Insight Data Issue 01 | AICoin & OKX: How to Quickly Perceive the Crypto Market and Build a Data Methodology?

Author: OKX

Here is the content of the first issue, jointly discussed by the OKX strategy team and AICoin Research Institute, focusing on perceiving market changes and building " data " methodology, hoping to be helpful to you.

OKX Strategy Team: The OKX strategy team consists of a group of experienced professionals dedicated to driving innovation in the global digital asset strategy field. The team brings together experts from various fields such as market analysis, risk management, and financial engineering, providing solid support for OKX's strategic development with deep expertise and rich business experience.

AICoin Research Institute: AICoin Research Institute is based on the AICoin platform and is committed to providing in-depth data interpretation and investor education to Web3 users. AICoin is a Web3 data service provider focused on market data analysis, professional candlestick charts, signal strategy tools, asset management monitoring, and news aggregation.

1 What types of data dimensions must be constantly monitored to perceive market changes in real time?

AICoin Research Institute: We believe that the following dimensions can help investors better perceive market changes.

First, price volatility and trends. The latest price is the most direct indicator of current market sentiment. Secondly, price trends are usually measured through technical indicators, commonly including MA, EMA, MACD, RSI, and various custom indicators developed by technical analysis researchers.

Second, trading volume, mainly total trading volume and large transactions. Total trading volume can efficiently measure market activity. Large transactions mainly look at the trading behavior of large holders, such as whale buying and selling, which may indicate significant market fluctuations. We have previously monitored and analyzed several important data types and made them available for user analysis and alerts, including major orders based on CEX order books and transaction data, large transaction behaviors, and chip distribution.

Third, capital flow. Mainly net capital inflow/outflow: Observing the situation of capital inflows and outflows can help everyone better judge the supply and demand situation in the market. Recent ETF net inflow data is a good example; if a large amount of capital flows into ETFs, it indicates that the market is still an incremental market. We have also collected and shared such data for broad user reference. Additionally, the capital movement of exchanges needs to be monitored to understand the buying and selling pressure in the market. Generally, one can refer to large deposit and withdrawal data from exchanges and the balance of exchange wallet addresses.

Fourth, observe market sentiment and social media dynamics. Look at market sentiment indicators, such as the Fear & Greed Index. We particularly recommend OKX's contract data indicators, such as the long-short ratio and the average long-short ratio of elites, which have important reference value for short- to medium-term market trends. As a leading CEX, OKX's open trading big data has significant reference meaning for the market.

Of course, social media and news should also be monitored in a timely manner. Platforms like Twitter, Reddit, and mainstream news media in the industry can help us capture market sentiment and potential hotspots.

Fifth, on-chain transaction data, including transaction counts, active address counts, etc., can help us understand the activity level on-chain. It is recommended to pay attention to changes in smart money addresses and the changes in project tokens that are the focus of community KOLs. For POW mechanism tokens like Bitcoin, changes in hash rate and mining difficulty can reflect miners' confidence and network security. The two key points are: halving cycles and the impact of miner shutdown prices on coin prices.

Sixth, macroeconomic data and policies, including economic indicators such as U.S. non-farm payroll data, CPI, etc., which help us understand the overall economic trend. Additionally, changes in regulatory policies in various countries have a direct impact on the implementation and promotion of the crypto market in the current country and are also one of the indicators of market increase or decrease.

OKX Strategy Team: Perceiving market changes is crucial for users. We recommend focusing on at least the following four dimensions of data:

First, price trends. Price changes are the most direct signals of market changes. Users need to pay attention to both short-term and long-term price trends, using technical indicators such as moving averages (MA), relative strength index (RSI), and moving average convergence divergence (MACD) to assist in decision-making.

Specifically:

• Moving Average (MA): Includes Simple Moving Average (SMA) and Exponential Moving Average (EMA), which can be used to smooth price fluctuations and identify trend directions;
• Relative Strength Index (RSI): Measures the speed and change of price movements, identifying overbought or oversold conditions; typically, an RSI value above 70 indicates overbought, while below 30 indicates oversold;
• Moving Average Convergence Divergence (MACD): Determines price trend changes through the difference between short-term and long-term moving averages.

Second, market volatility. Volatility is an important indicator of market changes. It can assist in judging market stability and potential investment risks. Volatility is usually measured by standard deviation or the VIX index, or through a comprehensive assessment of multiple indicators (including volatility) using the Fear and Greed Index, which can provide a more comprehensive evaluation of market sentiment and potential volatility.

Third, capital flow and transaction distribution. A comprehensive analysis of capital flow and transaction distribution can quickly provide an understanding of the overall capital movement and cost distribution in the market, thereby allowing for a more accurate judgment of market sentiment, price fluctuations, and key support and resistance levels.

Among them, capital flow is an important indicator for judging market sentiment and direction. By monitoring capital inflows and outflows, investors can understand the overall capital movement in the market and thus gauge market trends. Inflowing capital consists of orders executed at the ask price or higher, while outflowing capital consists of orders executed at the bid price or lower. Net capital inflow equals inflow minus outflow. Individual capital inflows can be sorted by transaction amount and categorized into large, medium, and small orders for easy viewing.

