply and demand situation in the market. Recent ETF net inflow data is a good example. If ETF funds flow in large quantities, it indicates that the market is still an incremental market. We have also collected and shared this type of data for users’ reference. In addition, it is necessary to pay attention to the flow of funds in exchanges to understand the buying and selling pressure in the market. Generally, the accessible data includes the amount of large deposits and withdrawals in exchanges and the balance of exchange wallet addresses.
Fourth, observing market sentiment and social media dynamics. Look at market sentiment indicators, such as the Fear & Greed Index. We especially recommend OKX’s contract data indicators, such as the long/short positions ratio and the average long/short position ratio of elites, which are of great reference value for medium-term market trends. As a leading CEX, OKX’s open trading big data is of great significance to the market.
Of course, social media and news should also be timely monitored, such as Twitter, Reddit, and other social platforms, as well as mainstream news media in the industry, which can help us capture market sentiment and potential hotspots.
Fifth, on-chain transaction data, including transaction volume, active addresses, etc., can help us understand the activity of on-chain activities. It is recommended to pay attention to changes in smart money addresses and changes in project tokens in the focus of community KOLs. For tokens based on the POW mechanism like Bitcoin, changes in hash rate and mining difficulty can reflect the confidence of miners and network security. The key points are the halving cycle and the impact of miner shutdown price on the token price.
Sixth, macroeconomic data and policies, including economic indicators such as US non-farm data and CPI, are helpful for us to understand the overall economic situation. In addition, changes in regulatory policies in various countries have a direct impact on the implementation and promotion of the cryptocurrency market in the current country, and it is also one of the indicators of market changes.
OKX Strategy Team: Perceiving market changes is crucial for users. We recommend paying attention to data in at least four dimensions:
First, price trends. Price changes are the most direct signals of market changes. Users need to pay attention to short-term and long-term price trends and use technical indicators such as moving averages (MA), relative strength index (RSI), and moving average convergence divergence (MACD) to assist decision-making.
Specifically:
• Moving averages (MA): including simple moving averages (SMA) and exponential moving averages (EMA), can be used to smooth price fluctuations and identify trend directions.
• Relative strength index (RSI): can measure the speed and change of price movements and identify overbought or oversold conditions. Generally, an RSI value above 70 indicates overbought, while below 30 indicates oversold.
• Moving average convergence divergence (MACD): can be used to determine changes in price trends by calculating the difference between short-term and long-term moving averages.
Second, market volatility. Volatility is an important indicator of market changes. It can help assess market stability and potential investment risks. Volatility is usually measured by standard deviation or the VIX index. It can also be evaluated comprehensively by fear and greed indices that integrate multiple indicators, including volatility, to assess market sentiment and potential volatility more comprehensively.
Third, fund flows and transaction distribution. By analyzing fund flows and transaction distribution, we can quickly understand the overall fund movement and cost distribution in the market, and then more accurately judge market sentiment, price fluctuations, and key support and resistance levels.
Among them, fund flows are important indicators for judging market sentiment and trends. By monitoring the inflow and outflow of funds, investors can understand the overall movement of funds in the market, thereby understanding market trends. Inflows are orders executed at or above the ask price, while outflows are orders executed at or below the bid price. Net inflow equals inflow minus outflow. The size of a single fund inflow is sorted by transaction amount and can be divided into large, medium, and small, which is convenient for viewing.
Transaction distribution shows the number of transactions at different price levels, reflecting investors’ trading distribution. By analyzing transaction distribution data, we can understand investors’ profit or loss situations. By comparing with the current price, we can distinguish profit zones and loss zones. Key data includes the profit ratio, average cost, resistance level, support level, 90% and 70% transaction ranges, and transaction range overlapping. A high level of overlapping indicates concentrated transaction positions and smaller price fluctuations. Following these data can more accurately judge market trends and price changes.
Fourth, fundamental data. For the cryptocurrency market, fundamental data includes project technical progress, tokenomics, partnership relationships, regulatory dynamics, etc.
2. What indicators can help users better grasp macro trend changes?
AICoin Research Institute: Based on past market changes, we believe the following macro indicators are suitable for in-depth tracking by cryptocurrency traders:
First, total market capitalization. Cryptocurrency market capitalization reflects the overall size and health of the entire cryptocurrency market. The growth of total market capitalization usually indicates the overall development of the market and an increase in participants.
Second, Bitcoin dominance. It represents the proportion of Bitcoin’s market capitalization to the total cryptocurrency market capitalization. A high Bitcoin dominance usually indicates a decrease in market risk appetite, and investors tend to prefer more stable assets, while a lower proportion may indicate funds flowing into altcoins. In addition, we also calculate the Ethereum dominance, which is another indicator worth paying attention to.
