Insight Data Issue 02 | OKX & CoinGlass: How to Mine Valuable Data and Cultivate Mature Trading Mindset?

Author: OKX

The following is the content of the second issue, discussed by the OKX strategy team in collaboration with CoinGlass Research Institute, focusing on different trading scenarios and the data dimensions that need to be referenced. It covers topics such as capturing trading opportunities and how to cultivate scientific trading thinking, 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 offers tools such as real-time market data, market depth analysis, futures and options position data, funding rates, and liquidation data, helping traders better understand market dynamics and risk conditions. Through intuitive charts and regular market reports, CoinGlass has become an important tool for analyzing the global cryptocurrency market.

OKX Strategy Team: The OKX strategy team consists of a group of experienced professionals committed 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 professional knowledge and rich business experience.

1. What types of data dimensions are highly valuable for novice users?

CoinGlass: Novice users often lack trading experience and expertise, 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 inflows and outflows, and changes in CME positions are all data indicators that novice users can quickly understand. These indicators intuitively reflect market sentiment and trader behavior, helping users quickly grasp market trends and make informed decisions.

So, how can they quickly read these simple data? Here are some tips:

First, regularly pay attention to these indicators, such as ETF fund inflows and outflows, the Greed and Fear Index, and the long-short ratio. When these indicators change, use charting tools to intuitively analyze the relationship between indicator changes and price trends.

Second, look at the historical trends of these indicators and compare them with price charts to understand the correspondence between indicator changes and market trends.

Third, learn basic analytical methods, including mastering the principles and methods of basic technical analysis and market sentiment analysis.

Fourth, pay more attention to market news and analyses from cryptocurrency experts, accumulating more market knowledge and experience, which helps to understand the market background and trends more deeply.

Finally, practice through simulated trading, using data for review to enhance data interpretation and application skills. By using these methods, one can gradually improve 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 analytical tips for users' reference:

First is price trend data. Current price, historical price trends, moving averages (MA), relative strength index (RSI), and Bollinger Bands all belong to this category of data. These data can help users understand the basic direction of the market and identify buying and selling opportunities.

For 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 above the long-term MA, it may indicate a trend reversal. Regarding the relative strength index (RSI), if the RSI is greater than 70, the market may be overbought, and selling should be considered; if the RSI is less than 30, the market may be oversold, and buying should be considered. In using Bollinger Bands, when the price approaches the upper band, it may face resistance, and selling should be considered; when the price approaches the lower band, it may receive support, and buying should be considered; and when the bandwidth of Bollinger Bands narrows, it may indicate that a significant breakout is about to occur.

Second is volume data. Volume data reflects the activity level of the market, helping users assess the strength and sustainability of trends. The basic principle of the 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 volume change patterns, if the market is relatively sluggish in the early stage, with both volume and price at low levels, and volume gradually increases while price slowly rises, this may indicate that large funds are beginning to enter the market, and a new uptrend may be forming.

When trading activity increases, more traders participate in trading, which may signal a trend change. A large volume of transactions after a significant decline may indicate that selling pressure is easing and buying is coming in, and the market may begin to stabilize, but this does not mean that prices will rebound immediately. In an overall market decline, the counter-trend increase in volume for certain cryptocurrencies may reflect special factors for that cryptocurrency, requiring fundamental analysis to assess its sustainability and future trends.

Then there is fundamental data. Project announcements, partnerships, technological advancements, token economics, and regulatory dynamics all belong to fundamental data. This data provides information about the long-term potential and risks of projects, helping to make more informed trading decisions. Users should pay attention to important announcements and assess their potential impact on project development; understand technological advancements and monitor the completion of development milestones to evaluate technical feasibility; analyze token economics to understand the token supply mechanism, inflation rate, and use cases; and track regulatory dynamics to assess the potential impact of regulatory changes on projects.

Finally, there is market sentiment data. Social media mentions, the Greed and Fear Index, and funding rates in the derivatives market all belong to market sentiment data. This data can reflect traders' psychological states and help identify potential market reversal points. A sudden increase in social media activity may indicate short-term price volatility, while sustained high activity requires attention to whether there is excessive speculation.

Regarding the Greed and Fear Index, extreme fear (0-25) may present a buying opportunity, while extreme greed (75-100) may present a selling opportunity. In terms of funding rates, a sustained high positive rate indicates strong bullish sentiment, which may face a correction, while a sustained negative rate indicates strong bearish sentiment, which may lead to a rebound.

