Glassnode’s latest release of 28 sub-indicators provides traders with new tools to identify market bottoms and optimize trading strategies. This article, sourced from Glassnode and translated by BlockBeats, explores the breakdown metrics applied to identify local bottoms in a bull market.
Why focus on short-term holders?
Benefits of sub-indicators for STH
Framework for identifying local bottoms in a bull market
Practical applications for traders
Start utilizing Glassnode’s sub-indicators for trading today.
In the rapidly evolving digital asset market, accurate data analysis has become crucial for traders to grasp market trends. Glassnode has recently introduced a set of 28 new indicators to provide 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 offer highly detailed and intuitive insights that can be translated into potential buy and sell signals. One powerful use of these new indicators is to identify the exhaustion levels of different age groups of sellers among short-term holders.
By applying our new sub-indicators, traders can now more accurately determine the severity of unrealized losses and the timing of stop-loss, which often signals potential market bottoms and entry points during bull markets.
This report delves into this framework and provides a summary below, offering actionable 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 impact. Short-term holders are typically newcomers or speculative traders who are more sensitive to price changes.
During a bull market, these investors often bear the most losses because they are more susceptible to market volatility and tend to sell. This phenomenon makes analyzing short-term holders particularly valuable when it comes to identifying market bottoms.
By segmenting the short-term holder group by age, we help traders more effectively determine 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 timeframes (1 day) and extending to longer timeframes (1 week to 1 month or even longer). This inside-out progression provides clearer signals of potential bottoms and market reversals.
In other words, with insights provided by more detailed indicators, traders can detect the convergence points of capitulation events in different short-term timeframes, greatly increasing the likelihood of identifying short-term bottoms.
To identify periods of seller exhaustion, we use a range 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 assets. When MVRV is significantly below average, it signifies a high degree of unrealized losses among holders. This helps detect early signs of selling pressure because significant unrealized losses often precede actual selling activity by short-term holders.
STH SOPR by Age: Spent Output Profit Ratio (SOPR) provides insights into whether observed financial pressure in MVRV is being acted upon. A negative SOPR Z-score indicates short-term holders are capitulating, selling their assets at a loss and intensifying 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 MVRV and SOPR indicators and validate periods of seller exhaustion by quantifying the extent of realized losses.
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 abnormal levels of unrealized and realized losses. This standardization helps confirm periods of true seller exhaustion by filtering out noise and focusing on statistically significant events, providing clearer signals for traders.
Using Glassnode’s new sub-indicators to identify periods of seller exhaustion in a bull market offers several advantages for traders. Here are the key benefits:
Early detection of local bottoms: By identifying severe unrealized losses and capitulation moments among short-term holders, traders can identify them before they become apparent market bottoms, providing opportunities for early entry.
Optimized Dollar-Cost Averaging (DCA) strategies: Understanding periods of seller exhaustion allows traders to implement DCA strategies more effectively, buying assets at lower prices during market bottoms to lower average purchase costs.
Enhanced market timing: By observing how selling pressure spreads within the short-term holder group from the shortest timeframes to longer time ranges, traders can better grasp 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 day trading to swing trading, ensuring they can adjust their approach based on specific market conditions. By harnessing the insights provided by our new sub-indicators, traders can gain a competitive edge in the market and make more strategic and profitable decisions.
Currently, these powerful sub-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 wish to leverage these indicators for trading Bitcoin and Ethereum markets, please contact our institutional sales team.
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