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Should a Long or Short Position Be Taken? Tough choice

Sep 20, 2019

Today we’d like to look at an interesting methodology to analyze the BTC/USD rate movement. 

The market is always based on the tension between the bulls and the bears, and this seesaw manifests in the number of contracts to buy (long) or to sell (short). By watching these indicators, one can see their strong correlation as well as the manipulation of the market by major players. 

To gain an understanding of the mood in the marketplace, one needs to analyze the data for long and short positions: these numbers will point towards a potential trend reversal. For instance, when the number of short contracts suddenly drops, the price vector flips from downwards to upwards. 

There’s a theory in the industry that when traders amass too many contracts in either position, the whales start to “shave” the crowd. Then the main driving force for the dramatic rise or drop in the price starts coming from the traders’ Stop Loss orders, which are set off as the price fluctuates. A great example of this scenario is the liquidation of long positions worth $150 million that took place on BitMEX on September 18. 

Looking at the current situation, we can say that the mood in the marketplace is largely positive as the number of long contracts (27,137) greatly outweighs the number of shorts (12,321) (according to Bitfinex data). The market is holding its collective breath for the triangle pattern to be completed, and the price is indeed gradually sliding towards its base. Most likely, before the start of the powerful upswing in the price, we will see a set of short positions which will later fuel the growth to $11,000 and up. 

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