Typically, traders become skeptical after Bitcoin (BTC) "completes" a strong performance like the stellar move from $12,000 to $15,950 seen over the past few weeks.
The 35% gain over the past 30 days led some traders to conclude that BTC is over-extended and in need of a pullback. On the other hand, there are plenty of traders who are confident that the current bull run can continue.
Generally, the market is displaying mixed signals as Bitcoin price fluctuates between $15,000 to $16,000, so many traders are left to rely on their bias to confirm their investment decisions, and this is a dangerous place to be.
Take, for example, the Crypto Fear and Greed Index, which currently displays 90, a reflection of “90, Extreme Greed.” Many traders countertrade the index when it shows polar extremes, meaning "extreme greed" is a signal to take profits or go short, as it usually “means the market is due for a correction,” according to the webpage.
Adding to this, both on-chain and crypto exchange outflow data has led analyst Willy Woo to conclude that “a blow-off top is unlikely to happen.” To settle this data dispute, an investor could take a closer look at exchanges of top clients (or top traders) long-to-short ratio.
Take notice how top traders at Binance have been reacting after Bitcoin’s movements. The chart suggests traders are responding to price it rather than trying to predict it. One should expect this movement from more novice traders who buy the local tops and sell the dips.
It is worth noting that each exchange treats top traders' data differently, as there are multiple ways to measure clients' net exposure using derivatives. Therefore, any comparison between different providers should be made on percentage changes instead of absolute numbers.
Interestingly, OKEx data shows a different approach by top traders as Bitcoin rallied above $15,800. Instead of blindly following price movements, those investors seem to be waiting up to two days before changing their strategy.
Although, this strategy seems smarter, at first sight, adding long positions as Bitcoin failed to sustain the $15,600 level. There seems to be less desperation compared with the reactive behavior of Binance traders. Despite this, there still are no signs of confidence in OKEx long-to-short positioning.
Sometimes the best trade is to not trade at all
Regardless of the success rate of these strategies, the long-to-short ratio at both exchanges shows traders do not feel too confident about Bitcoin’s current price action. Although both seem to be currently sitting at a slightly net long position, their stance changes as the market sentiment moves.
When facing mixed signals, traders should avoid trying to find further evidence to corroborate their views. Doing nothing sometimes is the best decision one can make, especially when even pro traders seem to be changing their positions after small trend changes.
On-chain analysis, exchanges’ net flows, and indicators such as the Fear and Greed Index are useful. Nevertheless, they should not be excluded from one’s analysis when providing conflicting messages.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.