Open Interest, Funding Rates and Price Action 📚
Yesterday I highlighted an area on $BTC where I noted it wasn't a great look for dip buys as price was grinding lower. BTC did indeed end up making new lows afterwards.
I want to show an example here of how different that area I highlighted was, compared to the area after so you can identify these next time.
First we saw price down, funding up, OI up. Generally a bad environment to be buying the dip as the real flush is yet to occur. This is because no longs are getting flushed out and meanwhile there's likely a lot of dip buying and/or spot selling causing the funding to grind higher even though price is also grinding lower.
Then on that further move down we saw price down, funding down, OI down. Meaning it was likely that longs were actively getting taken out at that area and in addition to that, spot bid was likely stepping in (causing the funding to come down).
The latter is a much better environment to start looking for dip buys vs the one before highlighted in white.
Things of course aren't always working out the same way but generally you can get a decent idea of when a dip is more buyable than others. In the end, patience is what's most important.
Always be mindful of the momentum that's in the charts. If you see a move up or down with little to no bounces in between, there's often a lot of strength behind that move and it tends to accelerate into that direction further until it finally pauses and reverses some of that move.
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