Transaction distribution shows the number of transactions at different price levels, reflecting the trading distribution of investors. By analyzing transaction distribution data, one can understand investors' profit or loss situations. By comparing with the current price, profit zones and loss zones can be distinguished. Key data includes profit ratios, average costs, resistance levels, support levels, and the overlap of transaction ranges at 90% and 70%. A high overlap indicates concentrated capital transaction levels, resulting in 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 the project's technological progress, tokenomics, partnerships, regulatory dynamics, etc.

2 What types of indicators can help users better grasp changes in macro trends?

AICoin Research Institute: Based on past overall market changes, we believe the following macro indicators are suitable for in-depth tracking by crypto traders:

First, total market capitalization. The total market capitalization of cryptocurrencies reflects the scale and health of the entire cryptocurrency market. Growth in total market capitalization usually indicates overall market development and an increase in participants.

Second, Bitcoin market cap dominance (BTC Dominance), which represents the proportion of Bitcoin's market cap to the total cryptocurrency market cap. A high Bitcoin market cap dominance usually indicates a lower risk appetite in the market, with investors leaning towards more stable assets, while a lower proportion may indicate capital flowing into altcoins. Additionally, we also track Ethereum's market cap dominance, which is a similar indicator worth noting.

Third, on-chain activity data, mainly referring to the number of active addresses, transaction counts, and amounts. Additionally, for Bitcoin, the Bitcoin hash rate reflects the network's computing power and security, while miners' break-even point indicates whether miners are in a profitable state; this indicator is crucial for understanding the health of the mining industry.

Fourth, capital liquidity and trading volume, including the trading volume of cryptocurrency exchanges over different periods and the inflow and outflow of funds on exchanges. Tracking the inflow and outflow of cryptocurrencies to and from exchanges, a large inflow of funds may indicate increased selling pressure, and vice versa.

Fifth, stablecoin liquidity, mainly the total market cap and circulation of stablecoins, such as USDT and USDC. The inflow and outflow of stablecoins can indicate market buying and selling pressure.

Sixth, market sentiment index, mainly looking at the Fear & Greed Index (Crypto Fear & Greed Index) and OKX's trading big data indicators.

Seventh, decentralized finance (DeFi) data, where the total locked value in DeFi protocols can reflect the scale and growth trend of the DeFi market to some extent.

Eighth, derivatives market data, with a key focus on open interest: the open interest in futures and options markets reflects market participants' expectations and risk exposure. Additionally, funding rates, such as those in the futures market, can indicate the power balance between long and short positions. Funding rates and spreads are important tools for guiding large funds in arbitrage, and large funds can balance market spreads while providing liquidity.

Ninth, U.S. economic data and indicators, such as CPI and non-farm payroll data: The value of these two indicators lies in guiding the Federal Reserve's interest rate policies, used to predict the overall direction of capital inflows and outflows in the market.

OKX Strategy Team: We believe users can refer to the following five key indicators:

First, overall cryptocurrency market capitalization. The overall cryptocurrency market capitalization 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 that the market is in an upward trend, and vice versa.

Second, overall market trading volume. Overall market trading volume reflects the activity level of the market. High trading volume usually indicates heightened market sentiment, which may be accompanied by significant price fluctuations. Users can analyze changes in trading volume to assess the strength of market trends and identify peaks and troughs.

Third, BTC/ETH market cap share. The market cap share of BTC and ETH is an important indicator for understanding market structure. When the market cap share of BTC or ETH rises, it may indicate that market capital is more concentrated in these two major cryptocurrencies, which is often seen as a signal of market risk aversion. Conversely, a decline in market cap share may indicate that investors are exploring more altcoin opportunities.

Fourth, ETF inflows and outflows. The inflow and outflow of funds in cryptocurrency ETFs can reflect institutional investors' market attitudes. A large inflow of funds into ETFs usually indicates that institutional investors are optimistic about market prospects, while outflows may suggest a weakening of institutional confidence in the market. Analyzing ETF fund movements can help users judge the medium- to long-term trends of the market.

Fifth, 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, rising interest rates may lead to capital flowing out of high-risk assets, while increased economic uncertainty may prompt investors to seek cryptocurrencies as a safe haven. Paying attention to the economic calendar helps users anticipate changes in macro trends.

3 Timing is key to success; what data can help capture the best timing?

AICoin Research Institute: This issue can be viewed in several stages:

First, the accumulation phase: It is recommended to mainly refer to the following indicators:

• EMA indicators: The crossover of short-term (e.g., 12-day moving average) and medium-term (e.g., 26-day moving average) moving averages can signal buying opportunities, such as a "golden cross" (short-term average crossing above the long-term average).
• RSI indicator: An RSI below 30 is typically considered an oversold area, which may be a good buying opportunity.
• BOLL indicator: When the price touches the lower Bollinger Band and shows signs of recovery, it can serve as a buy signal.
• There are many types of technical indicators with rich applications; merely one indicator is a deep subject, and investors should choose indicators that suit them.
• Additionally, in terms of data indicators, we need to understand: trading volume, active addresses and new address counts, on-chain transaction counts, and the movement of major large orders.