2. For advanced users, how important is diversified asset allocation, and how can it be achieved?

CoinGlass: We recommend that advanced users start from the following dimensions:

First is potential coin selection. By filtering currencies with growth potential based on price, market capitalization, circulation, and exchange listings, precise trading layouts can be made. This filtering method helps traders find currencies with high potential, thus achieving better trading returns.

Second is asset portfolio matching. The key to asset portfolio matching is to use correlation analysis to select assets with low correlation for allocation. This way, the risk of the trading portfolio can be effectively diversified, improving overall stability and return rates. Choosing assets with low correlation ensures that when some assets decline, others may rise, thus balancing overall returns.

Next is derivative arbitrage opportunities. Using funding rate arbitrage calculators, traders can discover arbitrage opportunities and conduct funding rate arbitrage to increase overall asset yield. Funding rate arbitrage is a relatively low-risk strategy that can yield stable returns amid market fluctuations.

Then there is trading portfolio monitoring. Using trading portfolio monitoring tools, different trading schemes' profits and risks can be tested, and regular reviews and adjustments can be made to optimize allocation strategies. This method helps traders understand the performance of their trading portfolios in real-time and adjust strategies promptly to adapt to market changes.

Finally, there are risk management tools. Using various risk management tools and techniques, such as stop-loss orders and hedging strategies, can help control trading risks. Effective risk management is an important means to ensure that traders can keep their assets safe amid market fluctuations.

OKX Strategy Team: Based on our observations, the selection of strategic products is very important for this group of people. Generally, commonly used tools include dollar-cost averaging strategies, portfolio arbitrage, and large order splitting. The dollar-cost averaging strategy reduces overall holding costs through periodic purchases, portfolio arbitrage reduces trading risks through hedging, and large order splitting reduces market impact and trading costs by breaking large orders into smaller ones.

These strategies, combined with their respective characteristics, can help large fund users diversify their allocations more efficiently and achieve stable trading objectives.

The dollar-cost averaging strategy (multi-coin portfolio, periodic purchases) is a strategy that reduces overall holding costs through periodic purchases. Continuously buying in batches at low prices during price declines and taking profits when prices rebound allows for a cycle of arbitrage.

Portfolio arbitrage is a strategy that helps users conduct hedging arbitrage and reduce trading risks. This strategy can choose to execute different or the same coins/markets simultaneously, automatically and timely helping users realize profits by utilizing market fluctuations and price differences between various trading products. The portfolio arbitrage strategy can effectively help users 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 and place them in batches. Through intelligent settings of the strategy, the impact of large orders on the market can be minimized while maintaining a higher average transaction price level, significantly reducing trading costs for large traders.

3. Timing is the key to success; how should traders identify the best trading opportunities?

CoinGlass: Seizing the moment is very important. In the previous question, we introduced some key data dimensions that play a crucial role in helping users find the best buying and selling opportunities. Below, we briefly describe the data and analytical methods that can be referenced during the position building and profit-taking stages.

In the position building stage:

The liquidation heatmap shows that when liquidation intensity is concentrated in a specific price range, prices may move toward that area. Traders can build positions based on the direction where liquidation levels are highly concentrated. If there is a large inflow of ETF funds, such as daily inflows into BTC ETFs far exceeding the average, this indicates increased market interest in BTC, and traders may consider building or adding to positions. When Bitcoin funding rates are long-term below the benchmark rate (0.01%), it usually indicates that the market is in a consolidation or near-bottom phase, suitable for building positions at the bottom.

A significant increase in open interest indicates that more funds are flowing into the market, enhancing market activity, which typically occurs before an uptrend. For example, a sudden 10% increase in CME Bitcoin futures open interest means that institutional traders are very confident about the market's future direction, and one may consider building or holding positions.

Long-term low trading volume usually indicates that the market is in a consolidation or bottom area, suitable for building positions. An increase in spot inflows indicates a rise in market purchasing demand, which is usually a buying signal, and in this case, one may consider building positions to seize market uptrend opportunities. When the long-short ratio is low, it means that shorts dominate, which may trigger short covering and lead to price increases, making it a good time to build positions. When the Greed and Fear Index remains below 20 for a long time, the market is in a state of extreme fear, with low prices, presenting a bottom-fishing opportunity, and gradually building positions is a good choice.