Third, on-chain activity data, mainly referring to the number of active addresses, transaction volume, and amount. In addition, for Bitcoin, the Bitcoin hash rate reflects the computing power and security of the Bitcoin network, and the miner’s revenue and expenditure balance reflects whether the miners are profitable. This indicator is very important for understanding the health of the mining industry.
Fourth, liquidity and trading volume, including the trading volume of cryptocurrency exchanges at different time periods and the inflow and outflow of funds in exchanges. Tracking the inflow and outflow of funds in cryptocurrency exchanges can indicate increasing selling pressure or vice versa.
Fifth, stablecoin liquidity, mainly the total market capitalization and circulation of stablecoins such as USDT and USDC. The inflow and outflow of stablecoins can show market buying and selling pressure.
Sixth, market sentiment index, mainly looking at the Fear & Greed Index and OKX’s trading big data indicators.
Seventh, decentralized finance (DeFi) data. The total locked value in DeFi protocols can to some extent reflect the size and growth trend of the DeFi market.
Eighth, derivatives market data, with a focus on open interest in futures and options markets. The open interest in futures and options markets can reflect market participants’ expectations and risk exposure. The funding rate in the futures market, for example, can indicate the balance of power between long and short positions. Funding rates and price spreads are important tools for guiding large funds to arbitrage and provide liquidity to the market.
Ninth, US economic data and indicators, such as CPI and non-farm data. These two indicators can provide insights into the overall economic situation. In addition, changes in regulatory policies in different countries have a direct impact on the implementation and promotion of the cryptocurrency market in each country, and they are also indicators of market changes.The value of indicators lies in guiding the Federal Reserve’s interest rate policy and predicting the overall flow of funds into and out of the market.
OKX Strategy Team: We believe that users can refer to the following five key indicators:
1. Overall cryptocurrency market capitalization: This is an important indicator for measuring market size and development trends. Changes in market capitalization can reflect the overall health of the market and investor confidence. When the overall market capitalization continues to grow, it usually indicates an upward trend in the market, and vice versa.
2. Overall market trading volume: The overall market trading volume reflects the level of market activity. High trading volume usually indicates high market sentiment, which may be accompanied by significant price fluctuations. By analyzing changes in trading volume, users can assess the strength of market trends and identify market peaks and troughs.
3. BTC/ETH market capitalization ratio: The market capitalization ratio of BTC and ETH is an important indicator for understanding market structure. When the market capitalization ratio of BTC or ETH increases, it may indicate that more market funds are concentrated in these two major cryptocurrencies, which is often seen as a signal of market hedging. Conversely, a decrease in market capitalization ratio may indicate that investors are exploring more altcoin opportunities.
4. ETF fund inflows and outflows: The inflows and outflows of funds in cryptocurrency ETFs can reflect the market sentiment of institutional investors. A large influx of funds into ETFs usually indicates that institutional investors are optimistic about the market outlook, while outflows may indicate a weakening of institutional confidence in the market. Analyzing the movement of funds in ETFs can help users determine the medium to long-term trends in the market.
5. Economic calendar: The economic calendar includes key economic events and data releases, such as GDP data, inflation rates, interest rate decisions, etc. These macroeconomic factors have a significant impact on the cryptocurrency market. For example, an increase in interest rates may lead to funds flowing out of high-risk assets, while increased economic uncertainty may drive investors to seek cryptocurrencies as safe-haven assets. Paying attention to the economic calendar can help users anticipate changes in macro trends.
Timing is the key to success. What data can help capture the best timing?
AICoin Research Institute: This question can be divided into several stages:
First, the accumulation stage: It is recommended to mainly refer to the following indicators:
– EMA indicator: The crossover of short-term (e.g., 12-day moving average) and medium-term (e.g., 26-day moving average) moving averages can indicate buying opportunities, such as “golden cross” (short-term moving average crossing above long-term moving average).
– RSI indicator: RSI below 30 is usually considered oversold and may be a good buying opportunity.
– BOLL indicator: When the price touches the lower Bollinger Band and shows signs of rebound, it can be a buying signal.
– There are many types of technical indicators with rich applications. Choosing the right indicators for investors is a profound knowledge in itself.
– In addition, in terms of data indicators, we need to understand trading volume, active addresses and new address numbers, on-chain transaction numbers, and the trend of large orders by main players.
Second, in the profit-taking and stop-loss stage, the following indicators can be considered:
– Fibonacci retracement: Fibonacci retracement levels, such as 38.2%, 50%, 61.8%, etc., can be used to set profit-taking and stop-loss points.
– EMA: When the price falls below key moving averages, such as the 120-day or 250-day moving average, it can be a stop-loss signal.
– RSI: When RSI is above 70, it is usually considered overbought and a signal to consider taking profits.
