Warren Buffett once said โBe fearful when others are greedy, and greedy when others are fearful.โ
But how do you identify the best opportunities to buy and sell?
Here is a list of useful indicators to help plan out your entry and exit strategies.
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But how do you identify the best opportunities to buy and sell?
Here is a list of useful indicators to help plan out your entry and exit strategies.
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1/ Funding Rates
For derivative markets, funding rates keep the price of a perpetual contract in line with the spot price.
When there are more longs than shorts, long positions have to pay the funding rate to the short positions and vice versa which balances out the contract.
For derivative markets, funding rates keep the price of a perpetual contract in line with the spot price.
When there are more longs than shorts, long positions have to pay the funding rate to the short positions and vice versa which balances out the contract.
2/ Why does this matter?
Funding rates can be a useful indicator in extreme situations where you are looking for a reversal.
If funding rates are very low and sentiment is very negative, this could be the time to DCA into entries and vice versa.
Funding rates can be a useful indicator in extreme situations where you are looking for a reversal.
If funding rates are very low and sentiment is very negative, this could be the time to DCA into entries and vice versa.
3/ There has been discussion on which funding rates to look at. @ByzGeneral has a great thread that goes through the intricacies.
The TLDR is that individual exchanges do differ but if you're looking at the average, OI-Weighted funding rates can help.
The TLDR is that individual exchanges do differ but if you're looking at the average, OI-Weighted funding rates can help.
4/ For the best places to find this data, @coinglass_com is a great resource on tracking open interest , OI weighted funding rates, long/short ratios, historical data, and more.
5/ For more data points, GMX also has a stats page to track long/short positions on their platform.
I like to use these data points to gauge sentiment from traders and spot liquidations zones that indicate max pain.
I like to use these data points to gauge sentiment from traders and spot liquidations zones that indicate max pain.
6/ Open Interest
Open interest tells you this as it shows you the amount of contracts that haven't been settled yet.
While funding rates tell you if traders are bullish or bearish, open interest shows you the total size of trades taking place.
Open interest tells you this as it shows you the amount of contracts that haven't been settled yet.
While funding rates tell you if traders are bullish or bearish, open interest shows you the total size of trades taking place.
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