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I consistently track the funding rates on Bitmex as a way to understand if one side of the trade is too crowed. This can be a very powerful indicator for identifying squeezes, both long and short, before they happen. This is currently the most important indicator for me in regards to the Bitcoin Price Action.
Almost every metric shows this market as being overbought over the last couple weeks while it has tested the major area of resistance at $5,800 - $6,500. The majority of people did not expect this rally to get past $6,000 before a significant correction and I was certainly one of them. This is exactly the type of environment when one side of the trade will get too crowded and that appears to be what happened over the past week.
The indicator that I'm using can be found under "Bitmex Funding Bars" and it is a great way to illustrate how powerful this tool can be. I drew two horizontal lines which indicate buy and sell signals. The sell signal occurs when longs pays shorts 0.07%+. The sell signal occurs when shorts pay longs 0.08%+. These rates must persist for a week before the signal triggers. The vertical lines represent hypothetical buys / sells based on this indicator. As you can tell it has been a great way to forecast upcoming price movement throughout this bear market.
A good confirmation for this indicator is the curve. Backwardation occurs when spot is more expensive that the and this confirms a buy. If there is Backwardation while getting a sell signal then the entry is not confirmed. The confirmation was not applied to the hypothetical buys / sells in this chart but it is something to consider.
This post has been marked as Neutral despite getting a confirmed buy signal. That is because I simply cannot stomach buying after a prolonged markup in the price. I strongly prefer to let the market come to me and therefore am waiting to see what happens when we eventually do correct, even if that means paying a higher price. Nevertheless I thought that this is a great indicator that is very important right now. I have been expecting a correction for weeks, but now I see that there is plenty of gas left in the tank for another leg up, despite being overbought at a major level of resistance.