Next, in the take-profit and stop-loss phase, the following indicators can be referenced:

• Fibonacci retracement: Fibonacci retracement levels, such as 2%, 50%, 61.8%, etc., can be used to set take-profit and stop-loss points.
• EMA: A price drop below key moving averages, such as the 120-day or 250-day moving average, can serve as a stop-loss signal.
• RSI: An RSI above 70 is typically considered an overbought area, signaling a consideration for taking profits.

Additionally, when making take-profit and stop-loss decisions based on data indicators, one should also understand trading volume and large transfer trends, as well as a noticeable decline in network activity: a significant drop in on-chain transactions and active addresses may indicate reduced market interest, signaling a consideration for stop-loss. Of course, relevant regulatory policies or adverse news are also important references for our investments. Finally, we have one more suggestion: ensure good risk control: set clear take-profit and stop-loss points, build positions in batches to smooth purchase prices, and reduce the risk of single-position building; also, regularly review and adjust, with insights gained.

OKX Strategy Team: We believe that position bias, basis, and technical indicators have strong reference value.

Specifically, position bias (Long Short Ratio) reflects the long-short ratio of market participants. A high long ratio typically indicates optimistic market sentiment, with investors leaning towards buying; a high short ratio indicates pessimistic market sentiment, with investors leaning towards selling. By analyzing position bias, users can judge the current market's main trend and sentiment, thereby choosing suitable entry timing.

Basis refers to the difference between the futures contract price and the spot price. 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 bullish market sentiment, while a rapid decrease may indicate bearish sentiment.

Technical indicators - Overbought/Oversold, can be assessed using technical indicators such as the Relative Strength Index (RSI) and Stochastic Oscillator, allowing users to 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 correct; when the RSI is below 30, the market may be oversold, and prices may rebound. These technical indicators help users choose entry timing during extreme market sentiment.

Finally, profit/risk tools can help users visualize and manage the potential profit and risk of each trade. Users can set take-profit and stop-loss points, calculating the risk-reward ratio for each trade, thereby formulating reasonable exit strategies.

4 For large funds, what data should be referenced to build a scientific and robust trading strategy?

AICoin Research Institute: This question mainly depends on the capital goals and the ability to withstand risk drawdowns. Here, I will briefly analyze some arbitrage indicators suitable for large funds:

• Focus on the arbitrage opportunities of spot-futures and futures-futures price differences in the market.
• Pay attention to the price differences and timeliness opportunities of the same asset across different exchanges.
• Monitor arbitrage opportunities related to contract funding rates in the market.
• Keep an eye on on-chain and off-chain arbitrage opportunities.
• Assess the market depth and position data of corresponding assets to determine if large funds can be accommodated for arbitrage.
• Consider the stability of exchanges, as large platforms like OKX can better accommodate large fund arbitrage operations.

Currently, AICoin provides various data dimensions for arbitrageurs, along with analysis and alerts, hoping to offer effective references for the trading community.

OKX Strategy Team: Based on our observations, large fund users generally have more diversified asset allocations. For this group, commonly used tools include dollar-cost averaging strategies, portfolio arbitrage, and large order splitting. Dollar-cost averaging strategies reduce overall position costs through periodic buying, portfolio arbitrage lowers trading risks through hedging, and large order splitting minimizes market impact and trading costs by breaking large orders into smaller ones. These strategies, combined with their respective characteristics, can help large fund users achieve diversified allocations more efficiently and realize stable investment goals.

Dollar-cost averaging (multi-asset portfolio, periodic buying) is a strategy that reduces overall position costs through periodic purchases. Continuously buying in batches at lower prices during price declines and taking profits when prices rebound, repeating the cycle for continuous arbitrage.

Portfolio arbitrage is a strategy that helps users hedge and reduce trading risks. This strategy can choose to execute different or the same cryptocurrencies/markets simultaneously, automatically and timely helping you realize profits by utilizing market fluctuations and price differences between various trading products. The portfolio arbitrage strategy can effectively help you reduce potential loss risks in response to future market uncertainties.

Large order splitting is also a convenient trading strategy for large traders. This strategy helps users split large orders into smaller ones for batch posting, and the orders can be intelligently set to minimize the impact of large orders on the market while maintaining a relatively high average transaction price level, thereby significantly reducing trading costs for large traders.

Conclusion

The above is the first issue of the "Insight Data" column launched by OKX, focusing on the perception of market changes and how to establish scientific trading strategies to address core issues encountered in trading. We hope to provide a systematic data methodology for the trading community to better grasp the pulse of the market and make informed trading decisions. In future articles, we will continue to explore more practical data usage/analysis methods to provide references for traders with different investment preferences.

Risk Warning and Disclaimer

This article is for reference only. The views expressed in this article are solely those of the author and do not represent the position of OKX. This article does not intend 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 fluctuate significantly. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. Please consult your legal/tax/investment professionals regarding your specific situation. You are responsible for understanding and complying with applicable local laws and regulations.