In addition to technical analysis, some tools can be used to determine Futures trading strategies based on the sentiment and behavior of investors in the cryptocurrency market. These tools consist of three main instruments.
Whale Alert tracks the movements of major investors in the cryptocurrency market, also known as “whales,” through on-chain data. This information can be tracked through social media platforms like Twitter and Telegram. There are two types of transactions:
- Unknown Wallet to Exchange: This involves transferring coins from a private wallet to an exchange, indicating a potential intent to sell for profit. Such transactions may have a negative impact on prices.
- Exchange to Unknown Wallet: This involves transferring coins from an exchange’s hot wallet to a private wallet, indicating a longer-term investment strategy. This type of transaction could have a positive effect on the market.
Bitcoin Dominance is an index calculated by comparing the market value of Bitcoin to the total market value of all cryptocurrencies. It indicates if investors favor Bitcoin more.
If Bitcoin Dominance is above 50, it suggests that investors are leaning towards Bitcoin over Altcoins, potentially impacting Altcoin prices. If Bitcoin Dominance decreases, it indicates investors are moving funds from Bitcoin to Altcoins, possibly signaling an Altcoin Season.
However, if profits from Altcoins start flowing back into Bitcoin as Bitcoin Dominance stabilizes, it suggests a cyclical pattern.
Fear And Greed Index
The Crypto Fear and Greed Index analyzes investor behavior using various data, such as price volatility, the maximum drawdown of Bitcoin prices compared to historical averages of 30 and 90 days, and overall trading volume.
For example, a significant increase in buying volume on a positive market day indicates growing greed among investors. Online data, including Twitter and Google Trends hashtags, is also considered.
The Crypto Fear and Greed Index ranges from 0 to 100, where lower values near 0 represent extreme fear and higher values indicate extreme greed. Traders can use this index to make informed decisions based on prevailing market sentiments.
Understanding various sentiment indicators can lead traders to adapt their trading strategies to match market conditions and price trends. Therefore, it’s crucial knowledge, similar to using different analytical tools for trading decisions.
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