The latest release of 28 subdivision indicators by Glassnode provides traders with new tools to identify market bottoms and optimize trading strategies. This article, sourced from Glassnode’s article “Breakdown Metrics Applied: Identifying Local Bottoms in a Bull Market,” compiled and written by BlockBeats, explores the benefits of these indicators and their practical application for traders.
In the rapidly evolving digital asset market, accurate data analysis has become crucial for traders to grasp market trends. Glassnode recently introduced a set of 28 new indicators that offer a more detailed perspective on the digital asset market. You can read our original announcement for more information.
These detailed indicators can change the game for traders. They provide highly detailed and intuitive insights that can be translated into potential buying and selling signals. One powerful function of these new indicators is to identify the degree of exhaustion among sellers in different age groups of short-term holders.
By applying our new subdivision indicators, traders can now more accurately determine the severity of unrealized losses and the timing for stop-loss, which often marks potential entry points in market bottoms and bull markets.
This report delves into this framework and provides a summary below, offering feasible insights for traders looking to optimize market entry or DCA strategies.
In the context of on-chain analysis, long-term holders (LTH) and short-term holders (STH) represent groups with different behaviors and market impacts. Short-term holders are typically newcomers or speculative traders who are more sensitive to price fluctuations.
During bull markets, these investors often incur the most losses because they are more likely to sell due to market volatility. This phenomenon makes analyzing short-term holders particularly valuable in identifying market bottoms.
By segmenting the short-term holder group by age, we help traders more effectively identify periods of seller exhaustion. For example, we can observe how unrealized loss pressure and capitulation events propagate within the short-term holder group, starting from the shortest time frame (1 day) and spreading to longer time frames (1 week to 1 month or even longer). This progression from within provides clearer signals of potential bottoms and market reversals.
In other words, the insights provided by these more detailed indicators allow traders to detect the convergence of capitulation events in different short-term time frames, greatly increasing the likelihood of identifying short-term bottoms.
To identify states of seller exhaustion, we use a series of key indicators that provide insights into unrealized and realized losses within the short-term holder group. This framework consists of the following indicators:
– STH MVRV by Age: Market value to realized value (MVRV) measures the unrealized profit or loss of an asset. When MVRV is significantly below the average level, it indicates a high degree of unrealized losses among holders. This helps detect early signs of selling pressure as significant unrealized losses often precede actual selling activity by short-term holders.
– STH SOPR by Age: The spent output profit ratio (SOPR) provides insight into whether observed financial pressure in MVRV is being acted upon. A negative SOPR Z score indicates that short-term holders are capitulating and selling their assets at a loss, exacerbating selling pressure.
– STH Realized Loss by Age: This indicator assesses the magnitude of realized losses among short-term holders. High realized loss values confirm the seller pressure identified by the MVRV and SOPR indicators, quantifying the extent of realized losses during periods of seller exhaustion.
By using Z-scores, we standardize these indicators, making it easier to compare and identify significant deviations from the mean. Z-scores highlight periods of extreme behavior, making it easier to detect when unrealized and realized losses are abnormally high. This standardization helps confirm periods of genuine seller exhaustion, filtering out noise and focusing on statistically significant events, providing clearer signals for traders.
Using Glassnode’s new subdivision indicators to identify seller exhaustion points during a bull market can provide traders with several advantages. Here are the key benefits:
– Early detection of local bottoms: By identifying severe unrealized losses and capitulation moments among short-term holders before they become apparent in the market, traders can identify early entry points.
– Optimized Dollar-Cost Averaging (DCA) strategy: Understanding periods of seller exhaustion allows traders to implement DCA strategies more effectively, buying assets at lower prices during market bottoms to reduce average purchase costs.
– Enhanced market timing: By observing how seller pressure spreads from the shortest time frame to longer time ranges within the short-term holder group, traders can better seize market entry and exit timing, maximizing profits and minimizing losses.
– Strategic flexibility: Segmenting short-term holders by age allows traders to apply this framework to various trading strategies, from intraday trading to swing trading, ensuring they can adjust their approach based on specific market conditions. By leveraging the insights provided by our new subdivision indicators, traders can gain a competitive edge in the market and make more strategic and profitable decisions.
Currently, these powerful subdivision indicators are only available in the Glassnode Enterprise plan. A comprehensive overview of the new indicators, dashboards, and documentation can be found here.
If you are an institutional trader or investor and would like to leverage these indicators to gain deeper insights when trading Bitcoin and Ethereum markets, please contact our institutional sales team.
Related Reports:
– Glassnode: Over 95% of BTC in Profit, Whales Accumulating, USD Depreciation Boosts Bitcoin Rally
– Glassnode: Bitcoin’s Recent Resistance Comes from Short-Term Holders’ Panic and Greed
– USDT is Essentially the US CBDC! Glassnode Analyst: US Government Tacitly Accepts Tether’s Existence