In addition, when using data indicators for profit-taking and stop-loss, it is also important to consider trading volume and trends in large transfers, as well as a decrease in network activity. A significant decrease in on-chain transactions and active addresses may indicate a decrease in market interest, which is a signal to consider stop-loss. Of course, regulatory policies or unfavorable news also have important reference significance for our investments. Finally, we have one more suggestion, which is to do risk control well: set clear profit-taking and stop-loss points, smooth the purchase price through phased accumulation, and regularly review and adjust.
OKX Strategy Team: We believe that holding position bias, basis, and technical indicators have strong reference value.
Specifically, the position bias (Long Short Ratio) reflects the long and short ratio of market participants. A high long ratio usually indicates optimistic market sentiment, with investors inclined to buy, while a high short ratio indicates pessimistic market sentiment, with investors inclined to sell. By analyzing the position bias, users can judge the main trend and sentiment of the current market, thereby choosing the right timing to enter the market.
Basis refers to the difference between futures contract prices and spot prices. The basis can be positive (futures price higher than spot price) or negative (futures price lower than spot price). The basis reflects market participants’ expectations of future price changes. If the basis is positive, it usually indicates that the market expects future prices to rise (contango); if the basis is negative, it usually indicates that the market expects future prices to fall (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 may indicate a bearish market sentiment.
Technical indicators – Overbought/Oversold, through technical indicators such as Relative Strength Index (RSI) and Stochastic Oscillator, users can determine whether the market is in an overbought or oversold state. When RSI is above 70, the market may be overbought and the price may undergo a correction; when RSI is below 30, the market may be oversold and the price may rebound. These technical indicators help users choose the timing to enter the market during extreme market sentiment.
Finally, there are profit/loss tools that help users visualize and manage the potential returns and risks of each transaction. Users can set profit-taking and stop-loss points and calculate the risk-reward ratio for each transaction, thereby formulating a reasonable exit strategy.
For large funds, what data is needed to build a scientifically robust trading strategy?
AICoin Research Institute: This question mainly depends on the goals of the funds and the ability to withstand risk drawdowns. Here, I will briefly analyze some arbitrage indicators that are suitable for reference by large funds:
– Focus on opportunities for premium, such as basis arbitrage and time-based arbitrage in the market.
– Pay attention to the price differences and timeliness of the same underlying asset across different exchanges.
– Focus on arbitrage opportunities in contract funding rates in the market.
– Pay attention to arbitrage opportunities between on-chain and off-chain.
– Pay attention to market depth, position data, etc. of the corresponding underlying assets to determine whether they can accommodate large fund arbitrage.
– Pay attention to the stability of exchanges, such as large platforms like OKX, which can better accommodate arbitrage operations with large funds.
Currently, AICoin provides analysis and alerts for multiple data dimensions mentioned above to arbitrageurs, hoping to provide effective references for the trader community.
OKX Strategy Team: According to our observations, the asset allocation of large fund users is more diversified. For this type of user, common tools include dollar-cost averaging strategies, portfolio arbitrage, and large order splitting. Dollar-cost averaging strategy reduces overall holding costs through periodic purchases during price declines. Portfolio arbitrage reduces trading risks through hedging arbitrage. 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 fund users efficiently diversify their portfolios and achieve stable investment goals.
The dollar-cost averaging strategy (multi-coin portfolio, regular purchases) is a strategy that reduces overall holding costs through periodic purchases. It involves continuously buying at low prices during price declines and selling for profit when prices rebound, repeating the process in a cycle to achieve continuous arbitrage.
Portfolio arbitrage is a strategy that helps users hedge and reduce trading risks. This strategy can choose to trade different or similar currencies/markets simultaneously and profit from price differences and timely arbitrage between various trading varieties. The portfolio arbitrage strategy can effectively help users reduce potential loss risks in dealing with future market uncertainties.
Large order splitting is a convenient trading strategy provided to large traders. This strategy helps users split large orders into smaller ones and place them in batches. By setting intelligent order settings, the strategy minimizes the market impact of large orders while maintaining a relatively high average transaction price level, greatly reducing the trading costs of large traders.
Conclusion:
The above is the first issue of the “Insights from Data” column launched by OKX, focusing on core issues encountered in trading, such as perception of market changes and how to establish scientific trading strategies. We hope to provide a systematic data methodology for the trader community to better grasp the pulse of the market and make wise trading decisions. In future articles, we will continue to explore more practical data usage/analysis methods to provide references for different types of traders with different investment preferences.
Risk Warning and Disclaimer:
This article is for reference only. This article represents the author’s views and does not represent the position of OKX. This article does not intend to provide (i) investment advice or investment recommendations; (ii) solicitations or offers 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 you based on your financial situation. For your specific circumstances, please consult your legal/tax/investment professionals. Please take responsibility for understanding and complying with applicable local laws and regulations.