In the profit-taking and stop-loss stage:

The liquidation heatmap can help traders find profit-taking and stop-loss positions. Setting profit-taking and stop-loss levels when prices are about to enter a large liquidation area can more safely lock in profits. If ETF outflows increase, such as daily outflows from BTC ETFs significantly exceeding the average, it may indicate a shift in market sentiment toward pessimism, and one may consider reducing positions or stopping losses. High funding rates are warning signals; for example, if Bitcoin futures funding rates exceed 0.1%, it indicates excessive bullish sentiment, and if high funding rates persist for a long time, it may trigger market adjustments or even crashes.

Conversely, long-term low funding rates indicate overly pessimistic market sentiment, which may lead to excessive selling, and the market often experiences unexpected reversals, presenting potential trading opportunities. For example, if Bitcoin contract open interest suddenly decreases by more than 10%, it reflects insufficient market confidence, making it suitable to reduce positions or take profits and stop losses.

Rapid price declines leading to large-scale liquidations may result in a quick market rebound, and traders can enter when the market hits the bottom and rebounds. An increase in spot outflows indicates increased selling pressure in the market, signaling profit-taking or stop-loss actions. Large-scale selling may lead to price declines, and profit-taking can lock in profits before prices fall, while stop-loss actions can avoid larger losses.

When the long-short ratio changes significantly, it usually indicates extreme fluctuations in market sentiment, and prices are likely to fluctuate sharply. Traders need to be vigilant, adjust their positions, and set profit-taking and stop-loss levels to respond to market volatility. When the Greed and Fear Index remains above 80 for a long time, the market is in a state of extreme greed, with inflated prices, and one can gradually reduce positions or take profits, as the market may face correction risks.

Through these data dimensions, traders can build positions at the right time and adjust strategies in a timely manner to achieve better returns and risk management. However, it is important to clarify that when searching for the best timing, traders should comprehensively utilize multiple data indicators to help predict market changes more comprehensively, reduce misleading effects from single indicators, and improve decision-making accuracy and efficiency.

OKX Strategy Team: Regarding this issue, we recommend that traders comprehensively use position bias, basis, and technical indicators to more accurately grasp the best timing for buying and selling, and then use return/risk tools to objectively determine profit-taking and stop-loss timing.

• Position Bias (Long Short Ratio):

Position bias reflects the long-short ratio of market participants. A high long ratio usually indicates optimistic market sentiment, with traders inclined to buy; a high short ratio indicates pessimistic market sentiment, with traders inclined to sell. By analyzing position bias, users can assess the current market's main trend and sentiment, thus choosing suitable entry timing.

• Basis:

Basis refers to the difference between the futures contract price and the spot price. Basis can be positive (futures price higher than spot price) or negative (futures price lower than spot price). Basis reflects market participants' expectations for 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). Basis can be used to monitor market sentiment and formulate arbitrage strategies. For example, a rapid increase in basis may indicate bullish market sentiment, while a rapid decrease may indicate bearish sentiment.

• Technical Indicators - Overbought/Oversold

Using technical indicators such as the relative strength index (RSI) and stochastic oscillator, users can determine whether the market is overbought or oversold. When RSI is above 70, the market may be overbought, and prices may correct; when 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.

• Return/Risk Tools

This tool helps users visualize and manage the potential returns and risks of each trade. Users can set profit-taking and stop-loss points and calculate the risk-reward ratio for each trade, thus formulating reasonable exit strategies. By using this tool, users can better control risks and ensure optimal returns amid market fluctuations.

4. Overall, are there any undervalued data indicators?

CoinGlass: Different traders have varying trading methods, risk tolerance, and trading goals. Therefore, they will also differ in the data indicators they choose to analyze the market. Changes in the market environment and conditions can also affect the value of certain indicators, making them more meaningful at certain times and less important at others.

While each indicator has its unique role and significance, in practical application, a single indicator often fails to comprehensively reflect market conditions.

Therefore, it is recommended that traders consider multiple dimensions of data indicators for comprehensive analysis and judgment to more accurately grasp market trends and trading opportunities. Utilizing multiple data indicators, such as fundamental data, technical analysis indicators, and market sentiment indicators, helps traders gain a more comprehensive understanding of the market, reducing misleading effects from single indicators and improving decision-making accuracy and efficiency.

OKX Strategy Team: The following data indicators may be undervalued in the cryptocurrency market, but they hold relatively important value for market analysis and trading decisions:

• ETF Fund Inflows and Outflows

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

• Options Market Data

Options market data includes implied volatility, open interest of call and put options, etc. This data reflects market expectations for future price volatility. 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 and outflow of stablecoins (such as USDT, USDC) can reflect market liquidity and traders' demand for hedging. When a large amount of stablecoins flows into exchanges, it may indicate that traders are preparing to buy cryptocurrencies; conversely, outflows may suggest that traders are cashing out. Analyzing stablecoin flows can provide clues about capital movements.

• Network Effect Metrics

Network effect metrics include active user counts, developer activity, social media attention, etc. These indicators reflect the network effects and ecosystem health of blockchain projects. Strong network effects usually indicate higher project stickiness and growth potential, suitable for medium- to long-term trading decisions.

• DeFi Activity Metrics

Including total value locked (TVL), user counts 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.

5. How to cultivate a more scientific trading mindset?

CoinGlass: When it comes to cultivating a scientific trading mindset, we need to enhance ourselves through systematic learning and practice. First, maintaining objectivity and rationality is crucial. Developing a detailed trading plan and executing it resolutely allows us to avoid being swayed by market emotions. However, achieving this is not easy. Second, 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 our trading develops steadily.

Of course, accumulating trading experience is also key to success. Recording the reasons, processes, and results of each trade, summarizing and reflecting on them can help us continuously improve our trading strategies. However, the market is ever-changing, and we need to maintain an open mindset. Always pay attention to industry news and expert opinions, continuously updating our knowledge to better grasp the pulse of the market.

Additionally, establishing clear trading rules and strictly adhering to them can effectively avoid making erroneous decisions due to greed or fear. Through simulated trading, we can prepare thoroughly before real combat, validate and refine 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 experiences, we should timely optimize our trading strategies to ensure they remain effective and adaptable. 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, one needs to enhance the following three abilities:

First is mastering basic data and indicators. For example, 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 global geopolitical situations and major events affecting the cryptocurrency market, and understanding the cycles and long-term trends of the cryptocurrency market.

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 market structure (such as highs, lows, trend channels, etc.) are crucial. Additionally, one should delve into fundamental analysis, learning to analyze cryptocurrency project whitepapers, team backgrounds, and technical roadmaps, deeply understanding token economics principles, including supply mechanisms, deflation/inflation models, and use cases, while continuously monitoring industry dynamics, technological innovations, and changes in the regulatory environment.

Second is cultivating analytical and decision-making abilities. Maintaining critical thinking is an important part of this, learning to question and verify information sources, especially "hot topics" in social media, developing multi-angle thinking abilities, considering the possibility of opposing views, learning to identify signs of market sentiment and overreactions, and cultivating independent thinking abilities without blindly following "expert" opinions.

Building systematic trading strategies, formulating clear trading plans based on individual risk tolerance and trading goals, setting clear entry and exit rules, including stop-loss and take-profit points, and 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 analyses before each trade, avoiding impulsive trading, strictly executing pre-established trading plans and risk management rules, and learning to control emotions, especially when facing significant profits or losses, while maintaining a trading journal to record the reasons, results, and emotional states of each trade.

Finally, practice and continuous improvement. Conducting systematic reviews and optimizations, regularly reviewing trading records, analyzing the reasons for successes and failures, using quantitative methods to evaluate strategy performance, such as Sharpe ratio, maximum drawdown, etc., and continuously optimizing trading strategies based on market changes and review results, learning from failures, and viewing each loss as an opportunity for improvement.

Maintaining learning and market sensitivity, paying attention to the views of leading industry analysts, while cultivating the ability to independently verify information, continuously monitoring new developments in financial technology, such as DeFi, NFTs, cross-chain technology, etc., and learning cross-market analysis to understand the connections between traditional financial markets and cryptocurrency markets.

Conclusion

This is the second issue of the "Insights Data" column launched by OKX, focusing on the different data dimensions that various user scenarios need to reference, aiming to provide a systematic data methodology for traders of different experience levels, thereby better grasping the market pulse and making informed trading decisions. In future series of articles, we will continue to explore more practical data usage/analysis methods to provide references for the trading community.

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 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 circumstances. You are responsible for understanding and complying with applicable laws and regulations in your locality.